GST cancellation order quashed for lack of reasoning; Suspension continued pending fresh adjudication

GST cancellation order quashed for lack of reasoning; Suspension continued pending fresh adjudication

Issue

1. Non-Speaking Order: Whether a GST registration cancellation order is valid if it fails to assign reasons or address the documentary evidence (invoices, e-way bills, ledgers) submitted by the assessee in their defense.

2. Suspension Validity: Whether the suspension of GST registration can continue when the cancellation order is set aside and the matter is remanded for fresh adjudication due to serious allegations of wrongful ITC.

Facts

• The SCN: The Department issued a Show Cause Notice (SCN) on 15 September 2025 proposing cancellation of registration.

• Assessee’s Defense: The petitioner filed a reply along with supporting documents, including invoices, e-way bills, ledgers, and bank statements, to refute the allegations.

• The Order: The authority passed a cancellation order on 22 September 2025. This order merely recorded that a reply was filed and a hearing was held, but it did not discuss the documents or provide specific reasons for the decision.

• The Challenge: The petitioner approached the High Court arguing violation of natural justice, as their detailed defense was ignored.

Decision

• Vital Link Missing: The Bombay High Court emphasized that “reasons” form the vital link between a decision and the decision-maker. An order that fails to analyze the defense material is legally unsustainable.

• Violation of Natural Justice: The failure to examine the submitted financial documents (invoices, bank statements) amounted to a gross violation of principles of natural justice.

• Cancellation Set Aside: Consequently, the cancellation order dated 22 September 2025 was quashed and set aside.

• Remand with Directions: The matter was remanded to the authority to decide the SCN dated 15 September 2025 afresh, strictly in accordance with the law.

• Suspension Continued: Unlike typical cases where quashing cancellation restores the status quo, the Court declined to revoke the suspension of registration.

  • Reasoning: The allegations (wrongful ITC) were serious, and the suspension had only been in force for two months.

  • Safeguard: To prevent prolonged prejudice to the business, the Court directed the authority to complete the fresh adjudication within four weeks.

Key Takeaways

Speaking Order is Mandatory: A “one-line” cancellation order that does not discuss the assessee’s reply or evidence is liable to be quashed. Tax officers must document why the explanation was rejected.

Quashing vs. Restoration: Quashing a cancellation order does not always automatically revoke the suspension of the GSTIN. If the underlying allegations (like fake ITC) are serious, Courts may allow the suspension to continue until the fresh inquiry is completed.

Time-Bound Remand: When a suspension is kept active during remand, Courts usually impose strict timelines (e.g., 4 weeks) on the Department to decide the case to avoid indefinite business stoppage.