State Government was directed to reconsider the decision of blacklisting of Bidder caused due to submission of cancelled GST registration at the time of bid.

Case Title: Commercial Food Services v. Government of NCT of Delhi

Court: High Court of Delhi

Petition No.: W.P. (C) No. 7232 of 2021

Category of Dispute: Blacklisting / GST Registration Compliance / Tender Contractual Disqualification

Date of Judgement: July 29, 2021

Relevant Sections: Section 29(2)(c) of CGST Act, 2017 (Cancellation of registration for non-filing of returns)

Judge: Ms. Rekha Palli, J.

Facts of the Case

1. The petitioner, a sole proprietorship engaged in providing dietary and kitchen services, was awarded a contract on 24.03.2021 by a Delhi Government hospital based on a tender floated on 06.03.2021
2. At the time of bidding, the petitioner furnished a GST registration number that had been cancelled on 18.01.2021 due to non-filing of returns for six months; the petitioner claimed unawareness of this due to miscommunication by a former CA and personal hardship during the COVID-19 second wave
3. Upon discovery, the respondent issued a show cause notice on 19.06.2021 for termination and blacklisting, citing false information and failure to submit a performance bank guarantee
4. The GST registration was restored by the GST Appellate Authority on 30.06.2021 after hearing the petitioner’s explanation and adjusting excess paid taxes
5. Despite this, the respondent terminated the contract and blacklisted the petitioner for two years on 12.07.2021, leading to the filing of the writ petition.

Questions in Consideration

1. Whether the cancellation of the petitioner’s GST registration, though later restored, justified termination of the contract and a two-year blacklisting?
2. Whether the blacklisting order was arbitrary and disproportionate, considering the pandemic and subsequent restoration of GST status?

Observations of the Court

1. The Court held that while termination of the contract was valid due to submission of a cancelled GST number, blacklisting for two years was disproportionate and excessive
2. The explanation for default (pandemic-induced financial hardship and miscommunication from the former CA) was found credible and noted to be accepted by the GST Appellate Authority
3. The respondent, being a State, is expected to act reasonably and proportionately, especially considering the difficulties faced by small businesses during COVID-19.
4. The act of blacklisting without re-evaluating the context post-restoration of GST registration was found unjustified.

Judgement of the Court

1. The Court upheld the termination of the contract but set aside the blacklisting order for two years
2. The respondent was directed to reconsider the issue of blacklisting in light of the Court’s observations and pass a reasoned order within two weeks
3. The petition was accordingly disposed of with liberty to the petitioner to pursue further remedies if aggrieved by the reconsidered decision

Between Fine Lines

• The Court recognized administrative discretion in contractual dealings but stressed the need for proportionality in punitive actions.
• Restoration of GST registration removed the foundation of the blacklisting order.
• Pandemic-related disruptions and small business hardships were valid mitigating circumstances.
• Termination was justified; blacklisting was not, due to lack of mala fide intent.
• Reconsideration must align with principles of fairness and contemporary realities.

Summary of Referred Cases

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