GST Registration Cancelled Without Reason — Delhi HC Calls It Legally Flawed & Restores It

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Case Name

Pratibha-Mosinzhstroi Consortium vs. Commissioner of CGST

Court Name: High Court of Delhi at New Delhi

Case No.: W.P.(C) 7289/2022 and CM APPL. 22349/2022

Decision delivered on: 15th September 2022

Key Takeaways

1. A blank SCN is no SCN at all — A Show Cause Notice that simply says “Others” as the reason for cancellation, without specifying what the taxpayer did wrong, is legally invalid. It violates the principles of natural justice.

2. Physical inspection findings must be disclosed in the SCN — If the tax authorities conducted a physical inspection and found something wrong, that finding must be mentioned in the SCN. You can’t hide it and then use it against the taxpayer later.

3. A second SCN for revocation is not permitted under the CGST Act — The tax department issued a second SCN when the consortium applied for revocation of cancellation. The court clearly noted this procedure is not contemplated under the CGST Act, 2017.

4. Appellate orders must be reasoned — The appellate authority’s order was also set aside because it failed to deal with the petitioner’s explanation about relocation of business premises.

5. Insolvency proceedings add complexity — The lead member of the consortium (Pratibha Industries Ltd.) was under liquidation by the NCLT, which added a layer of complexity regarding who could represent the petitioner in court.

6. No penalty for delays caused by the department’s own errors — Since the registration cancellation prevented the consortium from filing returns, the court waived interest and penalties for the delayed filing period.

Issue

The central legal question: Was the cancellation of the GST registration of Pratibha-Mosinzhstroi Consortium, and the subsequent rejection of its revocation application, legally valid — given that the Show Cause Notice provided no reasons, the physical inspection findings were never disclosed to the petitioner, and the appellate order failed to address the petitioner’s explanation?

Short answer from the court: NO — the entire proceeding was legally flawed.

Facts

1. 05.07.2021 — Tax authorities conducted a physical inspection of the consortium’s registered premises and found that the unit was “non-existent” at that address.

2. 08.07.2021 — The tax department issued a Show Cause Notice (SCN) to the consortium. But here’s the shocking part — the SCN gave absolutely no specific reason for why the registration was being cancelled. It just said “1. Others” under the reasons column. The consortium’s registration was also suspended from this date.

3. 14.07.2021 — The consortium was asked to appear for a personal hearing.

4. 17.07.2021 — The consortium filed a reply to the SCN (though this reply was not placed on court record, there is a reference to it in the cancellation order).

5. 06.08.2021 — The tax department passed an order cancelling the GST registration of the consortium. Critically, this order also gave no reasons for the cancellation — mirroring the deficiency in the SCN.

6. August 2021 — The consortium filed its last GST return. After this, due to the cancellation, it could not file further returns.

7. 21.10.2021 — The consortium filed an application for revocation of the cancellation order.

8. 17.11.2021 — A second SCN was issued in response to the revocation application. This SCN, for the first time, revealed the real reason — that during the inspection on 05.07.2021, the unit was found non-existent at the registered premises. The consortium was asked why revocation should be granted.

8. 23.11.2021 — The consortium filed a reply to this second SCN, explaining that it had shifted its place of business to another location, and attached supporting documents.

9. 08.12.2021 — The proper officer (Deputy Commissioner, Ward 115, Special Zone) rejected the revocation application, stating that the principal place of business was non-existent and that the company was under liquidation proceedings with the bank having taken over the premises. Importantly, the officer did not address the consortium’s explanation about having shifted its business.

10. 22.02.2022 — The consortium appealed, but the Joint Commissioner, CGST Appeals-I, Delhi upheld the cancellation, again without addressing the relocation explanation.

11. 10.05.2022 — The consortium filed a Writ Petition before the Delhi High Court (W.P.© 7289/2022).

12. 08.02.2021 — (Background fact) The NCLT had already ordered the liquidation of Pratibha Industries Limited (the lead member of the consortium) under Section 33 of the Insolvency and Bankruptcy Code, 2016.

13. 15.09.2022 — The Delhi High Court delivered its judgment, setting aside all the impugned orders.

