JULY 09, 2025

Show Cause and Effect

By Vijay Kumar

IN the theatre of tax law, there's a curious subplot unfolding - where the protagonist, a mere taxpayer, finds himself dragged into a bureaucratic thriller riddled with procedural potholes and twisted logic. It felt like a season finale of Sasural Bureaucracy Ka - where the villains are vague notices and the hero is natural justice. It all began when a CGST officer, an adjudicating authority, evidently armed with little more than a rubber stamp and a vague suspicion, cancelled the taxpayer's registration. The Appellate Authority upheld this move, making it a two-act play of bureaucratic brevity.

So, where does one go when both justice and logic vanish into the fog of statutory mumbling? The taxpayer, like a determined mountaineer, climbs towards the Bombay High Court, hoping for something as rare in taxation as a unicorn - reason.

The only bell that rings for the taxpayer in such situations is the High Court. So, the taxpayer helplessly and hopefully is before the High Court challenging the Order-in-Original dated 7 February 2022 and Order-in-Appeal dated 28 March 2024 reported by us in 2025-TIOL-1056-HC-MUM-GST

The counsel for the Petitioner submitted that:

1. The show cause notice dated 15 January 2022 was extremely vague and contained no material on which the fraud, wilful misstatement or suppression of facts was alleged.

2. The show cause notice merely copied the words of the statute and required the Petitioner to show cause.

3. Besides, the impugned order dated 7 February 2022 referred to the Deputy Commissioner A.E's letter dated 13 January 2022 as the basis for the order of cancellation of the Petitioner's Registration.

4. There was no reference to this letter in the show cause notice, and even a copy of the same was not furnished to the Petitioner before the order was made.

5. As such, the Petitioner had no opportunity to meet with the allegations in this matter.

6. All this constitutes a gross breach of natural justice.

He further submitted that the above crucial contentions were not even considered by the appellate authority, rendering the appeal order vulnerable.

The Counsel for Revenue, based on instructions, stated that the impugned orders may be set aside, but an opportunity should be granted to issue a fresh show cause notice regarding the cancellation of registration. He further submitted that such a show cause notice, along with relevant material, would be issued to the Petitioner within four weeks, and the same would be disposed of within four weeks of the receipt of a response from the Petitioner. He submitted that a personal hearing would be granted to the Petitioner. He submitted that in the meanwhile, some restraint should be imposed on the Petitioner regarding the utilisation of the accumulated ITC.

Let's redo it; I will do better next time!

The counsel for the Petitioner submitted that for a period of three months, the accumulated ITC will not be utilized.

But the elephant in the courtroom still trumpets: how did we get here? Why did multiple trained officers - paid by public money - ignore the fundamentals of legal process?

The High Court quashed and set aside the impugned orders but granted the Respondents liberty to issue a fresh show cause notice as proposed, within four weeks. The counsel for the Petitioner stated that a response will be filed within four weeks of receiving the show cause notice.

The High Court directed that:

1. The show cause notice must be disposed of within four weeks of the Petitioner filing his reply to the same.

2. The Petitioner or authorised representative must be granted an opportunity for a personal hearing.

3. The concerned authority must pass a reasoned order and communicate the same to the Petitioner.

The High Court further observed:

1. Petitioner's statement about not utilising the accumulated ITC for a period of three months was accepted as an undertaking to the Court, and the Petitioner will have to abide by the same.

2. The Petitioner and the Respondents must abide by the timelines now set out.

3. In particular, the Petitioner must not seek any undue adjournments.

4. At the same time, the Respondents must also not unduly prolong the disposal of the show cause, now that the Petitioner has made the above statement.

5. All concerned must act on an authenticated copy of this order.

Happy ending – do they live happily ever after?

Some valid questions.

1. Why was the Show Cause Notice extremely vague and contained no material on which the fraud, wilful misstatement or suppression of facts was alleged?

2. Why did the Show Cause Notice merely copy the words of the statute and require the taxpayer to show cause.

3. Why was the Deputy Commissioner A.E's letter (the basis for the order of cancellation of the Petitioner's Registration) not mentioned in the Show Cause Notice and why was a copy not given to the taxpayer?

4. Why was the petitioner not given an opportunity to meet with the allegations?

Okay, the Show Cause Notice was issued and Order In Original was passed by a Junior Officer, not well-versed in adjudication proceedings and alien concepts like principles of natural justice - a phrase that clearly skipped the training manual, but the Appellate Authority is a fairly Senior Officer. What was his difficulty? Why didn't he consider these questions? These are officers trained at huge costs to run the government machinery lawfully – not appointed there to just collect taxes somehow. And, incidentally by cancelling a registration, you don't collect taxes; you prevent the collection.

The best and jest part is – in the High Court, the Government wanted the impugned orders to be set aside, which means they agreed that these orders will not stand judicial scrutiny. What brilliant sparks of knowledge and wisdom fell upon revenue between the time they passed two illegal orders and the petitioner reached the High Court that they asked for setting aside of the orders they passed? Maybe the office Wi-Fi finally connected them to the Constitution. It took three stages – the adjudicating authority, the appellate authority and the High Court – before they understood what a Show Cause Notice is.

The taxpayer had to go all the way to the High Court incurring money, time and tension, just to tell the biggest tax collecting Department that a Show Cause Notice cannot be vague and principles of natural justice have to be followed before you condemn somebody to a non-registered eminence. See the agony that a taxpayer has to go through! And what happens to the officers who flout all norms with contemptuous arrogance? Nothing, absolutely nothing. And what does the Government get? Government loses money in maintaining these offices and bearing the cost of litigation in the High Court and deciding the same issue twice.

Had the Adjudicating Authority issued a clear Show Cause Notice and passed a reasonable order after giving an opportunity to the taxpayer to defend himself, there would have been no need for agitating the matter in the High Court. It is not as if the High Courts are sitting idle with no cases, so that the GST department can contribute substantially to provide some work. Or do they just want to add to the ever-burgeoning litigation docket bundles?

Maybe we should have a wing in the GST department like a Devil's Advocate to preview all adjudication orders and tell the adjudicators how their orders will be shred to pieces in an independent Judicial forum. That way faulty orders can be probably rectified before they become courtroom comedy. Or do they like the High Court judges to report to the Commissioners?

The Licence Raj seems to be still alive! In the early days, we used to have Central Excise Licence, Custom House Agents Licence, Gold Control Licence etc., Over the years the very word licence created a bad impression of permissions, controls, regulations, inspectors and the whole Raj in all its loathing glory. So, the licence raj gave way to the registration era; no, the raj remains – only the name licence has been changed to registration. What's in a name? That which you call a licence, called by any other name is equally stressful.

If taxpayer protection is a built-in promise, then vague notices and unread letters are its breach. This case is a textbook example of procedural absurdity masquerading as adjudication. The system needs less of “copy-paste jurisprudence” and more of “think-before-you-cancel registration.”

In the story of Jest GST, the only thing funnier than vague tax notices is the silence that follows when accountability knocks - and nobody answers.

This tale of bureaucratic bungling and judicial rescue is more than just courtroom drama - it's a wake-up call. When the taxpayer ends up teaching the tax department how to draft a show cause notice, it's clear we're dealing with a system in urgent need of introspection. Justice delayed and taxpayer strained are both losses - of money, time, and faith. If rules are the backbone of governance, then fairness must be its heartbeat. Because in the end, revenue collection without responsibility is just legalized chaos in a three-piece suit.

Ek Show Cause Aisa Bhi!