The Rajasthan High Court has set aside an appellate order that upheld the cancellation of a taxpayer’s GST registration without granting an effective opportunity of hearing.

A Division Bench of Justice Arun Monga and Justice Maneesh Sharma passed the order while allowing a writ petition filed by a Hindu Undivided Family (HUF) engaged in the edible oil business, challenging the appellate authority’s order affirming cancellation of its GST registration. 

The petitioner, a registered dealer in edible oil operating from Ramganj Mandi in Kota, obtained GST registration in January 2022 and regularly purchased goods from registered suppliers, transported them under valid e-way bills, made payments through banking channels, and filed GST returns while availing input tax credit. 

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The controversy began in December 2022 when tax authorities conducted a physical verification of the business premises and reported that the premises were closed with no business activity. Based on this report, the department initiated proceedings for cancellation of the GST registration by issuing a notice in Form GST REG-31 and suspended the registration. 

The taxpayer responded to the notice, furnished documents sought through summons issued under Section 70 of the Rajasthan GST Act, and successfully demonstrated its case. Consequently, the authorities dropped the cancellation proceedings in March 2023 and revoked the suspension. 

However, within weeks, the department initiated a fresh round of proceedings by issuing another show cause notice in April 2023, this time alleging that the petitioner had issued invoices without actual supply of goods or services, commonly referred to as “fake invoicing.” 

While these proceedings were pending, officials conducted another physical verification in June 2023 and again reported absence of business activity at the declared premises. Relying on this report, the Proper Officer cancelled the petitioner’s GST registration on June 12, 2023, concluding that invoices had been issued without corresponding supply of goods. 

The petitioner challenged the cancellation before the Appellate Authority.

The appeal was filed on June 26, 2023. Initially, a hearing was fixed for July 20, 2023. However, the records from the adjudicating authority had not yet reached the appellate authority. Once the records were received on July 24, a fresh notice was issued through the GST portal scheduling the hearing for July 28—just four days later. 

Since no one appeared on the scheduled date, the appellate authority dismissed the appeal ex parte and upheld the cancellation of the GST registration. 

Examining the record, the High Court observed that the appeal had been disposed of with unusual haste.

The Bench noted that the appellate authority had effectively provided only four days’ notice after receiving the case records, despite the GST Act granting it up to one year to decide the appeal under Section 107(13). There was, therefore, no statutory urgency requiring immediate disposal of the matter. 

The Court accepted the petitioner’s explanation that the first hearing could not proceed because the appellate authority itself had not received the original records, while the second hearing was missed because the petitioner’s counsel was out of station and unaware of the fresh listing. The judges observed that the petitioner should not suffer for circumstances attributable to counsel, particularly when no prejudice would have been caused to the Revenue by granting another opportunity. 

The Division Bench emphasized that cancellation of GST registration carries severe civil and commercial consequences because it effectively prevents a taxpayer from lawfully conducting business under the GST framework. Such drastic consequences, the Court held, should not follow from an appellate proceeding where the affected party was never effectively heard. 

The judges observed that denying a reasonable opportunity of hearing in such circumstances violated the principles of natural justice and would only lead to further avoidable litigation. 

The High Court clarified that it had not expressed any opinion on the substantive allegation that the petitioner had issued invoices without actual supply of goods.

According to the Bench, that issue must be independently examined by the appellate authority after granting both sides a proper opportunity to present their cases. 

Allowing the writ petition, the Rajasthan High Court set aside the appellate order dated July 28, 2023.

The court directed the petitioner to appear before the Appellate Authority on August 3, directed the Appellate Authority to grant a personal hearing, and ordered that a fresh decision be passed on the merits of the appeal in accordance with law after providing adequate opportunity to both parties. 

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