Unreasoned order cancelling GST registration for wrongful ITC set aside by High Court

Issue

Whether an order cancelling GST registration is legally sustainable if it merely states that the “reply is not satisfactory” without providing any reasoning or addressing the specific contentions raised by the taxpayer.

Facts

Petitioner Profile: The petitioner is a Hindu Undivided Family (HUF) holding a valid GST registration.
Show Cause Notice: The Department issued a Show Cause Notice (SCN) in Form GST REG-17, alleging that the petitioner had availed Input Tax Credit (ITC) wrongfully. A personal hearing was fixed.
Petitioner’s Defense: The petitioner submitted a reply stating that an investigation by the Directorate General of GST Intelligence (DGGI) regarding the same issue was already ongoing. Consequently, they requested that the cancellation proceedings be dropped.
Impugned Order: The Proper Officer passed an order in Form GST REG-19 cancelling the registration.
Lack of Reasoning: The cancellation order contained a cryptic one-line conclusion stating only that the petitioner’s “reply was not satisfactory,” without elaborating on why the defense regarding the DGGI investigation was rejected.

Decision

Violation of Natural Justice: The High Court held that an order which merely records a conclusion (“reply not satisfactory”) without disclosing the reasons for arriving at that conclusion violates the minimum procedural requirements and principles of natural justice.
Non-Speaking Order: The Court characterized the impugned order as “unreasoned” and “non-speaking.” An authority exercising quasi-judicial powers must apply its mind and provide reasons that are intelligible to the affected party.
Impact on Rights: The Court observed that cancelling a GST registration has serious civil consequences, gravely impairing a citizen’s right to carry on business. Such an action cannot be taken casually.
Order Set Aside: The impugned cancellation order was quashed.
Remand: The matter was remanded to the competent officer to continue the proceedings pursuant to the SCN and pass a fresh, reasoned order in accordance with the law.
Administrative Instruction: The Court expressed that administrative instructions should be issued to officers to prevent the recurrence of issuing such cryptic orders.

Key Takeaways

“Non-Speaking” Orders are Void: A one-line dismissal of a taxpayer’s reply (e.g., “Reply not found satisfactory”) renders an adjudication order legally unsustainable. The officer must explain why the reply was rejected.

Business Rights Protection: Courts view the cancellation of registration seriously as it stops business operations. Procedural safeguards must be strictly followed before taking such a drastic step.

Parallel Proceedings: While the Court set aside the order on technical grounds (lack of reasoning), it allowed the proceedings to continue, implying that the merit of the argument regarding the “ongoing DGGI investigation” must be decided by the officer in the fresh order.

HIGH COURT OF ALLAHABAD

Anil Art and Craft

State of Uttar Pradesh

Saumitra Dayal Singh and INDRAJEET SHUKLA, JJ.

WRIT TAX Nos. 5924 & 5931 of 2025

Pranjal Shukla for the Petitioner. Arvind Mishra for the Respondent.

ORDER

1. Heard Sri Pranjal Shukla, learned counsel for the petitioner and Sri Arvind Mishra, learned counsel for the revenue and peruse the record.

2. Present petition has been filed to assail the order dated 15.10.2025 passed by Assistant Commissioner, State Tax, Bhadohi Sector-1, Uttar Pradesh cancelling the petitioner’s registration.

3. Earlier the petitioner was issued show cause notice by said authority dated 08.10.2025. For ready reference that notice is extracted below:-

FORM GST REG -17

[(See Rule 22(1)]

Reference No.:1ZA0910250544250 Date: 08/10/2025

Registration Number (GSTIN/UIN) 09AAQHA9161E1Z2

Anul Kumar Jaiswal HUF

O. Girdhari Lal, Main Road Bhadohi, Bhadohi, UP, India, Bhadohi, Bhadohi, Uttar Pradesh-221401

Show Cause Notice for Cancellation of Registration

Whereas on the basis of information which has come to my notice, it appears that your registration is ilable to be cancelled for the following reasons:

1. Others

Remarks:

Avails the input tax credit in violation of the provisions of section 16 of the Act or the rules.

You are hereby directed to furnish a reply to the notice within seven working days from the date of service of this notice.

You are hereby directed to appear before the undersigned authority on 15/10/2025 at 12:27.

If you fail to furnish a reply within the stipulated date or fail to appear for personal hearing on the appointed dated and time, the case will be decided ex parte on the basis of available records and on merits.

Kindly refer the supportive document attached for case specific details.

Place: Uttar Pradesh

Date: 08/10/2025

Jyoti Singh

Assistant Commissioner

Bhadohi Sector-1

4. The petitioner submitted a detailed reply dated 15.10.2025. Briefly, it may be noted that the petitioner explained that the survey was conducted by the DGGI (an authority under the CGST Act, 2017). It was further pointed out that the said proceeding was pending. The petitioner was cooperating in the same. Therefore, he prayed the proceeding be dropped pending the action by DGGI.

5. By means of the impugned order, after taking note of the reply submitted by the petitioner, respondent no.2 has observed that reply is ‘not satisfactory’. It is surprising that by such an unreasoned order, the petitioner’s registration has been cancelled. For ready reference that order is extracted below:-

FORM GST REG-19

[See rule 22 (3))]

Reference Number:-ZA0910251251414

Date: 15/10/2025

Name: ANIL KUMAR HUF

Address: O. Girdhari Lal, Main Road Bhadohi, Bhadohi, UP, India, Bhadohi, Bhadohi, Uttar Pradesh-221401

(GSTIN/UIN) 09AAQHA9161E1Z2

Application Reference Number (ARN) AA091025033710N

Date:15/10/2025

Order for Cancellation of Registration

This has reference to show cause notice issued dated 08/10/2025.

Whereas reply to the show cause notice has been submitted vide AA091025033710N dated 15/10/2025; and whereas, the undersigned on examination of your reply to show cause notice and based on record available with this office is of the opinion that your registration is liable to be cancelled for following reason (s):

1. Others

Remarks:

REPLY IS NOT SATISFACTORY

The effective date of cancellation of your registration is 08/10/2025.

2. Kindly refer to the supportive document(s) attached for case specific details:- Not Applicable

3. It may be noted that a registered person furnishing return under sub-section (1) of section 39 of the CGST Act, 2017 is required to furnish a final return in FORM GSTR-10 within three months of the date of this order.

4. You are required to furnish all your pending returns.

5. It may be noted that the cancellation of registration shall not affect the liability to pay tax and other dues under this Act or to discharge any obligation under this Act or the rules made thereunder for any period prior to the date of cancellation whether or not such tax and other dues are deterimined before or after the date of cancellation.

Place: Uttar Pradesh

Date: 15/10/2025

Jyoti Singh

Assistant Commissioner

Bhadohi Sector-1

6. It is a self apparent truth that respondent no.2 has acted carelessly in complete defiance of the minimum requirement of procedural law, inasmuch as, absolutely no reason has been assigned to reject the explanation furnished by the petitioner. By stating that the reply is “not satisfactory”, the said respondent-authority has only indicated the conclusion but has made no disclosure of the reason, to reach that conclusion.

7. It is a sine qua non and absolutely fundamental to procedural law as may be plain to a law student that such a requirement is non-negotiable. Therefore, we are at loss to u