The Hon’ble Delhi High Court in the case of M/s. VAB Apparel LLP v. Commissioner, Delhi GST and Ors [W.P.(C) 13642/2023 dated November 10, 2023] held that without specifying any particular reason and explanation for the cancellation of GST Registration by means of fraud, wilful misstatement or suppression, also 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 the Petitioner’s GST registration. Thus, the impugned order is set aside, the Respondents have been directed to restore the GST Registration and the writ petition stands disposed of.
M/s. VAB Apparel LLP (“the Petitioner”) received a Show Cause Notice (“the SCN”) dated May 19, 2022, for cancellation of the GST Registration, with effect from March 03, 2018, for the reason that the Petitioner obtained registration by fraud, wilful misstatement, or suppression of facts. And GST Registration was suspended with effect from the date of issuance of the SCN. Thereafter, the Revenue Department (“the Respondent”) without waiting for a reply against the SCN from the Petitioner, issued the Order dated May 23, 2022 (“the Impugned Order”).
The 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 a 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.
Hence, aggrieved by the Impugned Order, the Petitioner filed a writ petition before the Hon’ble Delhi High Court for quashing and setting aside the impugned order.
Whether the GST registration be cancelled, without specifying the reason and explanation in the SCN?
The Hon’ble Delhi High Court in the case of W.P.(C) 13642/2023 held as under:
In a significant decision, the Delhi High Court set aside the Impugned Order, directing the immediate restoration of the petitioner’s GST registration. The ruling emphasizes the necessity of providing specific reasons for cancellation, preventing arbitrary actions by tax authorities. While the judgment protects the petitioner’s rights, it also underscores the authority’s ability to take lawful action if statutory violations are established.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
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.
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