GST Registration Suspension/Cancellation: State GST Department to Adjudicate SCN Within One Month After Assessee’s Reply on ITC Fraud Allegations

GST Registration Suspension/Cancellation: State GST Department to Adjudicate SCN Within One Month After Assessee’s Reply on ITC Fraud Allegations

Issue:

Whether a State GST department must expeditiously adjudicate a show cause notice (SCN) for cancellation of registration and suspend its operation, particularly when the SCN is old, the assessee has repeatedly sought restoration, and the underlying alert originated from the Central GST department regarding serious allegations like fraudulent invoice issuance without supply of goods or services.

Facts:

A show cause notice (SCN) was issued to the assessee by the State GST department for cancellation of registration, alleging the issuance of invoices/bills without the actual supply of goods or services. The registration of the assessee was also suspended. The assessee submitted that despite writing repeated letters to the department seeking restoration of registration, no response was forthcoming. The department submitted that the Central GST Department had issued an “alert” to the petitioner, which led to the impugned show cause notice and suspension of GST registration. It was noted that the impugned SCN was almost six months old.

Decision:

The court ruled in favor of the assessee. Considering that the impugned show cause notice was almost six months old, the assessee was permitted to file a reply, disclosing to the State GST department if any SCN was issued to the assessee by the CGST department, including in respect of availment of Input Tax Credit (ITC). Upon receiving the reply filed by the assessee, the State department was directed to take a decision within a period of one month.

Key Takeaways:

• Expeditious Adjudication of SCNs: When a GST registration is suspended or faces cancellation proceedings, especially based on serious allegations like fraudulent invoices, it severely impacts the assessee’s business. Authorities are expected to conclude such proceedings expeditiously. A six-month-old SCN without resolution is deemed too long.
• Inter-Departmental Coordination: The fact that the alert originated from the Central GST Department highlights the need for effective coordination between central and state GST authorities to avoid multiple or prolonged investigations. The State GST department is directed to consider information from the CGST department if any.
• Right to Reply and Fair Hearing: The assessee is granted a specific opportunity to file a detailed reply, including any information from the CGST department. This ensures compliance with principles of natural justice.
• Time-Bound Directions: The court’s directive to the State department to take a decision “within a period of one month” upon receiving the reply is a crucial aspect of ensuring timely justice and preventing indefinite suspension or cancellation of registration.
• Impact of Suspension/Cancellation: The suspension or cancellation of registration is a severe measure, affecting the assessee’s ability to conduct business, issue invoices, and avail/pass on ITC. Courts ensure that such actions are not left in limbo.
• In Favour of Assessee (Procedurally): While the merits of the cancellation are not decided, the decision is in favor of the assessee procedurally. It ensures that their case is actively adjudicated and resolved within a defined timeframe, preventing indefinite hardship caused by administrative inaction.