The Goods and Services Tax Appellate Tribunal (GSTAT), State Bench at Lucknow, has restored a construction firm’s GST registration after finding that the cancellation notice failed to disclose essential details of the alleged wrongful availment of input tax credit (ITC).
The Bench of Narendra Kumar, Member (Judicial) and Alok Chopra, Member (Technical) has observed that the notice did not identify the suppliers, their GSTINs or the periods during which inadmissible credit was allegedly claimed. It also found fault with the first appellate authority’s reliance on subsequently collected material without an effective opportunity for the taxpayer to rebut it.
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The appellant/assessee whose registration was cancelled over allegations that it had claimed ITC on invoices issued by suppliers whose registrations had been cancelled.
The department initiated proceedings under Section 74A of the Uttar Pradesh Goods and Services Tax Act, 2017, and separately proceeded to cancel the firm’s registration under Rule 21(e) of the UPGST Rules.
A cancellation show cause notice was issued on March 16, 2026. The registration was cancelled on April 1, 2026, and the application for revocation was rejected on May 15, 2026. The first appellate authority upheld the adverse orders on September 25, 2026.
The firm subsequently challenged the cancellation before GSTAT.
The appellant maintained that its purchases were genuine and supported by valid tax invoices and e-way bills. Payments had been made through banking channels, statutory returns had been filed, and tax liabilities had been discharged through available ITC or the electronic cash ledger, as applicable.
It argued that no final adjudication had taken place in the Section 74A proceedings when the registration was cancelled.
According to the appellant, preliminary doubts about suppliers’ business activities could not establish wrongdoing by the purchasing taxpayer without examining its own transactions and supporting evidence.
The firm also contended that it had no control over the subsequent conduct of its suppliers or their suppliers, and that cancellation had severely affected its ability to carry on business.
The department submitted that the appellant had availed inadmissible ITC from sellers whose registrations had been cancelled retrospectively. It defended the initiation of Section 74A proceedings and the recommendation for cancellation.
It further argued that the first appellate authority had sought clarification from the proper registering authority through a letter dated June 3, 2026, and had passed its decision after examining the records and clarification produced.
Examining the notice, GSTAT found that it broadly alleged a violation of Section 16(2) through the claiming of ITC but failed to explain the underlying transactions.
The Tribunal specifically noted that the notice did not disclose the suppliers’ names, their GSTINs or the periods in which wrongful credit was allegedly claimed.
These omissions prevented the taxpayer from properly understanding and answering the allegations.
The Bench emphasised that a cancellation notice must contain sufficient grounds and factual particulars to enable an effective reply. A general allegation of wrongful ITC did not satisfy that requirement.
The notice referred to an earlier intimation and an oral communication from another tax officer alleging that the firm was regularly claiming ITC in violation of Section 16(2).
The Tribunal observed that no other official or formal communication initiating cancellation appeared from the record, while the specific grounds justifying cancellation remained undisclosed.
It held that a mere reference to an officer’s oral intimation could not constitute a valid and sufficient ground for cancellation without specific allegations supported by the relevant statutory provisions.
GSTAT also examined the first appellate authority’s reliance on an inquiry report and material that had not formed part of the cancellation notice.
The Bench found no discussion in the appellate order demonstrating that the taxpayer had received an effective and reasonable opportunity to rebut that material.
Referring to Rule 112 of the UPGST Rules, the Tribunal discussed the safeguards governing additional evidence, including the prescribed conditions, recording of reasons and appropriate opportunities to examine or rebut the material.
It emphasised that appellate proceedings should not ordinarily become a fresh investigation undertaken merely to remedy deficiencies in the original adjudication.
The Tribunal further noted that the cancellation notice did not refer to Section 29 of the UPGST Act, although the first appellate authority invoked it in the concluding portion of its order.
Section 29, read with the relevant provisions of Rule 22, provides the statutory framework and procedure for cancellation of registration.
In the circumstances of this case, the subsequent invocation of statutory provisions by the appellate authority could not cure the fundamental defects in the proceedings. The taxpayer had to receive a fair opportunity to answer clearly communicated allegations.
The Bench also referred to Notification No. 05/2026-Central Tax dated October 26, 2026. According to the order, the ground concerning wrongful availment of ITC in violation of Section 16 had been omitted from the relevant cancellation provision with effect from November 1, 2026.
The Tribunal treated this development as a relevant consideration while examining a cancellation founded on alleged wrongful ITC involving suppliers’ invoices.
However, the order did not expressly declare that the amendment operated retrospectively. Its findings also rested on the defective notice and procedural shortcomings in the cancellation and appellate proceedings.
The Tribunal expressly distinguished cancellation proceedings under Rule 21(e) from proceedings under Section 74A, observing that they differ in nature, scope and legal consequences.
It confined its ruling to cancellation of registration and made no finding on the Section 74A proceedings.
Consequently, restoration of registration does not amount to a determination that the disputed ITC was admissible or that the allegations in the separate tax proceedings were disproved.
GSTAT allowed the appeal and restored the firm’s GST registration.
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