High Court of Orissa Sets Aside Cancellation of GST Registration; Orders Restoration

The petitioner, a registered dealer under the OGST Act dealing in and manufacturing pipes and allied products, had its GST registration cancelled. A show-cause notice in Form GST REG-17 dated 14 August 2020 was issued stating that registration was obtained through misstatement or suppression. That case was withdrawn on 25 August 2020, but on the same date, another notice was given stating that ITC of Rs. 2,04,65,006 was availed on bills drawn by a non-existent supplier. The petitioner responded on 31 August 2020 that purchases were made from the then registered dealer M/s. Pawansut Enterprises, backed by the invoices of 11 April 2018, 30 April 2018 and 13 August 2018. The purchases had already been accounted for as returns, and no mismatch was noticed.

On 17 October 2020, an intimation in Form DRC-01A was issued under Section 74(5) demanding tax, interest and penalty aggregating to Rs. 3,48,066. On 3 December 2020, the Proper Officer cancelled the registration with the remark “clarification submitted not satisfactory.” A revocation application filed on 10 December 2020 was rejected on 7 January 2021, and the appeal before the Additional Commissioner (Appeal) was dismissed on 5 April 2021, treating cancellation as a preventive measure.

Main Issue: Whether cancellation of the petitioner’s GST registration under Section 30 of the OGST Act, read with Rule 21 of the OGST Rules, was valid when ITC was claimed on purchases from a dealer whose registration was cancelled later, absent proof of connivance.

HC’s Decision: The Court observed that Rule 21 allows cancellation in limited cases of non-conduct of business, issuance of invoices without supply, or breach of Section 171. None of these circumstances were met. On the dates of purchase, the registration of the selling dealer was in force, and no evidence showed that the petitioner was in collusion or had knowledge of fraud. The Court disapproved of the perfunctory reasoning of the Proper Officer and the appellate authority, only quoting “clarification not satisfactory” and “preventive measure” without scrutinising the explanation of the petitioner.

Therefore, the directions issued on 7 January 2021 and 5 April 2021 were put on hold. The Department was instructed to revive the registration of the petitioner within seven days and grant the filing of outstanding returns. The writ petition was granted ex parte without costs.

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