Facts of the Case

  • The petitioner, M/s V.V. Enterprises, was a registered entity under the Goods and Services Tax (GST) framework.
  • The respondent authorities issued a Show Cause Notice (SCN) proposing to cancel the petitioner's GST registration. Subsequently, on February 19, 2026, the respondents passed an impugned order effectively canceling the petitioner’s GST registration with retrospective effect.
  • Crucially, the statutory authorities relied upon certain adverse documents and evidence to justify this severe measure. However, this underlying material/evidence was never served upon or supplied to the petitioner prior to the passing of the final cancellation order.
  • Aggrieved by the severe disruption to their business operations and the blatant procedural lapse, the petitioner filed a Civil Writ Petition (CWP) before the High Court.

Issues Involved

  • Whether the retrospective cancellation of the petitioner's GST registration under Section 29 of the CGST Act, 2017, without supplying the underlying evidence relied upon by the authorities, satisfies the statutory and constitutional mandates of a fair hearing?
  • Whether the non-disclosure of supporting material mentioned or relied upon in a Show Cause Notice violates the basic principles of natural justice, rendering the subsequent final order void ab initio?

Petitioner’s Arguments

  • The learned counsel for the petitioner argued that the impugned order dated February 19, 2026, was passed in complete violations of the principles of natural justice.
  • It was strongly contended that a taxpayer cannot effectively defend themselves against an adverse proposal if the very foundation, evidence, or documents forming the basis of the allegation are withheld by the department.
  • The petitioner maintained that the law mandates clear communication of reasons and supporting evidence, especially when exercising the draconian power of retrospective cancellation which impacts the entity's fundamental right to carry on trade.

Respondent’s Arguments

  • The Senior Standing Counsel appearing for the respondents could not dispute the core factual assertion that the evidence relied upon to execute the cancellation had not been supplied to the petitioner prior to the adjudication.
  • While the department maintained that the power to retrospectively cancel a registration is statutory under Section 29 of the CGST Act, they conceded that the procedural requirement of sharing the exact material had been bypassed in this instance.

Court Findings & Order

  • The Division Bench observed that it remained undisputed that the evidence forming the basis of the GST registration cancellation was never served on the petitioner before the impugned order was passed.
  • The Court held that the case was squarely covered in favor of the taxpayer by a recent Division Bench decision of the same Court dated February 20, 2026, in M/s Bansal Casting vs. Union of India and another (CWP No.16770 of 2024).
  • Precedent Reliance: The Court reiterated the established standard set by the Hon’ble Supreme Court of India in Oryx Fisheries Pvt. Ltd. Vs. Union of India and others (2010), highlighting that a quasi-judicial authority must act fairly and with an open mind. A show cause proceeding must give the person a "reasonable opportunity" to make an objection, which is impossible without sharing the basic grounds and supporting documents.
  • Final Verdict: Consequently, the High Court quashed the impugned cancellation order dated February 19, 2026. However, the Court granted the department liberty to proceed afresh against the petitioner strictly in accordance with the law. The writ petition was allowed.

Important Clarification

  • Conditional Power: The High Court clarified that while Section 29 of the CGST Act unequivocally confers the power to cancel registrations retrospectively, such power can only be triggered under specific statutory contingencies.
  • Reasoned Orders Required: Any order passed under Section 29(2) must explicitly reflect the specific reasons for choosing a retrospective date.
  • Mandatory SCN Contents: The Court laid down a strict operational rule: a Show Cause Notice must contain the basic premises of the action, and if the notice mentions that supporting documents are attached, those documents must be physically or digitally supplied to the assessee. Simply referencing materials in a notice without providing access to them is bad in law.

Sections Involved

  • Section 29 of the Central Goods and Services Tax (CGST) Act, 2017: Deals with the cancellation or suspension of GST registration, specifically Section 29(2) which governs the proper officer's power to cancel registration from a retrospective date under specific statutory contingencies.
  • Principles of Natural Justice (Audi Alteram Partem): The constitutional right of a party to be heard and provided with all materials/evidence intended to be used against them before any adverse quasi-judicial order is passed.

Link to download the order - https://mytaxexpert.co.in/uploads/1783070976_478compressed.pdf

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