Delhi High Court Overturns GST Registration Cancellation

Case Name:

VAB APPAREL LLP vs. Commissioner, Delhi GST and Others

Key Takeaways:

1. The cancellation of the petitioner’s GST registration was set aside by the High Court of Delhi.
2. The court found that the Show Cause Notice (SCN) and the subsequent cancellation order lacked specific reasons and evidence.
3. The SCN did not provide details of the alleged fraud, misstatement, or suppressed facts by the petitioner.
4. The impugned order only mentioned the petitioner’s improper response, lack of documentary evidence, and failure to appear for a personal hearing.
5. The court emphasized that the mere closure of the petitioner’s shop is not sufficient grounds for cancellation of the GST
6. .The respondents were directed to restore the petitioner’s GST registration immediately.
7. The court clarified that the restoration of the registration does not prevent the respondents from taking action if the petitioner is found to be in violation of any statutory provisions.

Case Synopsis:

This is a judgment from the High Court of Delhi, dated November 10, 2023, in the case of VAB APPAREL LLP (the petitioner) versus the Commissioner, Delhi GST and others (the respondents). The petitioner filed this petition to challenge an order dated May 23, 2022, which cancelled the petitioner’s GST (Goods and Services Tax) registration with effect from March 5, 2018. The cancellation order was issued based on a Show Cause Notice (SCN) dated May 19, 2022.

The SCN proposed the cancellation of the petitioner’s GST registration on the grounds of obtaining registration through fraud, willful misstatement, or suppression of facts. The petitioner was given seven working days to respond to the SCN and was also directed to appear before the concerned officer on May 23, 2022. The petitioner’s GST registration was suspended from the date of the SCN.

However, the SCN did not provide any specific details regarding the alleged fraud, misstatement, or suppressed facts. It also did not mention any facts that were allegedly suppressed by the petitioner. Despite being granted seven working days to respond, the Proper Officer did not wait for the response period to expire and passed the impugned order cancelling the petitioner’s GST registration four days later.

The impugned order only mentioned that the petitioner’s response to the query was not proper, no documentary evidence was produced, and the petitioner did not appear for a personal hearing. It did not specify any fraud or misstatement committed by the petitioner.

The respondents’ counsel submitted that the reason for cancellation mentioned on the respondent’s portal was that the petitioner was found existent but non-functioning, and the buyers and suppliers were found suspicious. However, this reason was also cryptic and did not provide any explanation as to why the buyers and suppliers were considered suspicious. The mere fact that the petitioner’s shop was found closed is not sufficient grounds for cancellation of the GST registration.

Based on these observations, the court allowed the petition and set aside the impugned order cancelling the petitioner’s GST registration. The respondents were directed to restore the registration immediately. However, it was clarified that this does not prevent the respondents from taking any action against the petitioner if they are found to be in violation of any statutory provisions.

In summary, the High Court of Delhi found that the cancellation of the petitioner’s GST registration was not justified due to the lack of specific reasons and evidence provided in the SCN and the impugned order. The court ordered the restoration of the petitioner’s GST registration while allowing the respondents to take appropriate action if any statutory violations are found.

FAQ:

Q1: What was the reason for the cancellation of the petitioner’s GST registration?

A1: The cancellation was proposed based on the allegation of obtaining registration through fraud, willful misstatement, or suppression of facts. However, the specific details and evidence were not provided in the Show Cause Notice (SCN) or the subsequent cancellation order.

Q2: What were the grounds for setting aside the cancellation order?

A2: The High Court of Delhi found that the SCN and the cancellation order lacked specific reasons and evidence. The court emphasized that the closure of the petitioner’s shop alone is not sufficient grounds for cancellation.

Q3: What action was taken by the court?

A3: The court allowed the petition and set aside the cancellation order. The respondents were directed to restore the petitioner’s GST registration immediately. However, the court clarified that this does not prevent the respondents from taking action if the petitioner is found to be in violation of any statutory provisions.

1. The petitioner has filed the present petition impugning an order dated 23.05.2022 (hereafter ‘the impugned order’) cancelling the petitioner’s GST registration with effect from 05.03.2018. The said order was passed pursuant to a Show Cause Notice dated 19.05.2022 (hereafter ‘the SCN’).

2. A plain reading of the SCN indicates that the petitioner’s GST registration was proposed to be cancelled for the following reasons:

“In case, Registration has been obtained by means of fraud, wilful misstatement or suppression of facts.”

3. The petitioner was directed to respond to the SCN within seven working days and to appear before the concerned officer on 23.05.2022.

The petitioner’s GST registration was also suspended with effect from the date of issuance of the SCN.

4. It is apparent from the above that the SCN is bereft of any material particulars. It neither specifies the fraud alleged to have been committed by the petitioner nor any alleged wilful misstatement made by the petitioner. The SCN also did not mention any facts that were allegedly suppressed by the petitioner.

5. Although, the petitioner was granted seven working days to respond to the SCN, the Proper Officer did not wait for the said period to expire and the impugned order cancelling the petitioner’s GST registration was passed four days later.

6. The only reasons stated in the impugned order are that the petitioner’s response to the query was not proper; no documentary evidence had been produced by the taxpayer; and none had appeared for personal hearing. The impugned order neither refers to any fraud that was found to have been committed by the petitioner nor mentions any misstatement allegedly made by the petitioner.

7. It is also relevant to note that although the SCN did not propose the cancellation of the petitioner’s GST registration with retrospective effect yet the petitioner’s GST registration has been cancelled with effect from 05.03.2018, that is, the date on which the said registration was granted.

8. The learned counsel appearing for the respondents submits that although the SCN as well as the impugned order did not specify any reason for cancellation of the petitioner’s GST registration, the respondent’s portal reflected the following reason for cancellation of petitioner’s GST registration:

“Party was found existent but non-functioning. Buyer and suppliers found suspicious. Mobile phone number mentioned in registration was not responded by the taxpayer.”

9. The aforesaid reason, which the respondents seek to rely on, is also cryptic. There is no explanation as to why the buyers and suppliers have been found to be suspicious. Merely because the petitioner’s shop was found closed, absent anything more, is not a ground for cancellation of petitioner’s GST registration.

10. In view of the above, the petition is allowed.

11. The impugned order cancelling the petitioner’s GST registration is set aside. The respondents are directed to restore the same forthwith.

12. However, it is clarified that this would not preclude the respondents from taking any action against the petitioner in accordance with law, if the petitioner is found to be in violation of any statutory provisions.

13. The petition is disposed of in the aforesaid terms.

VIBHU BAKHRU, J

AMIT MAHAJAN, J

NOVEMBER 10, 2023