The Delhi High Court recently quashed the cancellation of GST registration for Rashid, Proprietor of MS Enterprises, highlighting serious procedural lapses in the issuance of Show Cause Notices (SCNs) and the denial of a personal hearing.
Background of the Case
The petitioner, Rashid, filed a writ petition under Article 226 of the Indian Constitution, challenging the Show Cause Notice (SCN) issued on 24th November 2023 and the subsequent cancellation of his GST registration on 7th December 2023. This was the second time an SCN was issued against him.
In the first instance, an SCN dated 18th August 2023 cited “suspicious purchase” as the reason for potential cancellation. The petitioner filed a reply on 21st August 2023, leading to the dropping of proceedings by the department on 22nd August 2023.
However, a second SCN was issued on 24th November 2023, citing the following grounds:
- Business not being conducted from the declared place of business (Rule 21(a) of the CGST Rules, 2017).
- Alleged involvement in passing inadmissible Input Tax Credit (ITC) without actual supply of goods and services, as per CGST Delhi East letter dated 22nd November 2023.
Unlike the first SCN, no date for a personal hearing was mentioned in this notice.
Petitioner’s Arguments
- Lack of Specific Reasons in SCN: The petitioner argued that the SCN did not clearly state why the registration was being cancelled, making it vague and ambiguous.
- Absence of CGST Delhi East Letter: The SCN referred to a letter dated 22nd November 2023, which was never provided to the petitioner.
- Denial of a Hearing: The petitioner was not given an opportunity to present his case in person, violating the principles of natural justice.
The petitioner’s reply was a simple statement denying allegations of running a fake firm and requesting a re-verification of the business premises. Despite this, his registration was cancelled on 7th December 2023. His application for revocation, filed on 16th January 2024, was also rejected on 19th December 2024.
Court’s Observations and Ruling
The Court noted several procedural irregularities:
- Contradiction with Inspection Report: The first ground of the SCN stated that the petitioner was not conducting business from the declared place. However, a physical verification report dated 22nd August 2023 confirmed that the petitioner was present at the location and actively conducting business in scrap trading.
- Non-Disclosure of Evidence: The second ground relied on a letter from CGST Delhi East, which was never shared with the petitioner. This omission denied him an opportunity to respond effectively.
- Violation of Natural Justice: No date or time for a personal hearing was provided, and the petitioner’s reply was not properly considered.
Court’s Directions
In light of the above, the Court quashed the cancellation order dated 7th December 2023 and directed as follows:
- The letter dated 22nd November 2023, which was relied upon in the SCN, must be furnished to the petitioner within four weeks.
- The petitioner shall be given an opportunity to submit a detailed reply within four weeks of receiving the letter.
- A personal hearing shall be granted, after which the department must pass an order in accordance with the law.
Final Words
The Delhi High Court’s decision underscores the importance of procedural fairness in GST proceedings. It reinforces that authorities must provide clear reasons in SCNs, furnish all relied-upon documents, and uphold the right to a fair hearing before taking punitive actions like registration cancellation. This judgment serves as a crucial precedent for businesses facing arbitrary cancellation of GST registrations.
Case Title: Rashid Proprietor of MS Enterprises vs. Union of India and Ors.
Court: Delhi High Court
Case Number: W. P. (C) 1635/2025 & CM APPL. 7966/2025
Judges: Hon’ble Justice Prathiba M. Singh and Dharmesh Sharma, JJ.
Date of Judgment: 11/02/2025
