GST Vidhi | GST Case Law

Quashing of Arbitrary GST Cancellation: A Landmark Judgment by the Gujarat High Court

By Yogesh Verma (CS/LLB) / 2 min read / GST Case Law

Introduction

The case of Vimal Yashwantgiri Goswami Vs. State of Gujarat is a significant decision by the Gujarat High Court, highlighting the importance of natural justice and fair procedure in GST matters. The petitioner, a businessman running a proprietary firm, faced arbitrary cancellation of his GST registration, despite responding to multiple show-cause notices. The Court’s judgment serves as a precedent for businesses affected by unjustified tax cancellations and reinforces the requirement for tax authorities to provide clear reasons and due process in such matters.

This article provides a detailed analysis of the case, including the facts, legal arguments, judicial findings, and implications for taxpayers facing similar situations.

Background of the Case

Who is the Petitioner?

The petitioner, Vimal Yashwantgiri Goswami, is a proprietor running a business named Heugo Metal, registered under GST since 26th June 2018.

What Happened?

The GST authorities issued multiple show-cause notices (SCNs) to the petitioner, seeking to cancel his GST registration on various grounds. Despite responding to every notice and proving his compliance, the Commercial Tax Officer arbitrarily canceled the registration on 25th February 2020, stating that no reply was received.

The petitioner approached the Gujarat High Court, arguing that the cancellation was illegal and violated principles of natural justice.

Legal Issues Raised in the Case

The key legal issues in this case include:

1.     Can tax authorities cancel GST registration arbitrarily without valid reasoning?

2.     Do repetitive show-cause notices violate the taxpayer's rights?

3.     Does failure to decide a revocation application under Section 30 of the CGST Act violate due process?

4.     Can an order be sustained if it lacks specific allegations and reasoning?

The Court had to determine whether the GST department followed proper procedure and whether the cancellation order complied with legal requirements.

Chronology of Events

1. First Show-Cause Notice (20th November 2019)

• A show-cause notice (SCN) was issued under Rule 22(1) of the CGST Rules, 2017, alleging "non-compliance with GST provisions."
• The petitioner filed a reply within 7 days, after which the GST authorities dropped the cancellation proceedings on 30th November 2019.

2. Second Show-Cause Notice (24th January 2020)

• The authorities issued another SCN, now alleging fraudulent registration.
• The petitioner again filed a reply on 2nd February 2020, and the cancellation proceedings were dropped on 4th February 2020.

3. Third Show-Cause Notice (4th February 2020)

• On the same day the second SCN was withdrawn, another notice was issued citing offenses under Section 132(1)(b)(c)(k) of the CGST Act.
• The petitioner requested detailed reasons and supporting documents, but the tax officers did not provide any.
• Despite this, the petitioner filed a reply on 13th February 2020.

4. Arbitrary Cancellation Order (25th February 2020)

• The Commercial Tax Officer canceled the petitioner’s registration, falsely claiming that no reply was received, despite the fact that the petitioner had already filed one.

5. Revocation Application Filed but Ignored (28th February 2020)

• The petitioner filed an application under Section 30 of the CGST Act for revocation of cancellation.
• The authorities failed to decide on the application, effectively ignoring the petitioner’s rights.

Petitioner’s Submissions

The petitioner, represented by Mr. Chetan K. Pandya, raised the following arguments:

1. Violation of Natural Justice

• The GST authorities failed to provide specific allegations or supporting documents in the show-cause notices.
• Without proper information, the petitioner was denied a fair opportunity to respond.

2. Contradictions in the Cancellation Order

• The cancellation order falsely stated that no reply was received, when in reality, the petitioner had responded to all notices.
• The authorities ignored their own previous decisions, where they had withdrawn cancellation proceedings twice.

3. Repetitive and Baseless Notices

• Multiple show-cause notices were issued without new evidence or justification.
• This amounted to harassment and arbitrary use of power.

4. Non-Consideration of Revocation Application

• Under Section 30 of the CGST Act, a taxpayer has the right to seek revocation of cancellation.
• The authorities did not process the application, violating statutory provisions.

Respondent’s Defense

The State of Gujarat, represented by Mr. K.M. Antani (AGP/PP), defended the cancellation, arguing that:

1.     The cancellation was based on information received by the tax department.

2.     The authorities had the right to initiate proceedings under Rule 22(1) of the CGST Rules, 2017.

3.     The petitioner had the opportunity to defend himself by responding to the notices.

However, they failed to justify why multiple notices were issued and why the revocation application was not considered.

Court’s Findings and Judgment

The Gujarat High Court quashed the cancellation order, making several critical observations:

1. Cancellation Order Was a Non-Speaking Order

• The order did not provide any valid reasoning or reference to specific violations.
• It merely stated that no reply was received, which was factually incorrect.

2. Show-Cause Notices Were Vague and Arbitrary

• The notices lacked details of alleged offenses, making it impossible for the petitioner to respond properly.
• The Court criticized the tax department’s practice of issuing multiple SCNs without new grounds.

3. Violation of Taxpayer’s Rights Under Section 30 of the CGST Act

• The revocation application remained undecided, which was a gross violation of statutory rights.
• The tax authorities had a duty to process the application but failed to do so.

Final Judgment

• The cancellation order dated 25th February 2020 was quashed.
• The Court emphasized that tax authorities must follow due process and act fairly.
• The writ petition was allowed in favor of the petitioner.

Key Takeaways from the Judgment

1.     GST authorities must provide valid reasons for cancellation orders.

2.     Repeated show-cause notices without new grounds are arbitrary and unfair.

3.     Taxpayers must be given a fair chance to respond with adequate information.

4.     Applications for revocation under Section 30 must be decided in a timely manner.

This case sets an important precedent for taxpayers facing arbitrary GST cancellations and ensures that tax authorities cannot abuse their powers.

Conclusion

The Gujarat High Court’s ruling in Vimal Yashwantgiri Goswami Vs. State of Gujarat reinforces the fundamental principle that tax authorities must act fairly and transparently. The decision safeguards taxpayer rights, prevents arbitrary actions, and ensures that natural justice is upheld in GST matters.

This case serves as a warning to tax officers that cancellation of GST registration must be based on valid evidence and due process, not mere allegations. For businesses, this judgment provides assurance that the judiciary will intervene when authorities act unfairly.

Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.