Facts of the Case

The petitioner, Sri Narayana M. Bhat, a partner of M/s. Shakti Enterprises (a Petrol and Diesel Bunk Agency/Franchise business with four partners, registered on 25.01.2019), challenged an endorsement dated 13.07.2023 by which the Assistant Commissioner of Commercial Taxes (respondent No.1) suspended the firm's GST registration. Two partners had purportedly retired via a reconstitution deed dated 02.04.2021, following which the remaining partners entered into a fresh lease and secured a No Objection Certificate. Respondent No.2, the husband of one of the retired partners (Smt. Rajlaxmi Hegde), lodged a complaint alleging that the GST registration was amended without the consent of the two retiring partners. Acting on this complaint and information from the District Registrar, Karwar (which indicated no reconstitution had, in fact, been registered), respondent No.1 suspended the firm's GST registration under Section 29 of the CGST Act, 2017 and the Karnataka Sales Tax Act, without prior notice or hearing, pending enquiry.

Issues Involved

  1. Whether the suspension of the petitioner-firm's GST registration, issued without a prior hearing while an enquiry into the disputed reconstitution was pending, was sustainable.
  2. What was the effect of the subsequent withdrawal of the underlying complaint on the suspension order.

Petitioner's Arguments

  • Two partners had voluntarily retired from the firm, signing the deed of reconstitution dated 02.04.2021, and the remaining partners had thereafter validly continued the business, including securing a fresh lease and NOC.

Respondent's Arguments

  • Respondent No.1 suspended the registration on the ground that the firm had not applied for amendment of its GST registration based on the amended partnership deed, and had acted on a complaint alleging the amendment lacked consent of two of the partners, corroborated by the District Registrar, Karwar's communication that no reconstitution had, in fact, been registered.
  • Learned AGA, on instructions, placed on record that the complainant-partner had since submitted a letter stating she did not intend to pursue her complaint, along with the amended deed of partnership.

Court Order / Findings

  • The Court held that the proviso to Section 29 of the CGST Act mandates that the proper officer shall not cancel registration without giving the person an opportunity of being heard, and since the complainant now intended to withdraw her complaint, the impugned suspension endorsement did not survive for consideration and was liable to be set aside.
  • The Court directed that respondent No.1 shall not proceed under Section 29 of the CGST Act in view of the amicable settlement among the four partners, while requiring the petitioner-firm to formally update the reconstituted partnership deed with the competent authority (District Registrar, Karwar) and furnish the same to respondent No.1.
  • The writ petition was allowed, the suspension endorsement dated 13.07.2023 was set aside, the petitioner was permitted to file returns, and the firm was directed to upload the amended partnership deed within four weeks and intimate the reconstitution to the District Registrar.

Important Clarification

A GST registration suspension triggered by a third-party complaint alleging an unauthorised partnership reconstitution cannot be sustained once the complaint itself is withdrawn following an amicable settlement among the partners; however, courts will still require the firm to complete the formal, competent-authority documentation of the reconstitution (registering the amended deed) before restoring normal registration status, rather than treating the dispute as fully resolved by mere withdrawal of the complaint.

Sections Involved

  • Section 29 of the CGST Act, 2017 – governs cancellation/suspension of GST registration; its proviso mandates a hearing before cancellation.
  • Karnataka Sales Tax Act – also invoked by the authority alongside the CGST Act in suspending the registration.

Decision – In Favour of

The decision was in favour of the Assessee, with the suspension order set aside, subject to the firm completing formal reconstitution documentation with the competent authority.

Case Details

  • Court: High Court of Karnataka, Dharwad Bench
  • Case Number: Writ Petition No.104794 of 2023 (T-RES)
  • Neutral Citation: 2023:KHC-D:10836
  • Coram: Hon'ble Mr. Justice Sachin Shankar Magadum
  • Date of Order: 19 September 2023

Link to Download the Order

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