Arguments

Petitioner’s Arguments (Pratibha-Mosinzhstroi Consortium):

1. The SCN was a blank notice — The SCN dated 08.07.2021 gave no specific reason for the proposed cancellation. Just writing “Others” is not a valid reason. This violated the principles of natural justice because the consortium didn’t even know what case it had to defend.

2. Inspection findings were hidden — The fact that an inspection was conducted on 05.07.2021 was never mentioned in the original SCN. The consortium only found out about this when the second SCN was issued on 17.11.2021 — months later.

3. The consortium had shifted its business — In its reply dated 23.11.2021, the consortium clearly explained that it had relocated its place of business and provided supporting documents. Neither the proper officer nor the appellate authority addressed this explanation.

4. The second SCN was illegal — The issuance of a second SCN (dated 17.11.2021) when the consortium applied for revocation is a procedure not contemplated under the CGST Act, 2017.

5. The reply was uploaded — While the revenue claimed the reply dated 23.11.2021 was not uploaded on the designated portal, the petitioner’s counsel (Mr. Rajesh Jain) contended that it was uploaded on the revenue’s website.

6. Returns could not be filed — Due to the cancellation, the consortium was unable to file GST returns after August 2021, and sought relief from interest and penalties for this period.

Respondent’s Arguments (Commissioner of CGST):

1. The unit was non-existent — During the physical inspection on 05.07.2021, the consortium’s unit was found to be non-existent at the registered premises.

2. Company under liquidation — The principal place of business had been taken over by the bank, and the company was under liquidation proceedings. This was a valid ground for rejecting the revocation application.

3. Revocation application was insufficient — The petitioner had not submitted adequate proof or explanation in its revocation application to justify restoring the registration.

4. Representation issue — The revenue raised a concern that the liquidator (Mr. Anil Mehta) could not delegate his powers to Mr. Ansoo Saurabh (an employee of Pratibha Industries Ltd.) to contest the matter.

5. Willingness to re-examine — Eventually, the revenue’s counsel (Mr. Anish Roy) indicated that the revenue would re-examine the issue regarding the existence of Pratibha Industries Ltd. in light of the information in the appeal.

Key Legal Precedents

The court cited the following important precedents:

1. Micro Focus Software Solutions India Pvt Ltd. vs. Union of India & Anr.

• Citation: W.P.© 8451/2021, judgment dated 26.04.2022
• Relevance: This case established that when the tax authorities exercise the option of physical inspection under Rule 25 of the CGST Rules, 2017, they are required to give prior notice to the taxpayer. The court applied this principle to hold that the physical inspection conducted on 05.07.2021 was procedurally flawed because no notice was given to the consortium before the inspection.

2. Curil Tradex Pvt. Ltd. vs. The Commissioner, Delhi Goods and Service Tax & Anr.

• Citation: W.P.© 10408/2022, judgment dated 26.08.2022
• Relevance: This is another Delhi High Court judgment that reinforced the same principle — that under Rule 25 of the CGST Rules, 2017, notice must be given before conducting a physical inspection of the taxpayer’s premises. The court cited this to further support its finding that the inspection-based cancellation was procedurally invalid.

Key Statutory Provisions Referenced:

Rule 25 of the CGST Rules, 2017

Governs physical verification of business premises — requires prior notice to be given

CGST Act, 2017

The main statute under which registration was cancelled and revocation was sought

Section 33 of the Insolvency and Bankruptcy Code, 2016

Under which the NCLT ordered the liquidation of Pratibha Industries Limited

Judgment

The Petitioner (Pratibha-Mosinzhstroi Consortium) won comprehensively.

The Delhi High Court, comprising Hon’ble Mr. Justice Rajiv Shakdher and Hon’ble Ms. Justice Tara Vitasta Ganju, found that the entire proceedings were legally flawed for four key reasons:

"In sum, the entire proceedings, right up to the stage of passing of the order-in-appeal was legally flawed."

Reason 1 — Blank SCN: The SCN dated 08.07.2021 gave “no clue whatsoever” as to what infraction the consortium had committed. The consortium had no idea what case it needed to defend. This was a fundamental violation of natural justice.

