High courts are increasingly tightening scrutiny over coercive goods and services tax (GST) enforcement measures such as registration suspensions and bank account attachments, with tax experts saying the trend could push authorities towards greater procedural discipline. The Bombay High Court’s recent order in the case of Bi-Chem India Pvt Ltd is being seen as part of this wider judicial push.
The court on March 11 directed authorities to restore the company’s GST registration after the government informed the bench that the suspension would be withdrawn and that further action would follow due process, including granting a hearing on the show-cause notice. It also held that the recovery notice should not be acted upon until the lawful procedure is followed.
Legal experts note that several high courts across the country have, in recent years, set aside GST cancellations and enforcement actions where authorities issued vague notices, failed to provide a proper hearing, or passed non-speaking orders. For instance, the Allahabad High Court on February 27 set aside the cancellation of GST registration for denial of personal hearing and for passing a non-speaking order; the Punjab & Haryana High Court on February 25 quashed retrospective cancellation of registration because such a proposal was never made in the show-cause notice; the Gujarat High Court on September 19, 2024, ruled that generic show-cause notices lacking specific allegations are invalid; and the Gujarat High Court on February 24, 2022, held that cancellation orders issued with vague and cryptic reasons are unsustainable.
The latest order in the case of Bi-Chem India adds to a growing set of rulings emphasising that enforcement powers under the GST regime must follow due process and the principles of natural justice. Counsel for the petitioner, argued before the court that the actions of the tax authorities, including suspension of registration and initiation of recovery proceedings, were taken without following the statutory procedure and violated principles of natural justice. He contended that such coercive steps effectively halt business operations even before allegations are adjudicated.
“The order reflects a broader judicial trend where courts have intervened in cases involving cancellation or suspension of GST registrations, vague show-cause notices, and provisional attachment of bank accounts,” he said.
According to Bimal Jain, Founder at A2Z Taxcorp LLP, GST registration cannot be suspended or cancelled merely on vague allegations of fake input tax credit (ITC) or fraudulent registration. “Authorities must establish fraud, wilful misstatement or suppression of facts with evidence, including any connivance between supplier and recipient. Cancellation of registration without disclosing reasons, without establishing mens rea (criminal intent), and without granting an opportunity of personal hearing is arbitrary and violative of the principles of natural justice.”
Industry bodies say such enforcement actions can severely disrupt business operations, particularly for smaller firms.
Secretary General of the Federation of Indian Micro and Small & Medium Enterprises (FISME), said suspension of GST registration or freezing of bank accounts can effectively shut down businesses even before their case is heard.
“For small enterprises, blocking bank accounts or suspending GST registration is equivalent to stopping oxygen to the business. We urge tax authorities to ensure that enforcement actions are balanced with procedural fairness so that genuine businesses are not crippled while investigations are underway,” he said.
Experts also caution that cancellation of GST registration has wider implications beyond the taxpayer itself.
“Cancelling the GST registration of an entity puts all its business partners, including customers and vendors, in jeopardy and should be resorted to only in the rarest of cases, and that too after considering the impact on the entire ecosystem,” another tax expert said.
