Contradictory Stands by Revenue Quashed: Allegation of "No Business Found" Cannot Co-exist with Demand for Tax Liability for Previous Years; Registration Restored

Contradictory Stands by Revenue Quashed: Allegation of “No Business Found” Cannot Co-exist with Demand for Tax Liability for Previous Years; Registration Restored

ISSUE

Whether the GST Department can simultaneously sustain two contradictory allegations against an assessee:

Cancelling registration on the ground that no business activity was found at the premises (fraud/suppression).
Issuing a demand notice under Section 63 assessing tax liability for three financial years, implying business was conducted.

FACTS

The Cancellation: The petitioner’s GST registration was cancelled vide an order dated 22.09.2023. The ground for cancellation was that the registration was obtained by means of fraud, wilful misstatement, or suppression of facts, based on an inspection where no business was found at the registered premises.
The Revocation: The petitioner applied for revocation of the cancellation, but the authorities failed to pass any order on the application.
The Contradiction: While asserting “no business exists” to justify cancellation, the Department simultaneously issued a notice under Section 63 (Assessment of unregistered persons/special cases) to assess tax for the financial years 2019-20, 2021-22, and 2022-23.
Petitioner’s Plea: The petitioner argued that the Department was blowing hot and cold—accusing them of not doing business to cancel registration, while demanding tax for doing business during the same periods.

HELD

Mutually Destructive Pleas: The High Court held that the Department’s stance was self-contradictory.
- If the petitioner had not been doing any business (as alleged for cancellation), there could not be any tax liability for three financial years.
- Conversely, if the Department alleges tax liability (as per the Section 63 notice), it implicitly admits that the petitioner was conducting business.
Unsustainable Action: Both allegations cannot co-exist. The Court ruled that the entire action of the Department—including the Show Cause Notice, the cancellation order, and the dismissal of the appeal—was legally unsustainable due to this fundamental contradiction.
Restoration: The Court directed that the petitioner’s registration must be restored.
Verdict: [In Favour of Assessee]

KEY TAKEAWAYS

Doctrine of Approbate and Reprobate: The Revenue Department cannot take two mutually exclusive stands. They cannot claim a firm is “bogus/non-existent” to deny registration rights and simultaneously treat it as a “running business” to extract tax dues for the same period.
Section 63 Limitations: Section 63 allows for assessment where a taxable person fails to obtain registration or whose registration is cancelled. However, invoking it requires evidence of taxable supplies. Proving taxable supplies automatically disproves the claim that “no business exists.”
Physical Verification Timing: A finding that “no business exists” on the date of inspection (e.g., in 2023) does not automatically prove that no business existed in prior years (2019-2022). Retrospective cancellation based on a current inspection is often struck down by Courts.

HIGH COURT OF MADHYA PRADESH

Anil Kishore Purohit

State of Madhya Pradesh^*

VIVEK RUSIA and Pradeep Mittal, JJ.

WRIT PETITION No. 12362 of 2025

DECEMBER 4, 2025

Sanjay K. Agrawal, Sr. Adv. and Mihir Agrawal, Adv. for the Petitioner. Rajvardhan Dutt Padraha, Govt. Adv. for the Respondent.

ORDER

Vivek Rusia, J.- The petitioner has filed this present petition being aggrieved by orders dated 22.09.2023 (Annexure P-3) passed by the respondent no.5, whereby the GST registration of the petitioner has been cancelled, order dated 08.07.2024 (Annexure P-5, Annexure P-6, and Annexure P-7) passed by the respondent no. 3, and order dated 18.03.2025 (Annexure P-13) passed by the respondent no.4, whereby the appeal has been dismissed.

