Karnataka HC Orders Fresh GST Cancellation Proceedings to Verify Genuineness of Supplier Transactions

Goutham Constructions Vs Joint Commissioner of Central Tax Gst Appeals- II (Karnataka High Court)

Summary: The Karnataka High Court partly allowed Goutham Constructions’ petition challenging cancellation of its GST registration and subsequent rejection of revocation and appellate remedies. The original show cause notice dated 13 May 2025 referred to Rule 21(b) of the CGST Rules and alleged issuance of invoices or bills without supply of goods or services. According to the petitioner, its reply was not considered because the acknowledgment number was unavailable; it had also not retained a copy of that reply. Following cancellation on 23 May 2025, the petitioner sought revocation. Only through the subsequent notice dated 23 July 2025 in Form GST REG-23 was it informed of the specific allegation that it had claimed ineligible credit of Rs.8,87,014 for FY 2024-25 from M/s. S M Traders, alleged to be a non-existent entity or fake firm. The revocation application was rejected on 6 August 2025 for failure to respond, and the appeal was rejected on 1 December 2025.

The petitioner primarily sought quashing of the original notice for vagueness and, alternatively, an opportunity to establish the genuineness of its transactions through invoices and bank statements. The Court declined to interfere with the original notice. It observed that a petitioner handicapped by a vague notice should diligently raise that objection at the first opportunity and preserve material demonstrating that it had done so. Here, the alleged reply was unavailable, and the petitioner had also not responded to the later notice specifying the allegation. Nevertheless, the Court considered that the Appellate Authority should have considered the entire factual matrix. Since the allegation was specific and the petitioner asserted that it could substantiate its transactions, the Court considered restoration of the original proceedings appropriate.

The Court quashed the appellate order, the order rejecting revocation of cancellation, the notice dated 23 July 2025 and the cancellation order dated 23 May 2025. It retained the original notice dated 13 May 2025 and permitted the petitioner to respond, without further notice, before the Superintendent of Bengaluru Northwest Commissionerate by 27 October 2026. The petitioner could submit documents establishing the genuineness of transactions with M/s. S M Traders, and the officer was directed to conclude proceedings expeditiously, in any event before 30 November 2026. The Court observed that registration must be restored if transaction genuineness is demonstrated; it did not itself hold the transactions genuine or grant unconditional restoration.

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

The petitioner, whose GST registration is cancelled by the third respondent, has called in question the following while seeking directions to the third respondent to reinstate the GST registration and allow the petitioner to file the monthly returns.

Mr. Y. Pranay Sharma, the learned counsel for the petitioner, submits that this Court must set aside the Show Cause Notice dated 13.05.2025 and every proceedings thereafter because the Show Cause Notice does no t even put the petitioner on notice of the reason for cancellation except for referring to Ru le 21(b) of the Central Goods and Services Tax Rules, 2017 [for short, ‘ the CGST Rules’] only alleging that there is violation as invoice/bill is issued without supply of goods or services.

3. Mr. Y. Pranay Sharma elaborates thus to support the petitioner’s case.

• The petitioner, upon service of the Show Cause Notice dated 13.05.2025, has filed a response, but that is not considered allegedly because the acknowledgment number for the reply is not available.
• The petitioner has not retained a copy of the reply and hence, it is not made available part of the petition papers.
• The petitioner, upon being informed about the Order of Cancellation of Registration, has filed an application for Revocation of the Cancellation.
• Only with the notice dated 23.07.2025 on this application, the petitioner is issued with notice in Form GST REG-23 putting it on notice for the first time that the registration is cancelled because it has claimed ineligible credit of Rs.8,87,014/- for the financial year 2024-25 from M/s. S M Traders which is found to be a non-existing Entity/a fake firm.
• The application for revocation of cancellation is ultimately rejected on the ground that the petitioner has not responded to the Show Cause Notice, and the appeal is rejected by the impugned order dated 01.12.2025 observing that the petitioner does not allege lack of opportunity.

The learned Counsel is categorical in stating that he argues for interference with the very Show Cause Notice because it is vague; and it is only in the alternative that he will request for an opportunity to respond to the proposal to cancel the GST registration as the petitioner can produce invoice/bank statements to demonstrate the genuineness of the transactions even with M/s. S M Traders.

4. Mr. Aravind V. Chavan, the learned Standing counsel who a respondents, is heard for the disposal of the petition on the following question:

Whether this Court must interfere with the very Show Cause Notice or restore the proceedings with liberty to the petitioner to file reply to the Show Cause Notice.

5. It cannot be gainsaid that the Show Cause Notice dated 13.05.2025 only refers to Rule 21(b) of the CGST Rules stating that there is violation of this Rule, and the petitioner’s reply to the show cause notice is not considered because acknowledgment is not available. If this Court could observe that the notice is vague, the petitioner’s response to a vague notice remains vague without a copy thereof being placed on record. In this Court’s considered view, if the Show Cause Notice was vague and the petitioner was handicapped, it should have been diligent in raising this concern at the very first instance and ensured that material is demonstrate that this concern was raised at the initial stage. There is failure in this regard. 6. In the peculiarities, this Court is only persuaded to opine, though interference with the Show Cause Notice is strenuously argued for, there need not be such interference. However, it is shown to this Court’s satisfaction that the petitioner is now informed about the reason for the cancellation of the GST, and this is with th e issuance of the Show Cause Notice on an application filed by the petitioner for revocation of cancellation. Significantly, the petitioner has not filed a response to this Show Cause Notice. The appeal is dismissed on the ground that the petitioner has failed to assert th at the Show Cause Notice was not issued.

7. This Court is of the vi ew that the Appellate Authority should have considered all circumstances factual matrix. Therefore, there must be interference with the Appellate Authority ‘s impugned order. The next question will be should there be a restoration of the appeal or the original proceedings itself. The allegation against the petitioner and the reason for cancellation of the GST registration is specific. It is an availment of ITC claim based on a non-existent or a fake entity. The petitioner is categorical in stating that it can produce documents to show the genuineness of the transaction with this entity.

8. These circumstances as also the fact that the petitioner has not responded to the Show Cause Notice on the application for revocation of cancellation, persuades this Court to interfere with the Order of Cancellation to restore the proceedings to the third respondent with liberty to the petitioner to file all documents to demonstrate the genuineness of the transaction with M/s. S M Traders observing that if the petitioner demonstrate the genuineness of the transaction, the GST registration must be re stored. In the light of the afore the following.

ORDER

[A] The petition is allowed in-part and the following are quashed.

[B] The petitioner is reserved with liberty to file response to the Show Cause Notice dated 13.05.2025 [Annexure – A5] without further notice with the Superintendent of Bengaluru Northwest Commissionerate [the third respondent] by 27.10.2026.

[C] The petitioner will be at liberty to file documents to show genuineness of the transactions, and the third respondent is called upon to conclude the proceedings expeditiously, and in any event, before 30.11.2026.