The High Court of Delhi has set aside the cancellation of the Goods and Services Tax ( GST ) registration of Subhana Fashion, holding that non-payment of dues for a period of three months is not a valid ground under Section 29 of the Central Goods and Services Tax ( CGST ) Act, 2017. The court also noted that the cancellation violated principles of natural justice as the petitioner was not afforded an opportunity for a personal hearing.
The decision came in response to the writ petition filed by Subhana Fashion, challenging the order cancelling its GST registration. The cancellation order was issued on June 2, 2022, based on a show cause notice ( SCN ) dated September 3, 2021.
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The petitioner, Subhana Fashion, a registered taxpayer under the GST regime, had its registration cancelled by an order dated June 2, 2022. The SCN, issued on September 3, 2021, proposed cancellation of the GST registration due to non-payment of tax, interest or penalty within three months of the due date. The petitioner’s registration was suspended from the date of issuance of the SCN.
The petitioner, represented by Mr. Pulkit Verma, Mr. Upender Sah and Mr. Peyush Pruthi challenged the cancellation stressing that the non-payment of dues for three months is not listed as a valid ground for cancellation under Section 29 of the CGST Act.
The petitioner further contended that the order was passed without any reasoning or explanation and that the suspension of its GST registration was a violation of due process.
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The respondent revenue, Commissioner of Delhi Goods and Services Tax, represented by Mr. Rajeev Aggarwal and Mr. Shubham Goel contended that Subhana Fashion’s GST registration was cancelled due to non-payment of tax, interest or penalty for over three months, as cited in the SCN. The revenue maintained that the cancellation was justified under GST provisions for non-compliance.
The court examined the provisions of Section 29 of the CGST Act, which governs the cancellation or suspension of GST registrations. Under Section 29, GST registration can be cancelled for reasons such as the discontinuation of business, contravention of provisions of the Act, failure to furnish returns or obtaining registration through fraudulent means. However, non-payment of dues for three months is not mentioned as a ground for cancellation under this section.
The bench noted that the SCN had only cited non-payment of dues as the reason for proposing the cancellation, which is not in line with the statutory grounds under Section 29. The bench found that the cancellation was legally unsustainable.
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The bench highlighted that the principles of natural justice were violated as the petitioner was not given a proper opportunity to present its case. While the SCN mentioned that the petitioner should appear for a personal hearing, it did not specify any date or time for such a hearing, effectively depriving the petitioner of a chance to be heard.
The court held that the lack of a personal hearing constituted a serious violation of natural justice. It noted that administrative actions like cancellation of registration should be conducted fairly, with due opportunity given to the affected party to present their case.
The bench also observed that the impugned cancellation order did not mention any outstanding tax liability or dues owed by the petitioner, as the tabular statement in the order showed “0.0” as the amount payable.
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In result, the division bench of the Delhi High Court comprising Justice Vibhu Bakhru and Justice Sachin Datta quashed the GST cancellation order and directed the GST authorities to restore the petitioner’s registration.
The bench, however, clarified that this order would not preclude the authorities from initiating recovery proceedings or addressing any statutory non-compliance by the petitioner in accordance with the law.
This bench stressed that any action taken by tax authorities must strictly adhere to statutory provisions and respect the principles of natural justice.
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