2. The facts of the case in short are as under:-

(a)

The petitioner is a proprietor of a firm registered in the name of M/s Aditya Electricals having registration No.23AIYPP7639L1Z9 (Annexure P-1) under the Goods and Service Tax, 2017. The petitioner firm is engaged in the business of supply of electricals. The respondent no.5/Assistant Commissioner of State Tax, Sagar issued a show-cause notice dated 25.08.2023 (Annexure P-2) proposing for cancellation of registration on account of violation of section 29(2)(e) of CGST Act, 2017 i.e registration obtained by means of fraud, wilful misstatement or suppression of facts. The said notice was uploaded in the GST portal, but not physically served to the petitioner by way of other modes, therefore, neither the petitioner nor his Chartered Accountant were able to track the same; therefore, the petitioner did not have any opportunity to submit a reply to the show-cause notice, which has resulted into cancellation of registration vide order dated 22.09.2023 (Annexure P-3).

(b)

Being aggrieved by the aforesaid order, the petitioner preferred an application for revocation of cancellation of registration on 18.10.2023 (Annexure P-4). According to the petitioner, no information was given about the hearing on the application for revocation of cancellation of registration. He was directly served with the show-cause notice dated 08.07.2024 raising demand and interest for the financial years 2019-20, 2021-22, 2022-23 (Annexure P-5, Annexure P-6 and Annexure P-7 respectively). According to the petitioner, the application for revocation of cancellation of registration was submitted by his accountant without informing the petitioner. The petitioner for first time came to know about the cancellation of the registration after receipt of the notice dated 08.07.2024; therefore, according to the petitioner, the application for revocation of cancellation of registration has neither been accepted nor rejected by the proper officer. The petitioner preferred an appeal (Annexure P-8) assailing the order dated 22.09.2023 passed by the respondent on 26.07.2024 inter alia on the ground that he had no knowledge about cancellation of the registration. Thereafter, the respondent no. 3 issued the show-cause notice dated 06.11.2024 (Annexure P9) in respect of rejection of the application for revocation of cancellation of the registration. The petitioner submitted a reply to the show-cause notice (Annexure P-10) by submitting that his business was running smoothly prior to cancellation of the registration on 16.11.2024. Although, till date no order has been passed on such application, but the appeal has been dismissed vide order dated 18.03.2025 (Annexure P-13) on the ground of limitation by mentioning that the petitioner did not appear before the appellate authority. Hence, this petition before this Court.

(C)

During the pendency of this petition, three assessment orders dated 11.06.2025 (Annexure IA-1) have been passed by the Deputy Commissioner, State Tax, Sagar for all three financial years 2019-20, 202122 and 2022-23, which have been brought on record by way of application for ad-interim relief.

3. After notice, the respondents have filed their reply by submitting that before issuance of show-cause notice, the petitioner registration was selected for physical verification during an “All India Drive- Phase III” on 11.08.2023. The Officer of the Department carried out a field inspection of the petitioner’s declared principal place of business. The Field Visit Report was prepared (Annexure R-1), according to which no business was found functioning, no stock available at the business premises, documents unverified, hence the action for cancellation of the registration was proposed. The petitioner son was found in the premises; so therefore; the petitioner had knowledge about the proposed action to be taken after pursuant to the search. It is further submitted that at the time of obtaining registration, the petitioner declared the goods for sale in the course of business. The details are given in paragraph 5 of the reply. During the inspection, none of the goods were found in the stock; so therefore, the show-cause notice under section 29(2) of the CGST Act, 2017 was rightly issued on the ground that the registration has been obtained or was being continued by means of fraud, willful misstatement or suppression of facts. The cancellation of registration was made effective retrospectively from 10.10.2017. The plea of not having knowledge cannot be accepted because the petitioner’s representative have submitted an application for revocation of cancellation of registration. Now on the basis of Assessment final order under section 63 (Annexure R-2) have already been passed for the financial year 2019-20, 2021-22 and 2022-23. Against which, the statutory appeal lies under section 107 of CGST Act, 2017. Thus, no interference is liable to be made and this petition be dismissed.

