Vague Show Cause Notice Can't Justify Retrospective GST Cancellation: Delhi High Court

The Delhi High Court recently held that a GST registration cannot be cancelled retrospectively on the basis of a vague show cause notice, even where the appeal against such cancellation is delayed.

A Division Bench of Justice Nitin Wasudeo Sambre and Justice Ajay Digipaul said the court cannot be a "blind spectator" to the denial of a proper opportunity of hearing, even where the proceedings are time-barred.

“A vague Show Cause Notice is nothing less than a document which is not providing sufficient and complete opportunity of hearing to the parties like the petitioner. In absence of specific cause in the Show Cause Notice, the petitioner is handicapped and is unable to reply to the respondent qua the cause, which is formed to be the basis for the purposes of cancellation of registration of the petitioner's GST with retrospective effect,” the court said.

The plea was filed by GLO Interio, which was granted GST registration in June 2019. After shutting down its business, it applied for voluntary cancellation. In January 2021, the department issued a show cause notice alleging failure to pay tax, interest or penalty for more than three months. The notice did not specify the period of alleged default or the amount due. The registration was later cancelled retrospectively from the date of registration. The petitioner's appeal against that order was dismissed as time-barred.

Before the High Court, GLO argued that even a delayed appeal does not justify overlooking constitutional guarantees. It said the show cause notice did not state whether cancellation was proposed with retrospective effect. It also did not disclose the period or quantum of unpaid dues. The department relied on Section 29 of the CGST Act and argued that statutory consequences follow where no reply is filed.

The court noted that Section 29 of the Central Goods and Services Tax Act, 2017 does confer power to cancel registration retrospectively. But it said the power must be exercised in a fair manner. It pointed out that delayed payment of tax is otherwise recoverable with interest.

The court set aside both the cancellation order and the appellate order. It allowed the department to issue a modified show cause notice within four weeks. The petitioner undertook to file a reply within four weeks thereafter. Proceedings are to be concluded within a fixed timeline. For the delayed appeal, the court imposed costs of Rs 10,000 on the petitioner.