GST Registration Can't Be Cancelled On Unspecific Show Cause Notice: Delhi High Court

The Delhi High Court has held that the GST registration cannot be cancelled on cryptic allegations and on the basis of the Show Cause Notice, which did not state any specific allegation, which could be explained by the taxpayer.

The bench of Justice Vibhu Bakhru and Justice Sachin Datta has observed that the order traveled beyond the scope of the Show Cause Notice and thus is passed in violation of settled principles of natural justice.

The petitioner/assessee has filed the petition challenging the Show Cause Notice by which the petitioner was called upon to show cause as to why its Goods and Services Tax (GST) registration should not be cancelled. The petitioner challenged an order dated 24.11.2023, by which the petitioner's GST registration was cancelled with retrospective effect from 03.04.2023.

The petitioner filed an appeal against the impugned cancellation order before the Appellate Authority under Section 107 of the Central Goods and Services Tax Act, 2017. However, the appeal was dismissed.

The petitioner contended that the only reason set out in the SCN for proposing the cancellation of the petitioner's GST registration was that Rule 21(g) person violates the provision of Rule 86B.

The petitioner was called upon to furnish a reply to the show cause notice within a period of seven working days from the date of the impugned SCN and was also directed to appear before the proper officer. The petitioner's GST registration was suspended with effect from the date of the show cause notice, that is, with effect from 13.11.2023.

The petitioner responded to the show cause notice stating that in terms of Rule 86B of the Central Goods and Services Tax Rules, 2017, he would deposit 1% of the total sale in a cash ledger and requested the proper officer to activate its GST registration in order to enable him to carry on the business.

The petitioner contended that the show cause notice does not contain any details of the allegations against the petitioner. It merely refers to Rule 21(g) and states that the person violates the provisions of Rule 86B. Rule 21(g) of the CGST Rules pertains to the issuance of invoices without supply of goods. Thus, it appears that the petitioner's GST registration was proposed to be cancelled on an allegation that it had issued invoices without supply of goods. However, the SCN neither provides the details of invoices that are allegedly not covered by supply of goods nor provides any clue as to transactions alleged to be in violation of the aforesaid rule.

The court held that a show cause notice must clearly state the reasons on which the adverse action is proposed in order to enable the noticeee to respond to the allegations.

The court, while quashing the show cause notice, and the order stated that the show cause notice was insufficient to enable the petitioner to respond to the allegation in any meaningful manner.

Counsel For Petitioner: R P Singh

Counsel For Respondent: Avishkar Singhvi

Case Title: M/S A P Enterprises Versus Sales Tax Officer

Case No.: W.P.(C) 9418/2024 CM APPL. 38634/2024 CM APPL. 38635/2024

Click Here To Read The Order