Vilasa Developers Vs Himanshu Verma (GSTAT Lucknow)
Summary: The Goods and Services Tax Appellate Tribunal (GSTAT), State Bench Lucknow, in Vilasa Developers Vs Himanshu Verma, JC (IT) & Ors., APL/329/LCK/2026, decided on 3 November 2026, allowed the taxpayer’s appeal and set aside both the original registration cancellation order and the subsequent appellate order. The dispute arose from the cancellation of GST registration following allegations that the appellant had wrongfully availed Input Tax Credit (ITC) under Section 16 of the Uttar Pradesh Goods and Services Tax Act, 2017. The department initiated proceedings under Section 74A, relying on alleged irregularities involving suppliers whose registrations had been cancelled retrospectively. The appellant challenged the cancellation on the grounds that the show cause notice did not identify the relevant suppliers, transactions or factual basis of the allegations, and that the registration was cancelled without proper adjudication or a reasoned final order.
The appellant submitted that its purchases were genuine and supported by tax invoices, e-way bills and banking transactions. It maintained that the relevant returns had been filed and tax liabilities discharged through available ITC or the electronic cash ledger. The taxpayer also argued that irregularities attributable to suppliers could not automatically justify cancellation of its registration without independent examination of its own transactions. It questioned the reliance placed on Form GST DRC-01A dated 23 March 2026 and contended that preliminary doubts about suppliers could not be treated as conclusive proof of wrongdoing. The appellant further challenged the rejection of its revocation application and the First Appellate Authority’s order dated 25 September 2026, which allegedly relied on a departmental inquiry report not referred to in the original show cause notice and without providing a proper opportunity to rebut the additional material.
The department defended its action by asserting that the appellant had availed inadmissible ITC from a seller whose registration was cancelled retrospectively. It further submitted that the First Appellate Authority had sought clarification from the Proper Registering Authority and upheld the cancellation after considering the available records. The Tribunal examined whether the original notice satisfied the requirements of a valid show cause notice, whether the cancellation was supported by legally sustainable grounds, and whether the additional evidence considered in appellate proceedings had been handled consistently with Rule 112 of the GST Rules, 2017.
Relying on the Telangana High Court’s decision in Nice Enterprises Vs Deputy Commissioner ST and the Supreme Court decision cited as G.R. Infra Project Ltd. Vs State of Madhya Pradesh, the Tribunal observed that a notice must clearly disclose the factual allegations and statutory grounds so that the affected taxpayer can understand the case against it and furnish an effective reply. It found that the notice merely alleged wrongful ITC availment without identifying the transactions or tax periods concerned. The Tribunal also examined the First Appellate Authority’s reliance on additional inquiry material and stressed the requirement to provide an adequate opportunity of rebuttal before relying on such evidence.
Importantly, the Tribunal distinguished registration cancellation proceedings under Section 29, read with Rule 22, from proceedings concerning alleged wrongful availment of ITC under Section 74A. It held that the two statutory processes were materially different and that proceedings initiated under Section 74A could not automatically be treated as valid cancellation proceedings. The cancellation show cause notice did not properly invoke the statutory framework governing registration cancellation or disclose the precise grounds justifying that action. Accordingly, the Tribunal concluded that the cancellation proceedings and consequential appellate order suffered from fundamental legal and procedural defects. Both orders were set aside, the cancellation was revoked, and Vilasa Developers’ GST registration was restored.
Cases Discussed
- G.R. Infra Project Ltd. Vs State of Madhya Pradesh, (2026) 45 Centax 331 (S.C.) (Supreme Court), dated 19/08/2026: Cited for the requirement that allegations in a show cause notice or order must be properly disclosed and that procedural deficiencies affecting the recipient’s ability to respond cannot be treated as inconsequential.
- Nice Enterprises Vs Deputy Commissioner ST, (2024) 21 CENTAX 554 (Telangana) (Telangana High Court): Relied upon for the principle that a show cause notice must disclose the relevant factual particulars and statutory basis of the proposed action, rather than merely reproduce statutory language.
