Cancellation and Restoration of GST Registration: Violation of Natural Justice in Tax Demand Proceedings

Cancellation and Restoration of GST Registration: Violation of Natural Justice in Tax Demand Proceedings

Hon’ble High Court of Andra Pradesh, in the case of M/s. Avexa Corporation Private Limited vs The State Of Andhra Pradesh and Others (2024)” where Demand Order was issued before the deadline for filing a reply is invalid as it breaches the principles of natural justice

What Happened or Background

• The petitioner, registered under CGST and APGST Acts, had its registration cancelled effective 31st August 2023. The petitioner initially requested to revoke the cancellation, but this was rejected. Later, the appellate authority restored the registration on 22nd January 2024.
• During the registration restoration process, the tax department issued a notice on 13th October 2023, pointing out discrepancies in tax returns for 2017–2023 and demanding clarification or payment.
• A fresh notice on 19th December 2023 alleged discrepancies of ₹31.20 crore. Subsequently, a show cause notice dated 26th December 2023 demanded ₹32.51 crore and required the petitioner to either pay or explain.
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• The petitioner requested time to respond and access the tax portal for details. Despite this, the tax department issued a final order on 24th January 2024, confirming the demand.

Issues Raised

• The petitioner challenged the final order, arguing that:
• The order was issued before the 30-day response period ended.
• The petitioner wasn’t granted adequate time or access to the tax portal to prepare their defense.
• The personal hearing was claimed to have occurred on a date not offered in the notice.
• The petitioner argued this violated the principles of natural justice.

Court's Observations or What the Court Decided

• Principles of natural justice require fair opportunity to respond, access relevant materials, and a proper hearing before any decision.
• In this case, the department acted prematurely and failed to ensure the petitioner had adequate time and access to the required details. 

Decision of Court

The court found the tax department’s actions violated natural justice and invalidated the final order dated 24th January 2024. The court allowed the tax department to restart the process, ensuring:

• The petitioner gets two weeks to file objections.
• A personal hearing is conducted.
• A reasoned order is issued based on proper procedures.

Outcome

The petition was allowed, and the earlier penalty and tax demands were set aside. Pending applications were closed, and no costs were awarded. 

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