Retrospective VAT registration cancellation cannot rest on mere dues default, and new grounds cannot be added beyond notice.

Cancellation of a dealer's registration under section 27(5) of the Gujarat VAT Act may be ordered from a specified date, but retrospective or ab initio cancellation is not justified on mere non-payment of assessed dues, as it would unsettle lawful past transactions; such drastic effect is reserved for cases like fraud or a non-genuine business from inception. The Tribunal also could not rely on the earlier Nageshi Enterprise ruling because that case turned on an admission of wrongful input tax credit, which was absent here. Cancellation and appellate affirmance were further vitiated because the authorities went beyond the show-cause notice by adding new grounds and materials without prior notice, breaching natural justice.

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Issues: (i) Whether cancellation of registration under section 27(5) of the Gujarat Value Added Tax Act, 2003 could validly operate ab initio or retrospectively on the facts of the case; (ii) whether the Tribunal was justified in applying the decision in State of Gujarat v. Nageshi Enterprise to the appellant's case; (iii) whether the cancellation order and the appellate affirmance were vitiated for travelling beyond the show-cause notice and relying on grounds not stated therein.

Issue (i): Whether cancellation of registration under section 27(5) of the Gujarat Value Added Tax Act, 2003 could validly operate ab initio or retrospectively on the facts of the case?

Analysis: Section 27(5) confers discretion on the Commissioner to cancel registration from such date as may be specified, and this is contrasted with section 27(5A), which expressly restricts suspension to a date not earlier than the order. The absence of similar restrictive language in section 27(5) permits retrospective cancellation in an appropriate case, but the nature of the default remains material. Mere non-payment of assessed dues, without more, does not justify cancelling registration from inception, because such an order would invalidate otherwise lawful past transactions and prejudice third parties who dealt with the dealer while the registration was subsisting. Ab initio cancellation is reserved for cases such as fraud or absence of genuine business from the beginning.

Conclusion: Retrospective cancellation was not justified on the facts, and the issue is answered in favour of the assessee.

Issue (ii): Whether the Tribunal was justified in applying the decision in State of Gujarat v. Nageshi Enterprise to the appellant's case?

Analysis: The earlier decision was rendered on its own peculiar facts, where the dealer had specifically admitted that it was not entitled to input tax credit and had wrongly availed it. In the present case, the appellant contested the levy of tax, interest and penalty up to the second appeal stage, and mere payment of tax and interest, especially when the challenge was later confined to penalty in accordance with the Tribunal's practice, did not amount to an admission that the transactions were bogus or that the appellant had engaged only in billing activity. The factual foundation required to apply that precedent was therefore absent.

Conclusion: The Tribunal was not justified in treating that decision as applicable, and the issue is answered in favour of the assessee.

Issue (iii): Whether the cancellation order and the appellate affirmance were vitiated for travelling beyond the show-cause notice and relying on grounds not stated therein?

Analysis: The notice under section 27(5) was founded on non-payment of dues and failure to produce books of account, but failure to produce books of account is a ground for suspension under section 27(5A), not cancellation under section 27(5). The cancelling authority nevertheless added new grounds, such as suspicious transactions and protection of revenue, which were not part of the notice. The first appellate authority further expanded the inquiry by relying on online transaction details and alleged bogus purchases, without any prior notice of such enhanced basis. An appellate authority cannot go beyond the show-cause notice and supply new grounds to sustain an adverse order in the absence of prior notice and opportunity.

Conclusion: The cancellation and its affirmance were vitiated by breach of natural justice and jurisdictional excess, and the issue is answered in favour of the assessee.

Final Conclusion: The cancellation of registration could not be sustained either on the basis of retrospective operation or on the enlarged grounds adopted in the orders below, and the registration certificate was liable to be restored.

Ratio Decidendi: Where cancellation of a dealer's registration is founded only on non-payment of dues, it may operate prospectively in an appropriate case, but it cannot be retrospectively imposed from inception so as to invalidate lawful past transactions; further, neither the cancelling authority nor the appellate authority may sustain cancellation on grounds not contained in the show-cause notice.

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