4. We have heard learned counsel for the parties and perused the record.

5. The entire case of the Department is based on the search conducted on 11.08.2023 and submission of “Field Visit Report”. According to the respondent/Department, during the visit Aditya Purohit, son of the petitioner was found and two photographs were uploaded (one photograph, showing petitioner’s son sitting and another photograph of mobile). As per comments given in the search report, 1. Business is not functioning, 2. No stock available at the business premises, 3. Document unverified, and 4 Cancellation of the registration. The name of the Officer is Anshul Mundra, Inspector of State Tax. In this Field Visit Report, computer generated in Form GST REG-30 (Form for Field Visit Report) (Annexure R-1), no spot report prepared by hand on the spot like Panchanama has been produced in the record. The entire inspection was carried out by one Anshul Mundra alone, without any panch witness. Every panchnama should be signed by two independent witnesses, then only the same can be accepted as a valid panchnama. Even the signature of son of the petitioner has not been obtained in the panchnama report. In similar facts and circumstances, the Division Bench of this Court in Empire Steel Holdings v. Union of India GST 79/99 GSTL 93 (Madhya Pradesh)/W.P No. 31219 of 2024,vide order dated 24.04.2025 quashed the panchnama and further action of cancellation of the registration. Relevant paragraphs 12 and 13 are reproduced below:-

“12. In the case of Roxy Enterprises (supra), the Division Bench of the High Court of Delhi has considered Rule 25 of GST Rules 2017 which deals with the physical verification of business premises in certain cases. According to Rule 25, the physical verification of the business premises should be done in the presence of the person, and it should be uploaded in the form GST REG-30 on the common portal within 15 working days following the date of such verification. Apart from the above, all these grounds on which the registration of the petitioner has been cancelled have already been criticized by the Joint Commissioner of CGST and Central Excise Indore in its order dated 31.12.2024 whereby show cause notice for imposing a penalty of Rs.6,17,33,624/- has been dropped. The Para 2.3 of the order is reproduced below:

“2.3. Action taken on the Input.

The officers of Jurisdictional division office, visited the registered principal place of business of M/s. Empire Steel Holdings, (Legal Name: Smt. Akriti Mishra), 1st Floor, 163, Orbit Mall, A.B. Road, Indore-452010(GSTN-23BNQPM0072E1270) on 15.05.2023 (RUD-I to SCN) under Section 25 of CGST Act, 2017. During the verification, the principal place of business at Orbit mall found locked and the display board showing name of the firm M/s. Suman Services and no GSTIN mentioned on display board. On enquired from some neighboring shops situated at 1st floor of Orbit Mall that the no such firm is working at 1st Floor, 163, Orbit Mall, A.B.Road, Indore-452010.

Further, officers of Jurisdictional division office, visited the amended principal place of business at Flat No. 303, E-Block, Dream City, A.B.Road, Indore-453771 on 16.05.2023 but the same was found locked. The officers searched the mobile number of Flat Owner Shri Dinesh Gupta and talk to Shri Gupta on their Mobile No. 4885–51588 Shri Gupta informed that he does not know anything about Akriti Mishra and M/s. Empire Steel Holdings and never given Flat No. 303, Dream City to any Akriti Mishra or M/s. Empire Steel Holdings for business purpose.

Further, M/s Empire Steel Holdings has applied for revocation of cancelled registration vide reference number ZA2305231101311 dated 21.05.2023. According. proprietor of the firm Smt. Akriti Mishra appeared and submitted their reply dated 27.07.2023 (RUD-II to SCN). On examination of the submitted documents, it is noticed that the submitted rent agreement of the period from May-2017 (valid for 11 months) is not related with the firm M/s. Empire Steel Holdings or proprietor of the firm Smt. Akriti Mishra. The said agreement was executed between Smt. Anika Karve (owner of the premises situated at 163, 1st floor, Orbit Mall, PU-4, Scheme No. 54, A.B.Road, Indore) and M/s. Almentam Health Care Pvt Ltd & M/s. Astro Ashiwani (concerned person name mentioned in said agent Shri Ankit Alaya).

