Anil Art And Craft Vs State of Uttar Pradesh And Another (Allahabad High Court)
The Allahabad High Court heard petitions challenging the order dated 03.02.2026 passed by the Deputy Commissioner, State Tax, Sector-2, Bhadohi, cancelling the petitioners’ registration under the U.P.G.S.T. Act, 2017. The petitioners submitted that proceedings initiated under Section 61 of the Act pursuant to a notice dated 23.09.2025 remained pending, no adjudication notice had been issued, and they were participating in those proceedings. They contended that issuance of a show cause notice dated 08.10.2025 under Section 29 during the pendency of Section 61 proceedings and the subsequent cancellation order were without jurisdiction, and that no premature conclusion should be drawn regarding allegations that their suppliers were fake. The State argued that an alternative statutory appeal was available and that proceedings for tax adjudication and cancellation of registration could simultaneously arise from the same transaction.
Read SC Judgment in this case: SC Upholds Allahabad HC Decision Describing GST Registration Cancellation as ‘Economic Death’ of Business
The High Court observed that disputed factual issues and allegations contained in the show cause notice could not be examined in writ jurisdiction and should be determined on evidence before the statutory forum. It recognised that allegations of fake supplies could give rise to both cancellation proceedings and proceedings for confirmation of tax demand, while noting that scrutiny under Section 61 was still in progress and no inference should be drawn from its pendency.
The Court held that the impugned order did not cancel registration merely because Section 61 proceedings remained pending, but only recorded that those proceedings had not concluded. It distinguished the decision in M. Enterprises vs. State of Himachal Pradesh and Others, observing that the allegations and statutory provisions involved there were different, whereas the present case involved allegations of bogus or paper transactions and absence of supplies in the transaction chain. Without expressing any opinion on the correctness of those allegations, the Court held that they were serious enough to support cancellation proceedings if ultimately established. Declining interference under Article 226 of the Constitution of India, the Court disposed of the writ petitions while permitting the petitioners to file a statutory appeal within two weeks and directing that, if filed, the appeal be decided expeditiously within one month without being influenced by the Court’s observations or by the pendency of the Section 61 proceedings.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
1. Heard Sri Pranjal Shukla, learned counsel for the petitioners and Sri Arvind Kumar Mishra, learned Standing Counsel for the State respondents.
2. Present petitions have been filed challenging the order dated 03.02.2026 passed by the Deputy Commissioner State Tax, Sector-2, Bhadohi, whereby the petitioners’ registration under the U.P.G.S.T. Act, 2017 (hereinafter referred to as ‘the Act’) has been cancelled.
3. Submission is, arising from search conducted by the D.G.G.I. under the C.G.S.T. Act, 2017, certain facts may have become known to the State tax authorities, as well. Notice was issued to the petitioners under Section 61 of the Act on 23.09.2025. Petitioners are participating in that proceeding. However, it has yet not been concluded. Neither any notice of adjudication has been issued nor any other adverse interference has been drawn in those proceedings.
4. During pendency of the proceedings under Section 61 of the Act, further show cause notice has been issued to the petitioners on 08.10.2025 under Section 29 of the Act. The petitioners objected to that notice. In that proceedings, the impugned order has been passed.
5. Submission is, the petitioners were not to blame for the pendency of the proceedings under Section 61 of the Act. In fact, the petitioners are participating in those proceedings. Second, the respondent authorities recognise that proceedings under Section 61 of the Act, are still pending. For that reason, it has cancelled the petitioners’ registration. It is wholly without jurisdiction. Third, it has been submitted that in any case, no reason may exist to cancel the petitioners’ registration, at present. The allegation being that the supplier of the supplies of the petitioners, were fake, no pre-mature conclusion may be drawn, at this stage.
6. On the other hand, learned Standing Counsel would submit that the petitioners have equally efficacious alternative remedy of appeal against the order cancelling their registration. On the merit issue, it has been submitted in absence of any legal embargo, two proceedings (both civil), may arise from the same transaction, one with respect to adjudication and recovery of demand of tax and the other with respect to cancellation of registration.