Reason 2 — Inspection not disclosed: Although the physical inspection was conducted on 05.07.2021, it was not mentioned in the SCN dated 08.07.2021. Moreover, no notice was given before the physical inspection, as required under Rule 25 of the CGST Rules, 2017.

Reason 3 — Illegal second SCN: The second SCN dated 17.11.2021 (issued when the consortium applied for revocation) is a procedure not contemplated under the CGST Act, 2017.

Reason 4 — Appellate order bereft of reasons: The order dated 22.02.2022 passed by the Joint Commissioner, CGST Appeals-I, Delhi was “bereft of reasons” and did not deal with the consortium’s explanation about its relocation.

Orders Made by the Court:

Impugned order set aside: The order dated 22.02.2022 (appellate order) was set aside

Registration restored: The GST registration of the consortium was ordered to be restored immediately

Portal to be activated: The revenue was directed to activate the designated portal within 48 hours of receiving the judgment

Fresh SCN permitted: Liberty was given to the revenue to issue a fresh SCN if deemed necessary

Time to file returns: The consortium was given 4 weeks to file pending returns

No interest or penalty: No interest or penalty to be levied for the delay in filing returns caused by the cancellation

FAQs

Q1: Why was the SCN considered invalid?

The SCN dated 08.07.2021 simply stated “1. Others” as the reason for cancellation — it gave absolutely no specific reason or allegation. The court held that this gave the consortium no idea of what case it had to meet, which is a fundamental violation of the principles of natural justice.

Q2: Why was the physical inspection finding a problem?

The tax authorities conducted a physical inspection on 05.07.2021 and found the unit non-existent. But they never mentioned this in the SCN issued on 08.07.2021. The consortium only found out about the inspection when a second SCN was issued months later. Also, under Rule 25 of the CGST Rules, 2017, prior notice must be given before conducting such an inspection — which was not done here.

Q3: What was wrong with the second SCN dated 17.11.2021?

The CGST Act, 2017 does not provide for issuing a fresh SCN when a taxpayer applies for revocation of cancellation. The court clearly noted this procedure is “not contemplated under the CGST Act, 2017.”

Q4: Why didn’t the court just let the cancellation stand since the company was under liquidation?

The court’s focus was on the process, not just the outcome. Even if there were valid grounds for cancellation, the process followed was so fundamentally flawed (no reasons in SCN, no notice before inspection, illegal second SCN, unreasoned appellate order) that the entire proceeding had to be set aside. The revenue was given liberty to start fresh with a proper SCN.

Q5: What happens now — can the tax department cancel the registration again?

Yes, but they have to do it properly this time. The court gave the revenue liberty to issue a fresh SCN, provided it follows the correct procedure — giving specific reasons, disclosing all findings, and following the CGST Act and Rules properly.

Q6: What about the pending GST returns that couldn’t be filed?

The court was sympathetic here. Since the consortium couldn’t file returns because of the (wrongful) cancellation, the court gave them 4 weeks to file all pending returns and directed that no interest or penalty would be levied for the delay. The portal was to be activated within 48 hours.

Q7: Was there any issue about who could represent the consortium in court?

Yes! Since the lead member (Pratibha Industries Ltd.) was under liquidation, the liquidator (Mr. Anil Mehta) was the proper representative. He had initially delegated his powers to an employee (Mr. Ansoo Saurabh), which the revenue challenged. To resolve this, the liquidator directly executed a vakalatnama (power of attorney) in favour of the petitioner’s advocate, Mr. Rajesh Jain.

Q8: What is the broader significance of this case?

This case is a strong reminder to GST authorities that:

• SCNs must contain specific, clear reasons
• Physical inspections under Rule 25 of the CGST Rules, 2017 require prior notice
• Appellate orders must be reasoned and address all arguments
• Procedural shortcuts will not be tolerated by courts
• It also protects taxpayers from arbitrary cancellations that leave them unable to conduct business or file returns.

