Ensuring Justice: Review of Cancellation Orders by Patna High Court

In recent rulings by the Patna High Court, a consistent trend has emerged regarding the cancellation of GST registrations, highlighting concerns over procedural fairness and clarity in administrative actions. The court has intervened in several cases where orders of cancellation were deemed unjust due to their cryptic and non-speaking nature, failing to provide adequate reasons for such consequential decisions.

One notable case involves Jyoti Electricals:

Introduction: In a recent judgment by the Patna High Court, the case of Jyoti Electricals versus Union of India brought to light significant issues regarding the cancellation of GST registration. The court addressed the legality of the cancellation order and emphasized principles of natural justice in administrative decisions.

Facts of the Case: Jyoti Electricals contested the cancellation of their GST registration through a writ petition challenging the order dated 11th July 2022. The petitioner argued that the cancellation order lacked substantive reasoning and violated procedural fairness. The order did not specify any grounds for cancellation nor did it refer to the issues raised in the notice.

Issue: The primary issue before the court was whether the cancellation of GST registration, as per the order dated 11th July 2022, was justified under the law. Specifically, the court examined whether the order complied with the requirements of providing reasons and adhering to principles of natural justice.

Held: The Patna High Court found that the cancellation order suffered from serious deficiencies. It noted that the order was non-speaking, as it did not articulate any rationale for the cancellation. The court emphasized the precedent set in Manoj Kumar Sah versus The State of Bihar and Anr., highlighting that such orders must refer to the contents of the show cause notice and responses thereto. Failure to do so renders the order cryptic and violates principles of natural justice.

Citing the provisions of GST REG-19 and relevant notifications, the court directed reconsideration of the cancellation issue. It underscored the importance of providing reasons for administrative decisions, particularly those with significant civil and penal consequences. Therefore, the court set aside the cancellation order and instructed a fresh assessment considering the petitioner’s arguments and procedural requirements.

 Similarly, in Manoj Kumar Sah’s:

Introduction: The case of Manoj Kumar Sah versus The State of Bihar revolves around the cancellation of GST registration under Section 29 of the Bihar Goods and Services Tax Act, 2017. The petitioner challenged this cancellation through a writ petition before the Patna High Court, alleging procedural irregularities and violation of natural justice.

Facts of the Case: Manoj Kumar Sah, a resident of Madhubani, Bihar, had his GST registration cancelled by the Joint Commissioner of State Tax, Madhubani, on 12th September 2019. The cancellation was based on the petitioner’s alleged failure to respond to a show cause notice and non-appearance on the hearing date. The order of cancellation did not specify detailed reasons nor did it reference the contents of the show cause notice or the petitioner’s response adequately.

Issue: The primary issue before the court was whether the cancellation of Manoj Kumar Sah’s GST registration by the Joint Commissioner of State Tax, Madhubani, was lawful and complied with principles of natural justice. Specifically, the court examined whether the cancellation order provided sufficient reasons and whether procedural norms were followed.

Held: The Patna High Court, in its judgment dated 10th January 2023, found the cancellation order to be deficient in several aspects. The court noted that the order was non-speaking and cryptic, failing to provide clear reasons for the cancellation as required under GST REG-19 and principles of natural justice.

Citing previous judicial precedents, the court emphasized that administrative decisions affecting substantial rights, such as GST registration cancellations, must articulate reasons based on the contents of the show cause notice and responses thereto. The failure to do so renders the order arbitrary and in violation of procedural fairness.

 Al-Tayyebaat Foods Pvt. Ltd:

Introduction: In a significant judicial decision, the Patna High Court addressed the case of Al-Tayyebaat Foods Pvt. Ltd., concerning the cancellation of their GST registration. The court’s ruling focused on procedural fairness and clarity in administrative actions under the GST regime.

Facts of the Case: Al-Tayyebaat Foods Pvt. Ltd. had their GST registration cancelled by an order that did not include issuing a show cause notice. The cancellation order, dated [insert date], was criticized for its lack of clarity and justification. The company contested this administrative action through a writ petition before the Patna High Court, challenging the procedural validity of the cancellation.

Issue: The primary issue before the court was whether the cancellation of Al-Tayyebaat Foods Pvt. Ltd.’s GST registration complied with procedural requirements under GST laws. Specifically, the court examined whether the cancellation order provided sufficient reasons and adhered to the principles of natural justice, considering the absence of a show cause notice.

Held: The Patna High Court, in its ruling, found the cancellation order to be legally untenable. The court noted that the order was non-speaking and cryptic in nature, failing to articulate any valid reason for the cancellation of registration. This lack of reasoning rendered the order arbitrary and in violation of procedural fairness.

Emphasizing the importance of due process, the court held that cancelling GST registration without issuing a show cause notice and providing adequate reasons undermined the principles of natural justice. Therefore, the court directed the restoration of Al-Tayyebaat Foods Pvt. Ltd.’s GST registration, overturning the cancellation order.

Lastly, Brajesh Enterprises:

Introduction: In the case of M/s Brajesh Enterprises vs. The State of Bihar, Civil Writ Jurisdiction Case No. 15888 of 2021, heard before the Patna High Court on 17th September 2021, the petitioner, M/s Brajesh Enterprises, challenged the cancellation of its GST registration by the Joint Commissioner of State Taxes, Munger Circle, Munger. The petitioner sought relief on grounds of procedural fairness and adherence to principles of natural justice.

Facts of the Case: M/s Brajesh Enterprises, a proprietorship firm based in Asarganj, Munger, Bihar, had its GST registration cancelled by an ex-parte order dated 30th July 2019 issued under Section 29 of the Bihar Goods and Services Tax Act, 2017. The cancellation followed a notice to show cause, to which the petitioner responded on 25th July 2019. Despite this response, the registration was cancelled citing non-appearance on the hearing date and purported failure to submit a reply to the show cause notice.

The petitioner contended that they had been regular in filing returns and discharging tax liabilities since obtaining registration in 2017. Due to unforeseen circumstances, including the death of their tax consultant, there was a delay in filing returns for a period, which was subsequently rectified by filing all pending returns between 3rd December 2020 and 5th July 2021. The petitioner also cleared all tax liabilities for the period up to July 2019 during this period.

Issue: The primary issue before the court was whether the cancellation of the petitioner’s GST registration by the Joint Commissioner of State Taxes, Munger, was valid in light of procedural lapses and violation of principles of natural justice.

Held: The Patna High Court held that the cancellation order issued by the Joint Commissioner of State Taxes, Munger, was non-speaking and cryptic, lacking adequate reasoning and violating principles of natural justice. The court emphasized that the cancellation order did not adequately consider the petitioner’s responses to the show cause notice nor did it provide clear grounds for the cancellation. Therefore, the court quashed the cancellation order and directed the restoration of M/s Brajesh Enterprises’ GST registration with effect from July 2019. The court further directed the Principal Secretary-cum-Commissioner, Department of State Taxes, Government of Bihar, Patna, to finalize the petitioner’s assessment in accordance with the law.

 In conclusion, the rulings by the Patna High Court underscore a crucial aspect of judicial oversight in administrative matters, particularly concerning the cancellation of GST registrations. Upholding principles of natural justice and procedural fairness, the court has consistently intervened to ensure that administrative actions are justified, transparent, and legally sound. These decisions serve as a reminder of the judiciary’s pivotal role in safeguarding the rights of taxpayers and maintaining the integrity of legal processes.