The Delhi High Court in the case of M/S. A.P. ENTERPRISES VERSUS SALES TAX OFFICER CLASS II /AVATO, WARD-83, ZONE-7, DELHI vide W. P. (C) 9418/2024 CM APPL. 38634/2024 CM APPL. 38635/2024 dated 31.07.2024, has held that the GST registration cannot be cancelled on cryptic allegations and on the basis of the Show Cause Notice, which did not state any specific allegation, which could be explained by the taxpayer. Also, it was observed that the order traveled beyond the scope of the Show Cause Notice and thus is passed in violation of settled principles of natural justice.

Facts of the Case:- The petitioner filed the petition challenging the Show Cause Notice by which the petitioner was called upon to show cause as to why its Goods and Services Tax (GST) registration should not be cancelled. Also, challenged impugned order cancelling registration retrospectively. 

The Petitioner contended that the only reason set out in the SCN for proposing the cancellation of the petitioner's GST registration was that Rule 21(g) person violates the provision of Rule 86B. Rule 21(g) of the CGST Rules pertains to the issuance of invoices without supply of goods. Thus, it appears that the petitioner's GST registration was proposed to be cancelled on an allegation that it had issued invoices without supply of goods. However, the SCN neither provides the details of invoices that are allegedly not covered by supply of goods nor provides any clue as to transactions alleged to be in violation of the aforesaid rule. Further, contended show cause notice does not contain any details of the allegations against the petitioner.

Also, the petitioner contended that Cancellation order cited an additional reason that the petitioner’s firm was non-functional at the time of a GSTI report, a ground not mentioned in the SCN.

Held:- The court found that the SCN was vague and lacked specific details necessary for the petitioner to respond effectively. It merely mentioned a violation of Rule 86B without specifying which invoices were in question or the exact nature of the alleged violation. A valid SCN must clearly state the reasons for the proposed action to enable the noticee to present a defense. The court held that the SCN in this case failed to meet this standard.

Further, the court observed that that the cancellation order introduced an additional ground for cancellation — that the petitioner’s firm was non-functional as per the GSTI report dated 24.11.2023. This ground was not mentioned in the SCN, making the order invalid as it went beyond the scope of the SCN. The court emphasized that any adverse action must be based on grounds specified in the SCN, and the petitioner must be given an opportunity to respond to those grounds.

The court set aside both the SCN and the cancellation order, deeming them to be in violation of natural justice principles due to the lack of clear and specific allegations in the SCN and the introduction of new grounds in the cancellation order. The petitioner’s GST registration was ordered to be restored, but the authorities were allowed to start fresh proceedings if necessary, in compliance with legal requirements.

The Complete judgment can be accessed at 2024 Taxo.online 1694