1. The petitioner has sought the following substantial reliefs:

“a) quash and set aside the impugned order dated 22.02.2022 passed by the Jt. Comnr.;

b) quash and set aside the order of cancellation of RC dated 06.08.2021 and the order of rejection of revocation application dated 08.12.2021 be also set aside;

c) restore the RC of the petitioner with immediate effect;

d) issue a Writ of Mandamus or any other Writ, order or direction.”

2. Notice in this writ petition was issued on 10.05.2022, after hearing the

matter substantially.

2.1 It is a matter of record, that at that juncture, the respondent/revenue

was represented by its senior standing counsel i.e., Mr Harpreet Singh.

2.2 Since then, counter-affidavit has been filed on behalf of the

respondent/revenue.

3. Arguments in the matter were heard, once again, on 30.08.2022, when

the following had been recorded by us:

“1. This writ petition is directed against the order dated

22.02.2022 passed by the Joint Commissioner, Central

Goods and Service Tax, Appeals-I, Delhi.

2. The impugned order dated 22.02.2022 is the order passed

in an appeal, preferred against the order dated 08.12.2021,

passed by the proper officer i.e., the Deputy Commissioner

Ward 115 (Special Zone) on an application preferred by the

petitioner-consortium to revoke the order by which the

petitioner-consortium’s registration was cancelled.

3. Since the proper officer rejected the revocation

application via order dated 08.12.2021, the petitioner-

consortium preferred an appeal with the Joint

Commissioner, Central Goods and Service Tax, Appeals-I,

Delhi.

4. It requires to be noticed that the order via which the

registration was cancelled is dated 06.08.2021. We may

also note that the edifice on which the impugned action is

based i.e., the action concerning cancellation of

registration, is the show cause notice [“SCN”] dated

08.07.2021.

5. The relevant part of the SCN dated 08.07.2021 is

appended on page 38 of the case file, which reads as

follows:

“Whereas on the basis of information which has

come to my notice, it appears that your

registration is liable to be cancelled for the

following reasons:

You are hereby directed to furnish a reply to the

notice within seven working days from the date of

service of this notice.

You are hereby directed to appear before the

undersigned on 14/07/2021 at 04:27 PM.

If you fail to furnish a reply within the stipulated

date or fail to appear for personal hearing on the

appointed date and time, the case will be decided

ex parte on the basis of available records and on

merits.

Please note that your registration stands

suspended with effect from 08/07/2021...”

6. A perusal of the aforesaid extract would demonstrate,

that practically, no reason was furnished for issuance of the

SCN. Although, facially, principles of natural justice were

sought to be adhered to by the respondent/revenue, the same

stood compromised, as nothing was proposed by way of an

action that was intended to be taken against the petitioner-

consortium.

7. The record shows that the petitioner, thereafter, filed an

application.

8. We have queried Mr Rajesh Jain, who appears for the

petitioner-consortium, as to whether any reply was filed.

8.1 Mr Jain says that the reply has not been placed on

record, although there is a reference to the reply in the

order cancelling the registration i.e., the order dated

06.08.2021.

9. We have perused the order dated 06.08.2021.

9.1 A perusal of the order cancelling the petitioner-

consortium’s registration shows that there is a reference to

a reply dated 17.07.2021 ostensibly submitted by the

petitioner-consortium.

10. However, what makes matters worse, insofar as the

respondent/revenue is concerned, is that this order does not

set out any reason, as to why the registration was cancelled.

11. The reason, perhaps, is that the SCN dated 08.07.2021,

as noted above, did not advert to any reason as to why the

impugned action was proposed.

12. It appears, that thereupon, and in and about 21.10.2021

the petitioner filed an application for revocation of the

cancellation order. It is qua this application, that the SCN

dated 17.11.2021 was issued; a procedure which is not

contemplated under the Central Goods and Services Tax

Act, 2017 [in short, the “CGST Act”].

12.1 Be that as it may, this SCN, which was issued pursuant

to the petitioner filing an application for revocation of

cancellation, inter alia sated the following:

“Reason for revocation of cancellation-Others

(Please specify)- During PV conducted on

05.07.2021, the unit was found non-existent at

registered premises. In the current request for

revocation of cancellation he has not submitted

any proof/explanation in this regard”

13. Consequently, a reply dated 23.11.2021 to the SCN

dated 17.11.2021 was filed by the petitioner-consortium,

wherein inter alia information was given as to why the

petitioner-consortium’s unit was not found in existence

at the registered premises.

