Retrospective Cancellation of GST Registration Invalid when Based on Vague SCN: Calcutta HC Orders Restoration [Read Order]

In a recent ruling, the Calcutta High Court held that retrospective cancellation of GST registration cannot be sustained when based on a vague show cause notice, and directed restoration of the registration.

Nikita Agarwal, the appellant, had challenged the order of the Appellate Authority dated 30 May 2023 which confirmed the cancellation of her GST registration with retrospective effect from 9 May 2019.

The Assistant Commissioner had issued a show cause notice on 24 March 2022 alleging that the registration had been obtained by fraud, wilful misstatement, or suppression of facts, and suspended the license from that date. The appellant did not file a reply, and on 5 April 2022, the registration was cancelled. Her application for revocation was later rejected.

The appellant’s counsel argued that the show cause notice was vague, as it did not specify whether the allegation was fraud, wilful misstatement, or suppression, and that she was denied a fair opportunity of hearing since her request for adjournment was not considered.

They further argued that retrospective cancellation was never proposed in the notice and had caused adverse consequences for her customers, who were later served recovery notices.

The State’s counsel argued that the appellant had failed to respond to the show cause notice within the permitted time, and that cancellation and appellate orders were passed in accordance with law. They also argued that the writ petition was filed nearly two years later and should be dismissed on the ground of delay.

The Division Bench comprising Chief Justice T.S. Sivagnanam and Justice Chaitali Chatterjee (Das) observed that the appellant’s explanation for the delay, namely waiting for the constitution of the GST Tribunal, was reasonable and could not defeat her case.

The court explained that the show cause notice was vague and defective, and referred to the Supreme Court’s ruling in Oryx Fisheries Pvt. Ltd. v. Union of India to state that such notices deny effective opportunity of defence.

The court also pointed out that retrospective cancellation requires objective reasons, referring to the Delhi High Court’s decision in Ramesh Chander v. Assistant Commissioner of GST, and held that in the present case there was no justification for exercising such power.

The court held that the retrospective cancellation of the appellant’s registration and the appellate order upholding it were bad in law. The court set aside both orders, directed restoration of the registration with retrospective effect and instructed the authorities to consider the appellant’s application for an additional place of business in accordance with law. The writ petition and the appeal were accordingly allowed.

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