Order Date – 20 September 2024

Parties: M/s A.M. Enterprises Vs State of Himachal Pradesh & Ors.

Facts –

• The Petitioner, M/s A.M. Enterprises, was issued an order cancelling the GST registration in view of Rule 21(g) of the CGST Rules on violation of provision of Rule 86B for short paying tax in cash.

Issue –

• Whether the cancellation of GST registration on violation of Rule 86B is proper?

Order –

• The Divisional Bench of Hon'ble High Court find force in the petitioner’s contention that Rule 86B of the CGST Rules has no statutory backing and appears to be ultra vires the provisions of the HPGST Act, 2017. 
• Since the tax liability of the petitioner towards output tax stood discharged, no prejudice has been caused to the respondents. It was unnecessary for the respondents to cancel the GST Registration and they could have considered any other penalty which is more proportionate to the violation of law. Thus, it was held that the cancellation of GST Registration on the pretext of violation of Rule 86B is a disproportionate punishment imposed on petitioner and is liable to be interfered in exercise of the power conferred on this Court under Article 226 of the Constitution of India.
• Further on violation of Rule 21(b) & Rule 21(e) the court was of the view that how a “prima facie” investigation could be the basis of an order of cancellation of GST Registration without the investigation being completed, is not explained by the counsel for the respondents. In opinion of court, the Respondents ought to have waited for the investigation to be completed before imposing the drastic penalty of cancellation of GST Registration. It shocks the conscience of the Court to find an extreme penalty of the nature of cancellation of GST Registration being imposed on a business on the basis of a “prima facie” investigation conducted by the respondents. 
• The said action of the Respondents is thus clearly arbitrary, unreasonable and violates Article 14 of the Constitution of India.  The writ petition is allowed and the Respondent directed to restore the GST Registration of the petitioner.