Facts of the Case

The petitioner, a Class-I contractor registered under the TNGST Act, 2017, had his business premises inspected under Section 67 on 08.01.2025 and 09.01.2025, following which a show-cause notice dated 25.07.2025 proposed cancellation of registration and simultaneously suspended it. The petitioner neither replied nor appeared for personal enquiry, and the registration was cancelled by order dated 29.08.2025 in Form GST REG-19. The department justified the cancellation on three grounds: suppression of turnover and consequent tax evasion, non-filing of returns for April-July 2025, and discrepancy between GSTR-7 filed by deductors and the petitioner's GSTR-3B returns.

Issues Involved

  1. Whether there was consonance between the turnover-suppression figures in the show-cause notice and the final cancellation order.
  2. Whether non-filing of returns for a period shorter than the statutory continuous period under Rule 21(h)/(i) could justify cancellation.
  3. Whether cancellation of registration, as opposed to a less drastic measure, was a proportionate response on the facts.

Petitioner's Arguments

  • The impugned order deserved to be set aside as illegal, arbitrary and violative of the TNGST Act, 2017.

Respondent's Arguments

  • The petitioner had suppressed turnover from 2018-19 onwards and, for April-July 2025-26, to the tune of Rs.2,13,39,325/-, resulting in CGST and SGST evasion of about Rs.19.20 lakh each.
  • Since the contravention was deliberate, cancellation was the only option, and in any case the petitioner could seek revocation under Section 30 read with Rule 23.

Court Order / Findings

  • The show-cause notice alleged suppression of Rs.45,19,937.77 and tax evasion of Rs.8,13,588.79, whereas the final order recorded suppression of about Rs.2,13,39,325/- and a far higher tax evasion figure -- the tax demand in the final order cannot exceed what was alleged in the show-cause notice, and the order was faulted on this ground.
  • The non-filing ground also failed: Rule 21(h) and (i) require a continuous default of six months (or two tax periods for quarterly filers) before cancellation, and the period allowed under law had admittedly not expired when the notice was issued; reliance was placed on Subhana Fashion v. Commissioner, Delhi GST.
  • Even where a statutory ground under Section 29(2) exists, cancellation must be a measure of last resort, since it effectively ends the taxpayer's ability to carry on business -- drawing on the proportionality reasoning in Rohit Enterprises v. Commissioner, State GST Bhawan (Bombay HC) and, by analogy, the Supreme Court's blacklisting jurisprudence in Techno Prints v. Chhattisgarh Textbook Corporation.
  • The impugned order was quashed and the matter remitted for a fresh enquiry after the petitioner files returns and a reply to the show-cause notice; the petitioner's registration was restored in the interim.

Important Clarification

  • A cancellation order cannot travel beyond, or rest on figures materially different from, the allegations in the underlying show-cause notice.
  • Cancellation of GST registration is a drastic step with civil consequences akin to economic doom for the taxpayer, and the proper officer must ask whether less harsh measures could achieve the statutory purpose before resorting to cancellation.

Sections Involved

  • Section 29(2), TNGST Act, 2017 -- grounds for cancellation of registration, including contravention of provisions and fraud/suppression.
  • Section 67, TNGST Act, 2017 -- power of inspection, search and seizure.
  • Rule 21(h) and (i), TNGST Rules -- cancellation for continuous non-filing of returns.
  • Section 30, TNGST Act, 2017 read with Rule 23 -- revocation of cancellation of registration.

Decision – In Favour of

Assessee. The cancellation order was quashed, registration restored, and the matter remitted for a fresh, reasoned order on merits.

Case Details

Madurai Bench of the Madras High Court; W.P.(MD) No. 24482 of 2025 & W.M.P.(MD) Nos. 19218 & 19219 of 2025; Coram: Justice G.R. Swaminathan; Order dated 09.09.2025.

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