High Court Sets Aside GST Cancellation Passed Without Proper Reasoning

The High Court recently quashed Section 263 revision notices issued to Mr Dilip Patel, ruling that a commissioner cannot override an Assessing Officer’s (AO) decision merely to seek a different outcome. The Court identified three critical failures by the tax department. First, it found a jurisdictional error regarding penalties for cash transactions; the statutory power cited by the Commissioner did not exist for 2023 cases, making the AO’s omission legally sound.

Second, the Court upheld the “plausible view” rule, noting the AO had already conducted a diligent inquiry into property valuations and reached a reasonable conclusion. Finally, because the AO had already added Rs 8.25 crores to the taxpayer’s income, the original order was not harmful to government revenue. By declaring the notices “manifestly illegal”, the Court reaffirmed that administrative revision is not a tool for subjective preference, especially when an AO’s view is legally sustainable.

Issue Before Court: Whether a GST registration cancellation order passed without recording reasons and without proper application of mind is legally sustainable?

HC Decided: The High Court allowed the writ petition and quashed the cancellation order. The Court held that the impugned order was a non-speaking order, as it failed to assign any reasons for cancellation, thereby violating the mandatory requirement under Rule 22, read with Form GST REG-19. The court emphasised that even if the assessee fails to reply to a show cause notice, the proper officer is still obligated to pass a reasoned order. Recording reasons is an essential facet of natural justice and ensures transparency, fairness, and application of the mind. An order lacking reasons cannot be sustained in law, especially when it leads to serious civil consequences like cancellation of GST registration.

While acknowledging the petitioner’s delay in approaching the Court, the High Court held that such delay cannot override the fundamental illegality in the order. Accordingly, the matter was remanded to the stage of the show-cause notice. The petitioner was granted one month to either file a reply or furnish all pending returns along with applicable dues, interest, and penalties. The proper officer was directed to thereafter pass a fresh order in accordance with the law.

To Read Full Judgment, Download PDF Given Below.