GST registration cancellation and s.63 best-judgment assessments challenged as contradictory; cancellation and appeal dismissal set aside, actions quashed.

Cancellation of GST registration and consequential proceedings were tested against natural justice and internal inconsistency in the Department's case. The HC held that the authority failed to act on the taxpayer's revocation application within the statutory timeframe and did not disclose its fate, vitiating the cancellation process; the show-cause notice, cancellation order, and appellate dismissal were therefore set aside. The HC further held that issuing best-judgment assessments under s.63 for three pre-cancellation years on the premise that no business activity existed at the premises was self-contradictory to alleging business based on GSTR-2A and could not sustain the impugned actions; those actions were quashed. Separate s.63 assessment orders were left to statutory appeal.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the cancellation of GST registration based solely on the field inspection/Field Visit Report was sustainable in law when the report was not supported by a valid on-spot panchnama-type record, independent witnesses, or signatures of the person found at the premises.

(ii) Whether the respondents' actions-issuing cancellation on the premise that no business was functioning at the declared premises, while simultaneously initiating and proceeding with assessment/demand for earlier financial years on the premise that taxable business activity existed-were legally sustainable due to internal inconsistency.

(iii) Whether the cancellation order and the appellate dismissal (on limitation/non-appearance) could be sustained where the record disclosed non-consideration and non-disclosure of the fate of the revocation application, and the respondents' reply was silent on what was done with that application.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Sustainability of cancellation founded on the field inspection/Field Visit Report

Legal framework (as discussed): The Court examined the Department's reliance on a field inspection conducted on 11.08.2023 and the computer-generated Field Visit Report in Form GST REG-30 as the sole basis for proposing and effecting cancellation on the allegation that business was non-functional at the declared premises.

Interpretation and reasoning: The Court found that the inspection record relied upon was only a computer-generated report and that no contemporaneous spot report "prepared by hand on the spot like Panchanama" was produced. The inspection was carried out by a single Inspector without any panch witness. The Court treated the presence of two independent witnesses and the preparation of a proper panchnama as essential to accept such an inspection record as valid. Additionally, the Court noted that even the signature of the petitioner's son (who was stated to have been found at the premises) was not obtained on the inspection document. On these deficiencies, the Court declined to accept the inspection record as a sufficient legal foundation for cancellation.

Conclusion: The cancellation action, being grounded on an inspection record lacking the above safeguards and documentation, was held unsustainable, contributing to setting aside the show-cause notice/cancellation and consequent actions.

Issue (ii): Internal inconsistency between "no business" cancellation premise and "business activity exists" assessment premise

Legal framework (as discussed): The Court considered that, after cancellation, notices and proceedings under section 63 were initiated for assessment of tax for financial years 2019-20, 2021-22 and 2022-23, relying on portal data (GSTR-2A/2B) indicating sales, ITC availed, and resulting tax liability.

Interpretation and reasoning: The Court held that the Department's two central allegations could not logically co-exist: (a) that on inspection the business was not functioning/no stock existed and the registration was procured/continued by fraud or suppression; and (b) that for three financial years there were sales reflected in GSTR-2B/2A leading to tax liability, interest, and penalty. The Court reasoned that "there cannot be tax liabilities without doing the business for three financial years," and therefore proceeding to assess tax liabilities for those years on the premise of business activity undermined the cancellation premise of non-operation/non-existence. This contradiction vitiated the Department's overall action chain (show-cause notice, cancellation, and appellate dismissal).

Conclusion: Because the foundational allegations were mutually inconsistent, the Court held the show-cause notice, cancellation of registration, and dismissal of appeal to be unsustainable and set them aside.

Issue (iii): Effect of non-disposal/non-disclosure regarding revocation application and sustainability of appellate dismissal

Legal framework (as discussed): The Court considered that an application for revocation of cancellation was filed, and observed the respondents' reply and record regarding what action was taken on that application.

Interpretation and reasoning: The Court accepted that a revocation application had been submitted and recorded that, according to the petitioner, no order had been passed on it. The Court specifically noted that the respondents' reply was "silent" and did not disclose what happened to the revocation application. In this context, the Court treated the continuing non-disposal/non-disclosure as material, and held that the cancellation-related actions could not stand. Further, the appeal had been dismissed on limitation/non-appearance; however, given that the Court found the underlying cancellation process and the Department's action sequence unsustainable on merits (including the contradictory premises and defective inspection foundation), the Court set aside the dismissal of appeal as part of the overall invalid action chain.

Conclusion: The cancellation order and the appellate dismissal were set aside; the petitioner's GST registration was restored.

Limited treatment of subsequent assessment orders

The Court declined to examine the validity of the final assessment orders dated 11.06.2025 under section 63 because they were appealable, the petitioner had an alternative statutory remedy by appeal, and those orders were not challenged by amendment in the petition. The Court left the petitioner to pursue appeals against those orders before the appropriate appellate authority.

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