The Allahabad High Court has sharply criticised GST authorities for routinely cancelling traders’ GST registrations without supplying any reasons, calling such actions equivalent to declaring the economic death of a business.
A bench of Justice Saumitra Dayal Singh and Justice Indrajeet Shukla, while allowing a writ petition filed by Anil Art and Craft, set aside an October 15 order of the Assistant Commissioner (State Tax), Bhadohi, who had cancelled the petitioner’s GST registration with retrospective effect from October 8.
The judges said that cancellation orders issued in this mechanical manner inflict disproportionate hardship and “disrupt legitimate business activity,” especially in a tax regime where GST registration is the gateway to issuing invoices and availing or passing on input tax credit (ITC).
The court emphasised that depriving a dealer of GST registration — described as a statutory lifeline — without proper reasons or adequate opportunity to respond is contrary to the very structure and purpose of the GST law.
The cancellation in the present case was preceded by a show-cause notice alleging wrongful availing and passing of bogus ITC under Section 16 of the GST Act. However, the officer’s final order simply stated that the reply was “not satisfactory,” without explaining why.
The bench held that such an observation discloses only the conclusion, not the reasoning behind it, and therefore fails the minimum standards of a reasoned administrative order.
The High Court noted that the officer had acted “carelessly” and in “complete defiance” of basic procedural safeguards.
Underlining the devastating consequences of cancelling a trader’s GST registration, the court said such action effectively disables a taxpayer from participating in the formal supply chain, even as past liabilities and compliance requirements continue.
Calling this the “economic death” of a business entity, the bench warned that such drastic action cannot be taken lightly or without a proper, legally sound basis.
Along with quashing the cancellation order, the High Court directed that:
- A copy of the judgment and the writ petition be forwarded to the Commercial Tax Commissioner.
- The Commissioner must issue administrative instructions within 15 days to all GST officers dealing with registration cancellations.
- These instructions must include penal consequences for officers who pass non-speaking orders or deny reasonable opportunity to traders.
“These instructions must specifically provide for penal consequences against officers who pass non-speaking orders or deny reasonable opportunity in such matters, so that similar lapses are not repeated,” the bench ordered.
