The Delhi High Court has ruled that cancellation of GST registration and rejection of a revocation application based on new grounds not mentioned in the original show cause notice (SCN) violate the principles of natural justice. The Court quashed the cancellation of registration in the case of Trilok Enterprises v. Principal Commissioner of Goods and Service Tax, North Delhi.
Brief Facts
The petitioner, Trilok Enterprises, was issued a show cause notice (SCN) dated 21.07.2023 proposing cancellation of GST registration under Section 29(2)(c) of the CGST Act, 2017, alleging fraud, wilful misstatement, or suppression of facts. However, the SCN failed to provide any specific details supporting the allegation.
Based on the SCN, the department cancelled the petitioner’s GST registration by an order dated 03.08.2023, which was completely unreasoned and did not discuss any factual basis for cancellation.
Aggrieved, the petitioner filed an application for revocation of cancellation. During the revocation proceedings, the authorities issued a fresh SCN on 25.08.2023, raising new allegations regarding irregular Input Tax Credit (ITC) availment based on discrepancies in GSTR-2A and e-way bills. The revocation application was ultimately rejected citing these new grounds.
High Court’s Observations
The Court noted that the original SCN was vague and did not contain any material particulars regarding the allegation of fraud or misstatement. Furthermore, the cancellation order merely reproduced the SCN without offering any independent reasoning.
It was observed that while considering the revocation application, the authorities introduced completely new allegations which were not mentioned earlier in the SCN or cancellation order. The Court held that such an approach violates the principles of natural justice.
The Court emphasized that adverse actions must be based on clearly communicated grounds at the initial stage itself, and a taxpayer cannot be confronted with new allegations during revocation proceedings without prior disclosure.
Decision
The Delhi High Court quashed the cancellation order dated 03.08.2023 and the revocation rejection order dated 12.03.2024. Since the petitioner no longer intended to continue its business, the Court directed that the GST registration shall be treated as cancelled from the date of issuance of the original SCN, i.e., 21.07.2023.
This judgment reiterates that cancellation of GST registration must be reasoned, based on specific allegations communicated in advance, and in strict compliance with the principles of natural justice.
Case Law:
Trilok Enterprises v. Principal Commissioner of Goods and Service Tax, North Delhi
W.P.(C) No. 785 of 2024 | Decided on 13.02.2025 | Delhi High Court
Coram: Justices Yashwant Varma and Harish Vaidyanathan Shankar
