Facts of the Case

The petitioner, VAB Apparel LLP, challenged an order dated 23.05.2022 cancelling its GST registration retrospectively from 05.03.2018. The cancellation was based on a Show Cause Notice (SCN) alleging that the registration was obtained through fraud, wilful misstatement, or suppression of facts.

However, the SCN failed to provide any specific details or material particulars regarding the alleged fraud or misstatement. Further, although the petitioner was granted seven working days to respond, the cancellation order was passed within four days, without waiting for the stipulated response period.

Issues Involved

  1. Whether a vague and non-speaking Show Cause Notice can sustain cancellation of GST registration.
  2. Whether passing an order before expiry of the response period violates principles of natural justice.
  3. Whether retrospective cancellation without proper justification is valid under GST law. 

Petitioner’s Arguments

  • The SCN was vague and lacked specific allegations, making it impossible to respond effectively.
  • The cancellation order was passed prematurely, violating the prescribed response period.
  • No opportunity for a fair hearing was provided.
  • Retrospective cancellation from the date of registration was arbitrary and unjustified. 

Respondent’s Arguments

  • The department claimed that the petitioner was non-functional and suspicious activities were detected involving buyers and suppliers.
  • It was argued that the taxpayer failed to respond properly and did not appear for personal hearing.
  • The department relied on internal portal remarks indicating suspicious conduct.

Court’s Findings / Order

  • The Court held that the SCN was bereft of material particulars and did not specify any concrete allegations of fraud, misstatement, or suppression.
  • Passing the cancellation order before expiry of the response period was improper.
  • The impugned order did not contain any substantive reasoning or findings.
  • Retrospective cancellation was unjustified as it was not even proposed in the SCN.
  • The reasons later relied upon by the department were also vague and insufficient.

Final Order

  • The cancellation order was set aside.
  • The GST registration of the petitioner was directed to be restored forthwith.
  • Liberty was granted to the department to take action in accordance with law if violations are established.

Important Clarification by Court

  • Mere suspicion or non-functioning status is not sufficient for cancellation of GST registration without proper evidence.
  • Authorities must provide clear, specific, and reasoned notices and orders.
  • Retrospective cancellation requires explicit justification and cannot be done arbitrarily.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/VIB10112023CW136422023_163131.pdf

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