Facts of the Case

The petitioner, Saluja Overseas Pvt. Ltd., challenged an order dated 08.10.2021 whereby its GST registration was cancelled retrospectively from 01.07.2017. The cancellation was based on a Show Cause Notice (SCN) dated 26.08.2021 alleging failure to deposit collected tax within the prescribed period.

The petitioner contended that:

  • The SCN lacked specific details regarding transactions or tax amounts.
  • No date or time for personal hearing was provided.
  • The SCN did not propose retrospective cancellation, yet the final order imposed it.

Additionally, the petitioner challenged subsequent orders under Section 73 of the CGST Act, 2017 / DGST Act, which denied Input Tax Credit (ITC) for FY 2017–18 and 2018–19 due to cancellation of the supplier’s GST registration.

Issues Involved

  1. Whether cancellation of GST registration based on a vague SCN violates principles of natural justice.
  2. Whether retrospective cancellation can be imposed when not proposed in the SCN.
  3. Whether denial of ITC under Section 16(2)(c) of CGST Act is valid when suppliers fail to deposit tax.
  4. Whether the High Court should intervene despite availability of alternative statutory remedy (appeal).

Petitioner’s Arguments

  • The SCN was cryptic and non-speaking, lacking particulars of alleged tax default.
  • No effective opportunity of hearing was granted due to absence of a specified schedule.
  • Retrospective cancellation was beyond the scope of SCN, making the order illegal.
  • ITC denial was consequential to wrongful cancellation of supplier’s GST registration.
  • Reliance was placed on judicial precedent including Sri Sai Vishwas Polymers v. Commissioner of GST (2024 SCC OnLine Del 2629).

Respondent’s Arguments

  • The petitioner wrongly availed ITC as suppliers failed to deposit tax.
  • Under Section 16(2)(c) CGST Act, ITC is not admissible unless tax is actually paid by the supplier.
  • The petitioner has an effective alternative remedy by way of statutory appeal against Section 73 orders.
  • Appeals could be considered even if filed beyond limitation, subject to Court directions.

Court’s Findings

The Delhi High Court held:

  • The SCN was vague, lacking material particulars, and did not disclose the basis of allegations.
  • No proper opportunity of hearing was granted as no date/time was specified.
  • Retrospective cancellation was invalid since it was not proposed in the SCN.
  • The proceedings suffered from violation of principles of natural justice.

Accordingly:

  • The SCN and cancellation order were set aside.
  • Regarding Section 73 orders, the Court noted availability of statutory appeal and directed that if appeals are filed within two weeks, they shall be decided on merits without being rejected on limitation grounds. 

Court Order / Final Directions

  • Impugned SCN dated 26.08.2021 and cancellation order dated 08.10.2021 were quashed.
  • Petitioner permitted to file appeals against Section 73 orders within two weeks.
  • Appellate authority directed to consider appeals without being influenced by delay. 

Important Clarification

  • A Show Cause Notice must contain specific allegations and details; vague notices are unsustainable.
  • Retrospective cancellation of GST registration cannot be imposed unless expressly proposed in SCN.
  • Courts may refuse to interfere in tax adjudication where statutory appeal remedy exists, but can still issue protective directions.
  • ITC disputes linked to supplier default remain subject to adjudication under Section 16(2)(c). 

Sections Involved

  • Section 73 – CGST Act, 2017 / DGST Act, 2017
  • Section 16(2)(c) – CGST Act, 2017
  • Principles of Natural Justice

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/VIB03092024CW117392024_135915.pdf

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