GST | Revocation of GST Registration Without Notice Violates Natural Justice; Retrospective Cancellation Unsustainable: Bombay High Court

Bombay High Court delivered a significant ruling in Om Impex v. The State of Maharashtra & Ors., addressing the improper revocation of a GST registration and subsequent retrospective cancellation without adhering to the principles of natural justice. The Court held that the revocation of voluntary cancellation of GST registration without prior notice or an opportunity to be heard is contrary to law. Further, the retrospective cancellation of registration from a date prior to its actual issuance was deemed legally unsustainable.

The petitioner, Om Impex, initially registered for GST on June 28, 2021, and later voluntarily applied for cancellation of its GST registration on May 9, 2023. The application was accepted, and the registration was canceled effective May 8, 2023. However, on February 20, 2024, the Central Goods and Services Tax (CGST) Authority revoked the voluntary cancellation based on alleged directions from higher authorities. Following this, on March 8, 2024, the petitioner’s GST registration was retrospectively cancelled from June 27, 2020, a date prior to the actual grant of registration.

The petitioner challenged these actions on grounds of violation of the principles of natural justice, including the absence of a show cause notice or hearing before the revocation, and the retrospective cancellation without any valid justification.

The primary legal issues revolved around:

Revocation Without Notice: Whether the CGST Authority’s revocation of the petitioner’s voluntary cancellation of GST registration without issuing a show cause notice or granting an opportunity to be heard violated the principles of natural justice.

Retrospective Cancellation: Whether the retrospective cancellation of the petitioner’s GST registration from a date prior to its issuance was valid under law.

The petitioner argued that the revocation of voluntary cancellation was done without providing any prior notice or the reasons behind such a decision. Furthermore, the petitioner claimed that the retrospective cancellation of GST registration was arbitrary and without any basis.

The Court held that the CGST Authority’s action of revoking the voluntary cancellation of GST registration without issuing a show cause notice or granting an opportunity to be heard clearly violated the principles of natural justice. The Court noted that revocation decisions that impact legal rights require adherence to due process, including issuing proper notice and providing an opportunity for a hearing.

"It was incumbent upon the Respondents to have issued a show cause notice for revocation of cancellation of registration before passing the order on 20 February 2024. Having not issued any show cause notice, in our view, the restoration of voluntary cancellation of registration is contrary to the principles of natural justice." [Para 13]

Retrospective Cancellation: Invalidity and Lack of Justification

The Court also struck down the retrospective cancellation of the petitioner’s GST registration from June 27, 2020—prior to the actual grant of registration. The Court found no justification for this retrospective cancellation and noted that such actions cannot be sustained without proper legal grounds.

"We failed to understand how the registration came to be cancelled retrospectively from 27 June 2020, when it was granted on 28 June 2021; there is no explanation by Respondents on this." [Para 15]

Remedy for Breach of Natural Justice

While the Court quashed the orders revoking the voluntary cancellation and cancelling the registration, it granted the respondents liberty to initiate fresh proceedings, ensuring due process is followed. The petitioner was, however, restrained from utilizing its Input Tax Credit (ITC) until the conclusion of these proceedings, in order to protect the interests of the tax authorities.

"The Respondents are at liberty to proceed by issuing a show cause notice for revocation of cancellation of Petitioner’s registration and pass & communicate a speaking order to the petitioner on or before 31 January 2025." [Para 20]

The Court quashed the orders dated February 20, 2024, March 8, 2024, and May 9, 2024, passed by the CGST Authorities.

The petitioner’s position as of May 8, 2023—when the voluntary cancellation of registration was accepted—was restored.

The respondents were granted the liberty to issue a fresh show cause notice for revocation of cancellation and were directed to conclude the proceedings by January 31, 2025.

The petitioner was restrained from utilizing the ITC available as of May 8, 2023, until the conclusion of the fresh proceedings.

The Bombay High Court’s decision in Om Impex v. The State of Maharashtra & Ors. reinforces the importance of adhering to the principles of natural justice in GST cases. The ruling clarifies that revocation of GST registration must be preceded by a show cause notice and a hearing, and retrospective cancellations cannot be applied arbitrarily without proper legal justification. The judgment balances the rights of taxpayers with the interests of the tax authorities by allowing fresh proceedings while restraining the use of ITC until the legal process is completed.

Date of Decision: October 8, 2024

Om Impex v. The State of Maharashtra & Ors.