14. There are two aspects to be noticed at this stage. Firstly,

when the earlier SCN was issued, which was on 08.07.2021,

nothing of this kind was adverted to in the said SCN i.e.,

that an inspection had been conducted on 05.07.2021,

which revealed that the petitioner-consortium’s unit was not

in existence at the registered premises. Secondly, in the

reply dated 23.11.2021, the petitioner-consortium had

furnished information that it had shifted its place of

business to another location. Documents in support of

this plea were also appended to the reply.

15. Despite this stand being taken by the petitioner-

consortium, order dated 08.12.2021 was passed, rejecting

the petitioner-consortium’s application for revocation of

cancellation. The order, briefly, sets out the following:

“1. The Principal place of business is non-existent

therefore revocation of cancellation may not be

granted. As informed during the personal hearing,

the principal place of Business has been taken

over by the bank and company is under

liquidation proceeding.”

16. As is evident from the record, the explanation given by

the petitioner consortium, that it had shifted its place of

business, was not dealt with in the order dated 08.12.2021.

17. Being aggrieved, the petitioner consortium preferred an

appeal. The appeal, as noted above, was disposed of by the

Joint Commissioner, Central Goods and Service Tax,

Appeals-I, Delhi via the order dated 22.02.2022.

17.1 The appellate authority sustained the order cancelling

the petitioner-consortium’s registration.

18. According to the first appellate authority, the petitioner-

consortium had not been able to suffice the cause [sic: to

show sufficient cause] for revoking the order directing the

cancellation of registration.

18.1 That said, what has emerged with the record is, that

the lead member of the petitioner-consortium i.e., Pratibha

Industries Limited has been ordered to be liquidated by the

concerned bench of National Company Law Tribunal [in

short “NCLT”] in exercise of powers under Section 33 of

the Insolvency and Bankruptcy Code, 2016. This order was

passed on 08.02.2021.

19. It is in this context, that on 29.07.2022, we had issued

notice to the liquidator i.e., Mr Anil Mehta.

19.1 Mr Anil Mehta has joined the proceedings today, albeit

via videoconferencing (VC).

20. We are informed by Mr Mehta, that he had delegated his

powers, inter alia, for contesting this matter to one, Mr

Ansoo Saurabh, an officer employed with Pratibha

Industries Limited.

21. The record also shows that Mr Ansoo Saurabh has

executed vakalatnama in favour of Mr Rajesh Jain,

Advocate to prosecute the present writ petition.

22. Mr Anish Roy, learned senior standing counsel who

appears on behalf of the respondent/revenue says that Mr

Mehta could not have delegated the power vested in him in

favour of Mr Ansoo Saurabh. Although Mr Mehta contests

this position, Mr Rajesh Jain, Advocate says that in order to

cut short the controversy, he will request Mr Mehta to

directly execute a vakalatnama in his favour.

23. Mr Jain has asked for a short accommodation for this

purpose.

24. List the matter on 15.09.2022.

25. In the meanwhile, Mr Roy will also take instructions, as

to whether the respondent/revenue, in the facts of this case,

would like to revisit its position.”

4. As would be evident from the extracts of the proceedings held on

30.08.2022, we had asked Mr Rajesh Jain, who appears for the petitioner, as

to whether the vakalatnama had been executed in his favor by the liquidator

appointed by the NCLT.

4.1 Mr Jain has answered in the affirmative.

4.2 We have examined the record.

4.3 The vakalatnama executed by Mr Anil Mehta, Liquidator (Pratibha

Industries Ltd) [“PIL”] in favor of Mr Jain, is on the Court record.

5. Insofar as the other part of the directions is concerned, which is that

we had asked Mr Anish Roy to take instructions, as to whether the

respondent/revenue would like to revisit its position, Mr Roy says that the

respondent/revenue will reexamine the issue, as to the existence of Pratibha

Industries Ltd., in the backdrop of the information contained in the appeal

filed before the Joint Commissioner, Central Goods and Service Tax,

Appeals-I, Delhi i.e., the Appellate Authority.

