The Karnataka High Court has ruled that a taxpayer’s GST registration cannot be cancelled on the allegation that the business is “fake” merely because its name appears in a list prepared by the Office of the Principal Chief Commissioner.

The bench of Justice B.M. Shyam Prasad consequently quashed the show cause notice and the subsequent order cancelling the GST registration. However, it was granted without preventing the GST department from conducting physical verification and initiating fresh proceedings in accordance with law.

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The appellant/assessee submitted its reply. It informed the department that the State tax authorities had already initiated certain proceedings and that its representative was regularly attending those proceedings.

Despite the response, the Superintendent of Central Tax passed an order, cancelling the petitioner’s GST registration. The cancellation order stated that the Office of the Principal Chief Commissioner had reported the enterprise to be a fake entity.

Challenging both the show cause notice and the cancellation order, the petitioner approached the Karnataka High Court under Articles 226 and 227 of the Constitution.

Counsel for the petitioner argued that before cancelling the registration on the allegation that the enterprise was fake, the proper officer was required to record satisfaction based on a physical verification of the business premises. It was submitted that no inspection or physical verification had been conducted before the registration was cancelled.

The petitioner contended that its GST registration could not be cancelled solely on the strength of a centrally prepared list without any independent verification by the jurisdictional officer.

The department, on the other hand, pointed out that the petitioner’s response to the show cause notice had only referred to the proceedings initiated by the State authorities. It defended the action by relying on the material available before the proper officer.

The High Court examined the rival submissions in the light of Section 29(2) of the CGST Act. The provision permits the proper officer to cancel a person’s registration, including retrospectively, in specified circumstances.

Under Section 29(2)(e), registration may be cancelled where it has been obtained by fraud, wilful misstatement or suppression of facts. Such action, however, must be taken after giving the registered person a proper opportunity of being heard.

The Court also referred to Rule 25 of the CGST Rules, which governs physical verification of a taxpayer’s place of business. Where the proper officer considers physical verification necessary after registration has been granted, the officer may have the premises verified. A verification report, supporting documents and photographs are thereafter required to be uploaded on the common portal in the prescribed manner.

The Court observed that the list prepared by the Office of the Principal Chief Commissioner apparently contained the names of enterprises considered fake in the sense that they were allegedly not carrying on business despite having obtained GST registration.

In such circumstances, the High Court held that the proper officer, before commencing cancellation proceedings under Section 29(2)(e), should have ensured physical verification of Nobel Enterprises’ business premises.

If the enterprise was found to be non-existent or fake after such verification, the authorities could then proceed to cancel its GST registration in accordance with the statutory provisions.

The Court particularly noted that the petitioner had submitted a response enclosing copies of notices and summons issued by the State authorities as well as a copy of Form GST DRC-03. These documents warranted consideration and made it necessary for the proper officer to verify the actual existence of the business before treating the concern as fake.

Accordingly, the High Court quashed the show cause notice dated July 15, 2026, and the GST registration cancellation order dated July 30, 2026.

The Court clarified that its order would not prejudice the power of the proper officer to physically verify the petitioner’s business premises under Rule 25 of the CGST Rules and take further action based on the result of that verification.

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