GST registration cancellation cannot rest on technical breach alone when liability is discharged and investigation is incomplete.

Rule 86B was treated as an insufficient basis for cancelling GST registration where the tax liability had already been discharged and no revenue loss was shown, making the cancellation disproportionate and lacking a proper statutory foundation. Cancellation based on Rule 21(b) and Rule 21(e) on the strength of a prima facie investigation was also found unsustainable, because such a drastic civil consequence required a completed inquiry and could not stand as arbitrary or unreasonable action under Article 14. The impugned cancellation order was set aside and GST registration was directed to be restored.

---

---

Issues: (i) Whether Rule 86B could be invoked to cancel GST registration, and whether such cancellation was sustainable when the tax liability had already been discharged; (ii) Whether cancellation could rest on Rule 21(b) and Rule 21(e) on the basis of a prima facie investigation.

Issue (i): Whether Rule 86B could be invoked to cancel GST registration, and whether such cancellation was sustainable when the tax liability had already been discharged.

Analysis: The statutory scheme of input tax credit and payment of tax under Sections 16 and 49, together with Sections 49A and 49B, was read as not disclosing any independent basis for the restriction in Rule 86B beyond the rule-making power. The Court also noticed that the registration cancellation under Rule 21(g) had been triggered for a technical breach, while the tax liability itself stood discharged and no loss to the revenue was shown. On that footing, the Court found the cancellation to be disproportionate and unsupported by a sufficient statutory foundation.

Conclusion: The challenge succeeded in substance, and the cancellation based on Rule 86B was held unsustainable and against the petitioner.

Issue (ii): Whether cancellation could rest on Rule 21(b) and Rule 21(e) on the basis of a prima facie investigation.

Analysis: The cancellation order relied on a prima facie investigation rather than a completed inquiry. The Court held that such an extreme civil consequence could not be imposed without completion of the investigation, and that the action was arbitrary, unreasonable, and in breach of Article 14. The use of the drastic measure of cancellation was treated as shockingly disproportionate in the circumstances.

Conclusion: The cancellation was not sustainable on this ground and was held to be against the petitioner.

Final Conclusion: The impugned cancellation order was set aside and GST registration was directed to be restored, with the remaining issues left open.

Ratio Decidendi: A cancellation of GST registration that imposes a drastic civil consequence must rest on a completed and legally sustainable basis, and where the breach is technical, the liability is already discharged, and a less restrictive measure is available, the action is liable to be struck down as disproportionate and arbitrary.

---