The Delhi High Court ruled that the temporary suspension of business due to ‘ill health’ does not justify the cancellation of GST registration.
The petitioner Sakti Metals challenged the Show Cause Notice (SCN) dated 26.05.2022, the cancellation order dated 24.06.2022 which resulted in the cancellation of their GST registration, and the appellate order dated 21.04.2023 which rejected their appeal against the cancellation order. The petitioner sought the restoration of their GST registration.
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The petitioner, who operates as a sole proprietorship under the name “M/s. Shakti Metals,” deals in aluminum, copper, ferrous, zinc waste, and scrap. The petitioner was registered under GST with the Goods and Services Tax Identification Number (GSTIN) – 07BMYPS9086H1ZV and conducted business until November 2021, after which operations ceased due to health issues related to COVID-19. The petitioner now claims to be in stable health and intends to resume business.
The GST Proper Officer issued an SCN on 13.04.2022, proposing the cancellation of the petitioner’s GST registration on the grounds of alleged fraud, willful misstatement, or suppression of facts. The SCN did not provide specific details, making it difficult for the petitioner to respond effectively. Subsequently, the Proper Officer issued an order on 23.04.2022, canceling the petitioner’s GST registration due to non-appearance at the personal hearing and lack of response to the SCN. The petitioner applied for revocation of this cancellation on 27.04.2022.
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The petitioner contested the claim that the business was non-existent, providing proof of ownership of the business premises at D-174, Mayapuri, Phase-II, New Delhi-110064, and explaining the property’s ownership history. The petitioner also submitted a property tax receipt for the financial year 2021-22, clarifying that no business had occurred since November 2021 due to ill health, and filed ‘NIL’ annual returns during this period.
The Proper Officer initially restored the petitioner’s GST registration on 13.05.2022. However, the registration was suspended again following another SCN issued on 26.05.2022, claiming that the business was found to be non-existent during a physical verification. The petitioner reiterated that they were conducting business from the registered premises, but the Proper Officer issued a cancellation order, retrospectively canceling the registration from 12.04.2022, based on directions from another officer. The cancellation was deemed to violate the principles of natural justice as the petitioner was not provided an opportunity to respond to the new evidence.
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The petitioner appealed the cancellation under Section 107 of the Central Goods & Services Tax Act, 2017 (CGST Act), but the appellate authority rejected the appeal, citing insufficient documentary evidence to prove the petitioner’s existence at the time of physical verification. The appellate authority found the property tax receipt dated 15.05.2022 insufficient as it was issued before the SCN.
The respondent’s counsel, Mr. Shubham Goel, argued that the petitioner’s admission of ceasing business activities since November 2021 justified the cancellation of GST registration. However, the court found no merit in this argument, recognizing the petitioner’s right to resume business activities after recovering from illness. The petitioner’s provision of property tax receipts and proof of ownership of the business premises was uncontested, indicating the petitioner’s legitimacy.
The division bench of Justice Vibhu Bakhru and Justice Sachin Datta concluded that the Proper Officer’s cancellation of GST registration based on another authority’s directions was impermissible. The officer was required to independently assess the reasons for cancellation. The court held that the temporary suspension of business due to ill health did not justify the cancellation of GST registration.
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Although the petitioner had the option to appeal under Section 112 of the CGST Act, the absence of a constituted Goods and Services Tax Appellate Board made it impractical. The court, therefore, entertained the petition, setting aside the SCN, the cancellation order, and the appellate order, and directed the respondents to restore the petitioner’s GST registration immediately.
However, the court clarified that this order would not prevent the respondents from taking action if the petitioner is found to have violated any laws, provided that any such action is taken in accordance with the law and after giving the petitioner a fair opportunity to respond.
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