7. Having heard learned counsel for the parties and having perused the record, in the first place, facts are disputed. They may not be ascertained in these proceedings. Factual allegations made in the show cause notice dated 08.10.2025, cannot be tested. Those fact issues may be dealt with and decided on the strength of evidence. To the extent, Rule 21(b) of the Rules may allow for cancellation of registration on an allegation of fake supplies, found proven, we may not seek to pre judge the issue. Any decision by this Court, on that ground, would have a binding effect on the proceedings for confirmation of demand, if any.
8. Then, it is equally true that the allegation of fake supplies may give rise to both proceedings for cancellation of registration and also for confirmation of demand for reason of ITC being reversed. Besides recognising the above, we do not propose to make any observation as may have any adverse effect on the proceedings that may arise. At present, we recognise that the scrutiny of returns is in progress. Therefore, no inference is to be drawn in that regard, in these proceedings.
9. As to the objection that the authority has cancelled the registration for the reason that the proceedings under Section 61 of the Act are pending, we are not in agreement with the submission, as advanced. Though, the order is not happily worded and one stray sentence does appear as may give rise to the submission that has been advanced, at the same time in real sense, only this much has been recorded in the impugned order that the proceedings under Section 61 of the Act have not concluded. Had such proceedings been concluded in favour of the petitioners, it may have given rise to a ground to the petitioners to drop the proceedings to cancel the petitioners’ registration. No other or further reliance may be placed on that observation contained in the impugned order.
10. As to the pendency of investigation, before the D.G.G.I., the same requires no further consideration by us, at this preliminary stage.
11. Reliance being placed by learned counsel for the petitioners on a decision of the High Court of Himachal Pradesh in M. Enterprises vs. State of Himachal Pradesh and Others, 2024 SCC OnLine HP 4786 may not help the petitioners. In that case, the allegation had existed of violation of Rule 21(g) read with Rule 86(b) of the H.P.G.S.T. Act, 2017. That Rule provides that the ‘electronic credit ledger’ may not be used to discharge liability towards output tax in excess of 99% of the tax liability. In that light, the High Court of Himachal Pradesh took note that the violation alleged may not be serious enough to warrant cancellation, that too during pendency of investigation. It is in that light, the observations were made in paragraph nos. 31 and 32 of the report, as has been relied by learned counsel for the petitioners. For ready reference, the same reads as below:
“31 How a “prima facie” investigation could be the basis of an order of cancellation of GST Registration without the investigation being completed, is not explained by the counsel for the respondents. In our opinion, the respondents ought to have waited for the investigation to be completed before imposing the drastic penalty of cancellation of GST Registration.
32. It shocks the conscience of the court to find an extreme penalty of the nature of cancellation of GST Registration being imposed on a business on the basis of a ‘prima facie” investigation conducted by the respondents.”
12. Before making that observation, the High Court of Himachal Pradesh had also taken note of the fact that there may not be any statutory backing to the provision Rule 86(b) of the H.P.G.S.T. Act, 2017.
13. As discussed above, here the allegation is very different. On facts, it has been alleged by the revenue that the petitioners were engaged in bogus/paper transaction. In that regard, it has been further alleged that no supplies were made to the supplier of the petitioners. Thus the entire chain is described as nothing more than a paper transaction.
14. Without drawing any inference as to the correctness or otherwise of the allegations made against the petitioners and leaving that issue open to be contested on the strength of material evidence, before the statutory forum, only this much has been recognised at this stage that the allegation made may not be unsubstantiated and it is serious enough to lead the cancellation of registration, if the facts alleged are found true.
15. For the reasons noted above, interference claimed in exercise of our extraordinary jurisdiction under Article 226 of the Constitution of India is declined. The writ petitions are disposed of leaving it open to the petitioners to avail statutory appeal within a period of two weeks. If such compliance is made, the appeal itself may dealt with and decided, as expeditiously as possible, within a further period of one month, without being prejudiced by any observation made above and without being prejudiced by the fact that the proceedings under Section 61 of the Act have remained pending.
