GST Registration cancelled due to Non filing of Returns by issuing defective Show Cause Notice.

Case Title: Mangla Enterprises v. Commissioner of Delhi Goods and Services Tax

Court: High Court of Delhi

Petition Number: W.P.(C) No. 1740 of 2023

Category of Dispute: GST Registration Cancellation

Date of Judgment: 10 March 2023

Relevant Sections: Section 29 of the CGST Act, 2017 (Cancellation of Registration), Rule 22(1) of the CGST Rules, 2017 (Procedure for cancellation)

Facts of the Case:

1. The petitioner challenged the Show Cause Notice (SCN) dated 18.11.2020, which proposed cancellation of its GST registration for non-filing of GST returns for six consecutive months [Para 1, 4].
2. The SCN did not specify the date and time for personal hearing, despite mandating the petitioner to appear for one within seven working days [Para 5].
3. An ex parte order dated 27.11.2020 cancelled the petitioner’s registration without granting an opportunity of hearing [Para 6].
4. The petitioner contended he was unwell and ceased operations from March 2020 due to the COVID-19 pandemic; this was supported by turnover, ITC, and tax payment records filed for FY 2017–2020 [Para 7, 8].
5. The appeal filed against the cancellation order was rejected on 22.08.2022 for delay in filing beyond the limitation period [Para 3].

Questions in Consideration:

1. Whether the Show Cause Notice was valid when it did not specify the date and time of personal hearing? [Para 5, 10]
2. Whether cancellation of registration without granting adequate opportunity of hearing is sustainable under law? [Para 6, 11]
3. Whether non-filing of returns during the pandemic constitutes sufficient cause to justify non-compliance? [Para 9]

Observations of the Court:

1. The SCN was defective and did not satisfy the requirements of Rule 22(1) as it failed to specify the schedule of hearing, thus depriving the petitioner of natural justice [Para 10].
2. The cancellation order was passed without affording a reasonable opportunity of hearing and is therefore unsustainable [Para 11].
3. The pandemic and associated business closure constituted justifiable reasons for temporary cessation of activity and non-compliance [Para 9].

Judgment of the Court:

1. The Show Cause Notice dated 18.11.2020 and the cancellation order dated 27.11.2020 were set aside [Para 12].
2. The appellate order dated 22.08.2022 was also set aside as it was consequential [Para 12].
3. The GST registration of the petitioner was directed to be restored within one week [Para 12].
4. The petitioner was ordered to file all pending GST returns within four weeks [Para 13].
5. The judgment clarified that restoration would not prevent authorities from taking lawful action for recovery of dues, if any [Para 14].

Between Fine Lines:

• A defective Show Cause Notice that omits a hearing date and time violates principles of natural justice.
• Business disruptions during COVID-19, if substantiated, can constitute reasonable cause for temporary non-compliance.
• Courts may grant relief even against time-barred appeals if initial proceedings were legally flawed.
• Restoration of GST registration does not absolve liabilities but ensures due process is followed.
• Procedural compliance by authorities is essential before cancelling critical registrations.

Summary of Referred Cases:

No external judicial precedents were referred to in the judgment.