Business Continuity Over Partnership Disputes: Court Stays GST Suspension Order

Issue

Whether a GST registration can be suspended without proper investigation and a hearing, particularly when the suspension is based on a complaint alleging unauthorized changes made with forged documents stemming from a dispute between partners.

Brief Facts

An assessee’s GST registration was suspended after a complaint was filed alleging that unauthorized changes were made to the registration details using forged documents. The assessee challenged the suspension order, arguing that it was a violation of the principles of natural justice because the authorities suspended the registration without conducting a proper investigation into the complaint or giving the assessee an opportunity to be heard. The dispute was rooted in a conflict between the partners of the firm.

Decision

The court noted that the parties involved agreed to have the matter addressed by the State authorities, who would then determine if any action was necessary regarding the firm’s registration based on the partners’ rival claims. The court emphasized that the primary goal should be to save the business, not to destroy it. In light of this, the Joint Commissioner was directed to provide a fresh opportunity for all parties to file their responses to the complaint and to afford them a personal hearing. Until a final decision is made, the suspension order was stayed and would not be given effect. This partial ruling in favor of the assessee protects the business from being “killed” due to an inter-partnership dispute.

Key Takeaways

Natural Justice is Paramount: An administrative action like the suspension of a GST registration, which has significant consequences for a business, must adhere strictly to the principles of natural justice. This includes providing a proper show cause notice, conducting a thorough investigation, and granting a fair hearing to the affected party.
Business Continuity: Courts will prioritize the continuity of a business, especially when the suspension is a result of internal disputes among partners or management. The suspension should not be used as a weapon to harm the business.
Suspension is an Interim Measure: The suspension of a GST registration is a temporary action meant to prevent misuse during an investigation. It should not be used arbitrarily or without due process.
Right to be Heard: Even in cases involving serious allegations like forged documents, the affected party has a fundamental right to be heard and present their side of the story before any adverse action is taken.

HIGH COURT OF PATNA

Shiv Construction

State of Bihar

Rajeev Ranjan Prasad and Sourendra Pandey, JJ.

Civil Writ Jurisdiction Case No. 17716 of 2024

SEPTEMBER 1, 2025

Archana Sinha @ Archana Shahi, Sr. Adv., Alok Kumar Shahi and Komal Raj, Advs. for the Petitioner. D.V. Pathy, Sr. Adv., Vikash Kumar, Sadashiv Tiwari, Mrs. Prachi Pallavi and Ms. Shivani Dewalla, Advs. for the Respondent.

JUDGMENT

Rajeev Ranjan Prasad, J. – Heard learned counsel for the petitioner and the learned Senior counsel for respondent no. 3. Respondent nos. 1 and 2 are represented through the learned Standing Counsel No. 11.

2. Petitioner in the present writ application is seeking the following reliefs :-

“A. Issue a writ of Mandamus or any other appropriate writ, order or direction to quash the suspension order dated August 31, 2023, suspending the petitioner’s GST registration (GSTIN [Petitioner’s GST Number]), and direct the Respondent to immediately reinstate the petitioner’s GST registration to enable the continuation of business operations.

B. Direct the Respondent to Restore Access to the GST portal under the original authorized signatory, Mr. Rajeev Ranjan, including restoring the petitioner’s registered mobile number and email address, so the petitioner can meet statutory GST compliance requirements.

C. Order an Investigation into the acceptance of forged documents that led to unauthorized changes in the GST registration details, including a full review of how the changes were processed without verification, to prevent similar occurrences in the future.

D. Grant Interim Relief by way of a temporary reinstatement of the petitioner’s GST registration and access to the GST portal under the original credentials pending the final resolution of this petition, to mitigate the ongoing business losses.

E. Award Compensation for the financial losses, erosion of capital, and damage to goodwill caused by the unlawful suspension of GST registration, as this Hon’ble Court deems fit and just under the circumstances.

F. Grant any other relief that this Hon’ble Court may deem just, proper, and equitable in the interests of justice.

G. For any other consequential relief or reliefs for which the petitioner is found entitled during the course of hearing of the writ petition.”

3. It is stated that the petitioner is a partnership firm duly registered under the Goods and Services Tax Act. It is stated that the petitioner registered for GST on the basis of a duly registered partnership deed with valid proof of place of business, partners’ details and all other required documents. At the time of registration, the authorized signatory was designated as Mr. Rajiv Ranjan with his contact details recorded in the GST portal.

4. Learned counsel for the petitioner has contended that the respondent-authorities suspended the petitioner’s GST registration without due investigation into the petitioner’s complaint regarding unauthorized changes made based on the forged documents. He has assailed the impugned order of suspension, which has come on the record with the counter affidavit as Annexure- R-2/1 on the ground of violation of principles of natural justice.

5. The respondent no. 2 has filed a counter affidavit from which it appears that there are claims and counter claims of the rival partners as regards their rights in the partnership firm. In paragraph- 16 of the counter affidavit of respondent no. 2, it is stated that “. since the claims and counter claims of rival partners were found dubious and contradictory, the registration of the petitioner has been temporarily suspended to protect the interest of the revenue in accordance with provisions under Section 29(2)(e) of CGST/BGST Act.”

6. The counter affidavit also gives an impression that an inquiry was conducted through the Circle In-charge ICST, Supaul, who submitted a detailed report. The order of suspension has been sought to be justified by the respondent.

7. The respondent no. 3 has also filed a counter affidavit in which she has claimed herself a partner of the petitioner’s firm. Several facts relating to the partnership firm and its business as also the changes brought in the partnership firm have been stated in the counter affidavit.

8. In course of hearing, it is admitted by learned counsel for the State-respondents as well as the respondent no. 3 that prior to passing of the order of suspension, as contained in Annexure- R-2/1 no notice or opportunity of hearing was given to the petitioner. It is also not disputed that at the time of registration, the authorized signatory was designated as Mr. Rajiv Ranjan, as stated in paragraph- 1.2 of the writ petition.

9. The parties agree that the kind of dispute between the partnership firm may at best be discussed before the State-respondents to take a view as to whether any action with regard to registration of the partnership firm is required to be taken or not on the basis of the complaint of the rival partners. The parties are unanimous that all attempts be made to save the business and not to kill it.

10. Having regard to the submissions noted hereinabove, this Court directs the Joint Commissioner, State Taxes, Supaul to give fresh opportunities to the parties, if they so desire, to file their response to the complaint and after giving them an opportunity of hearing appropriate order be passed, preferably within a period of four months from the date of receipt/production of a copy of this order.

11. Earlier, this Court, vide order dated 10.07.2025 stayed the operation of the suspension order dated 31st of August, 2023 and by virtue of said interim order of stay, the petitioner has filed its updated returns as also response on 14.05.2025. In fact, it is stated that prior to the order dated 10.07.2025, this Court had passed order dated 30.04.2025 by which the respondent no. 2 was directed to give access to the petitioner’s firm through the present writ petitioner to the portal to enable him to submit his response to the show cause. The same has been done.

12. We direct that until a final decision is taken in the matter by respondent No. 2, order of suspension as contained in Annexure- R-2/1 shall not be given effect to.

13. This writ petition is allowed to the extent indicated hereinabove.