Bombay High Court sets aside GST registration cancellation passed without considering proprietor’s serious illness

Background and context

The Bombay High Court in G.B. Traders Vs Union of India & Ors. examined the legality of cancellation of a GST registration and rejection of revocation solely on the basis that no business activity was found at the registered premises, without meaningfully considering the assessee’s explanation that operations had temporarily stopped due to the proprietor’s critical illness.

The writ petition was filed under Article 226 of the Constitution of India challenging:

  • An order dated 22 August 2024 cancelling the GST registration; and
  • A subsequent order dated 10 October 2024 rejecting the application for revocation of cancellation.

The assessee is a sole proprietorship engaged in sourcing used plastic PET bottles from small vendors and supplying them to bulk buyers for recycling. GST registration under the Central Goods and Services Tax Act, 2017 (CGST Act) had been obtained with effect from 16 March 2023, and GST dues were being discharged.

In March 2024, the proprietor was diagnosed with Stage V chronic kidney disease, which resulted in the business effectively coming to a halt. Due to this medical emergency, operations were temporarily discontinued, though GST returns continued to be filed through a consultant during this period.

Chronology of events leading to litigation

Field inspection and initiation of cancellation proceedings

  1. 29 May 2024 – A field inspection was carried out at the principal place of business by the jurisdictional officer (Respondent No. 3). The officer found that no business activity was being carried out at the registered premises and recorded the concern as “non-operational.”
  2. Based on this inspection, proceedings were initiated for cancellation of GST registration under Section 29 of the CGST Act.

First show-cause notice and suspension of registration

  • 11 June 2024 – A show-cause notice (SCN) was issued through the GST portal under Rule 21(a) of the Central Goods and Services Tax Rules, 2017 (CGST Rules).
  • Allegation: The assessee was not carrying out any business activities from the declared place of business.
  • At the same time, GST registration was suspended with effect from 11 June 2024.

Note: The SCN was very brief and did not contain detailed reasons or particulars beyond stating that no business activity was found at the registered address.

Assessee’s explanation and representations

  • 26 June 2024 – The assessee submitted a detailed written reply manually to Respondent No. 3, explaining:

    • The proprietor’s serious medical condition (Stage V chronic kidney disease);
    • That the business had only temporarily come to a standstill due to health issues;
    • That the premises continued to be the valid principal place of business; and
    • That GST compliance by way of return filing was being maintained through a tax consultant.

  • 27 June 2024 – The assessee’s authorised representative personally appeared before Respondent No. 3 and reiterated that:

    • There was no intent to abandon the business;
    • The stoppage was temporary; and
    • Such circumstances did not legitimately justify cancellation of registration.

The representative requested that the suspension be lifted and cancellation not be pursued, given the genuine hardship and continuing intent to do business.

Cancellation order despite explanation

  • 22 August 2024 – Without dealing with or referring to the submissions and documents furnished by the assessee, Respondent No. 3 passed an order cancelling the GST registration under Section 29(a) of the CGST Act read with Rule 21(a) of the CGST Rules.
  • Reason cited: The business was found to be non-operational and no activity was being conducted from the registered principal place of business.

The order did not contain any discussion on the proprietor’s illness or the claim that the non-operation was temporary in nature.

Application for revocation and ex-parte rejection

Following cancellation, the assessee:

  1. Filed an application for revocation of the cancellation order; and