GST officers reprimanded by Allahabad HC for scrapping registrations without explaining the basis

Allahabad High Court Criticises GST Officials for Cancelling Registrations Without Citing Reasons

The Allahabad High Court has strongly criticised the GST department for routinely cancelling traders’ GST registrations without offering any justification. The court observed that such arbitrary action amounts to declaring the “economic death” of a business, as these casually issued cancellation orders impose severe and disproportionate hardship on taxpayers and disturb genuine commercial operations.

The bench emphasised that denying a dealer their statutory right to operate under GST without proper reasoning or a real chance to correct alleged mistakes runs contrary to the very principles on which the GST law is based.

Hearing a petition filed by Anil Art and Craft, the division bench of Justices Saumitra Dayal Singh and Indrajeet Shukla annulled an October 15 order of the Assistant Commissioner (State Tax), Bhadohi, which had cancelled the petitioner’s GST registration retrospectively from October 8.

The court directed that its judgment and a copy of the writ petition be forwarded to the commercial tax commissioner. Within 15 days, the commissioner has been asked to issue clear administrative instructions to all GST officers handling registration cancellations. These instructions must prescribe penalties for officers issuing non-speaking orders or denying reasonable opportunity to taxpayers, ensuring such lapses do not recur.

The petitioner had earlier received a show-cause notice alleging wrongful availment and transfer of fake input tax credit in violation of Section 16 of the GST Act. However, the court took serious note of how the officer handled the matter under the GST framework.

The judges pointed out that merely stating a reply is “not satisfactory” reflects only the final conclusion and not the reasoning behind it, falling short of the basic requirement of a reasoned administrative order. They added that the officer acted “carelessly” and in complete disregard of essential procedural safeguards.

Highlighting the gravity of cancelling a trader’s GST registration, the bench said that such an action effectively cripples the business — preventing it from issuing invoices and availing or passing on input tax credit. While the registration stands cancelled, all past tax liabilities and compliance obligations continue, making the impact even more severe.

The judgment dated November 20 noted that these casually passed cancellation orders impose undue hardship on traders and severely hamper legitimate business activity.