Mere issuance of SCN not enough to cancel GST registration, rules Delhi HC

The court ruled that tax authorities are required to present clear and intelligible reasons and offer an opportunity for a personal hearing when seeking to cancel GST registration

In a recent judgment, the Delhi High Court has reaffirmed that the mere issuance of a show cause notice (SCN) by the tax authority is not enough to cancel the Goods and Services Tax (GST) registration of any entity. The judgement addresses the ongoing uncertainty surrounding the authority to cancel registration based solely on an SCN, and the prevailing doubts over its cancellation with retrospective effect.

In a petition filed by Subhana Fashion, the court invalidated the decision of cancelling GST registration terming the SCN as ‘in violation of principles of natural justice.’ The court ruled that the authorities must provide some ‘intelligible reasons’ and also an ‘opportunity of being personally heard’ while proposing to cancel the GST registration.

It further said that the ‘non-payment of dues for three months’ is not a prescribed ground for cancelling the registration.

SCN must contain every detail

Earlier, in another case filed by a construction company (M/s Chauhan Construction Co), the court ruled that the SCN must contain every specific detail. In the said case, the authorities had issued an SCN to the company, asking it to appear for a personal hearing within seven days, failing which would lead the case to be decided ex parte (done in the interest of only one party).

However the court said that the show cause notice (SCN) didn’t state ‘any appointed date, time or venue for personal hearing’. It ruled that since the SCN was devoid of ‘any particulars’, the cancellation order must be revoked.

Retrospective cancellation scrutinised

In a case (Shree Bankey Bihari Trading Company) surrounding the cancellation of GST retrospectively, the court ruled that there needs to be some ‘material on record’ to show why the registration is sought to be cancelled retrospectively. It highlighted that if the SCN doesn’t have any specific reason, it can’t be sustained.

The court has also emphasised the need of a synergy between cancellation orders and the SCN. In the A P Enterprises case, the company was issued an SCN which accused it of violating Rule 21(g) of CGST Rules. It was alleged that the company had issued invoices without supplying goods.

Judgment reinstates natural justice

But in its judgement the court highlighted that the SCN neither provided the ‘details of the invoices’ that were allegedly not covered by supply of goods, nor provided any clue as to transactions alleged to violate the rules.

The court further observed that the cancellation order carried ‘another additional reason’ apart from that stated in SCN. It is clear that the cancellation order has travelled beyond the scope of SCN which is in violation of settled principles of natural justice, the court observed.

The recent judgments of the Delhi HC have tried to address the ambiguity present in the SCNs, and the need to observe the principles of natural justice while cancelling the GST registration of entities.