6. A perusal of the extracts of the order dated 30.08.2022 would show,

that the following is not in dispute:

(i) In the show-cause notice [“SCN”] issued to the petitioner on

08.07.2021, no reasons were furnished.

(ii) A subsequent SCN was issued on 17.11.2021, whereby, the

petitioner-consortium, for the first time, came to know that the

respondent/revenue had cancelled the registration, on the ground that PIL

was found not to be in existence, when inspection was carried out on

05.07.2021.

(iii) This aspect of the matter, that is, an inspection was carried out on

05.07.2021 was not put to the petitioner-consortium, when SCN dated

08.07.2021 was issued.

(iv) Although the petitioner-consortium claims, that it had submitted a

reply dated 23.11.2021; evidently, the same was not uploaded on the

designated portal. It is Mr Jain’s contention though, that the reply was

uploaded on the website of the respondent/revenue.

(v) That in the appeal preferred by the petitioner, information was

submitted, which alluded to the fact that PIL had relocated itself. In the

impugned order dated 22.02.2022 passed by the Joint Commissioner,

CGST-I, Delhi there was no discussion with regard to assertions made in

that behalf by the petitioner-consortium.

7. Given these facets, we are of the view, that the impugned order cannot

be sustained for the following reasons.

(i) Firstly, the SCN dated 08.07.2021 gave no clue whatsoever, as to

what was the infraction committed by the petitioner-consortium, and hence

the case/allegation it had to meet.

(ii) Secondly, although inspection of PIL’s premises was carried out on

05.07.2021, it did not find mention in the SCN dated 08.07.2021. Besides

this, no notice of physical inspection was given. The concerned authority,

having exercised this option under Rule 25 of the CGST Rules, 2017, it had

to give notice. [See judgement dated 26.04.2022, passed in W.P (C)

8451/2021, titled Micro Focus Software Solutions India Pvt Ltd. vs. Union

of India & Anr; judgement dated 26.08.2022, passed in W.P (C)

10408/2022, titled Curil Tradex Pvt. Ltd. vs The Commissioner, Delhi

Goods and Service Tax & Anr.]

(iii) Thirdly, another SCN dated 17.11.2021 was issued, which is not

contemplated under the CGST Act, 2017 [in short “Act”].

(iv) Fourthly, the order dated 22.02.2022 passed by the Joint

Commissioner, Central Goods and Service Tax, Appeals-I, Delhi is bereft of

reasons. The order does not deal with the information given by PIL as

regards its relocation.

7.1 In sum, the entire proceedings, right up to the stage of passing of the

order-in-appeal was legally flawed. Accordingly, the impugned order is set

aside.

8. Liberty is, however, given to the respondent/revenue, to issue a fresh

SCN, if deemed necessary, with regard to the registration certificate, issued under the Act.

8.1 However, in the meanwhile, the registration of the petitioner shall be

restored.

9. Furthermore, on account of the hiatus created due to the cancellation

of registration of the petitioner-consortium, we are told by Mr Jain, that the petitioner-consortium could not file returns.

9.1 Mr Jain says, that the last return was filed in August, 2021.

10. Having regard to the aforesaid, further four weeks are granted to the

petitioner-consortium to file the returns, for the relevant period.

10.1 It goes without saying, that for the petitioner-consortium to file the

returns, the designated portal concerning the petitioner-consortium will have to be activated.

10.2 The respondent/revenue will do so, within forty eight hours of the

receipt of a copy of the instant judgment.

11. Given the circumstances in which the petitioner was placed, on

account of the actions of the respondent/revenue, no interest or penalty will be levied on account of delay in filing the pending returns.

11.1 However, this window will remain open for the petitioner-consortium

only for four (4) weeks, which will run from the date of receipt of a copy of the judgment.

12. The writ petition is disposed of in the aforesaid terms.

13. Consequently, pending application also stand closed.

14. Parties will act based on the digitally signed copy of the order.

(RAJIV SHAKDHER)

JUDGE

(TARA VITASTA GANJU)

JUDGE

SEPTEMBER 15, 2022