Subsequently, Personal Hearing opportunity was issued by Deputy Commissioner, CGST & CEx. Division-IV Indore to Smt. Akriti Mishra in which she could not produce any other documents related to address proof of principal place of business where she was doing business since 03.10.2017. She verbally informed that there was mutual consent between her and Shri Ankit Alaya but she did not execute any agreement during entire period. On further being enquired, Smt. Mishra could not produce any bank entry of the rent paid by her to Shri Ankit Alaya. Hence, registration was not revoked.

Thus, it revealed that M/s. Empire Steel Holdings is found nonexistent and non operational.

Further, Noticee has filed an appeal before Commissioner (Appeal) and Joint Commissioner(Appeals), who disallowed the Noticee appealof the Noticee vide OIA NO IND-CGST-JC-APP-40-2024-25 dated 25.04.2024(RUD-III to SCN)as the Noticee has failed to prove the genuineness of their firm.”

13. Thereafter, the Joint Commissioner has considered the GSTR 2A submitted by the petitioner and legal provisions like Sections 16, 20, 122, and 155 of the Act of 2017. The learned Joint Commissioner discussed the issue and recorded its findings in Para 5 and held that no penalty is liable to be imposed. Para 5.6 is reproduced below:-

“5.6. I also find from the case records that physical copy of Show Cause Notice issued to the Noticee was returned undelivered by the Postal Department from the Principal Place of Business with remarks “Left”. However, the GST-DRC-01 was uploaded on GST Portal under Reference No. ZD230724025775B dated 29.07.2024 and Notice of Personal Hearing was issued through GST Portal electronically for 05.09.2024 as the Noticee was found non-existent/non-operational at the Principal Place of Business, wherein the Authorised Representative for the Noticee appeared for Personal Hearing on 05.09.2024.

Further, as per request of the Noticee during Personal Hearing on 05.09.2024, subsequent Personal Hearing Notices for 07.11.2024 & 22.11.2024 were sent on Address Le. 516, BRG Sangila, Talawali Chanda, Indore, which were delivered by the Postal department and further submission made by the Noticee along with supporting documents arid records at the time of Personal hearing by Authorised Representative and Husband of the Noticee on 13.12.2024.

Thus, as per above records i.e. Physical appearance of the Proprietor i.e. Smt. Akriti Mishra before the Jurisdictional Central GST Range Officer as well as the Jurisdictional Central GST Divisional Officer after cancellation of the GST Registration for revocation, filing of Writ Petition No. 31219/2024 on 04.11.2024 before the Hon’ble High Court of Madhya Pradesh Bench at Indore by the Noticee and appearance of Authorised Representative & Husband of the Noticee, I find that though the business of the Noticee was non-operational at the registered Principal Place of Business, but the Noticee i.e. Smt. Akriti Mishra (Proprietor) is in existence.”

6. The petitioner came up with a specific plea that he had no knowledge about the order of cancellation of the registration dated 22.09.2023 (Annexure P-3). The application for revocation of the cancellation of the registration was submitted on 18.10.2023, no order has been passed on the said application within one month but till date no order has been passed on the said application. The entire return is silent on this point. The respondents have not disclosed as to what happened to the application for revocation of the cancellation of the registration (Annexure P4).

7. Apart from that after cancellation of the registration, the petitioner was served with a notice under section 63 for assesment of the tax for financial years 2019-20, 2021-22 and 2022-23, i.e three years antedated cancellation of the registration with an allegation that in GSTR-2A, he was found doing the business; so therefore, incurred tax liability with penalty and interest; therefore, both the things cannot exist simultaneously. On date of inspection, no business activity is said to be found on the business premises and despite that during said period the allegation that the petitioner was doing the business and did not pay the taxes. The petitioner has been assessed for three consecutive financial years during this process of cancellation of registration solely on the ground that no business activities were found on the declared premises. In financial year from 01.04.2019 to 31.03.2020 (Annexure P-5) as per GSTR-2B the sale of Rs.1402562/- was found, in which the ITC Rs.205659/- was availed and the tax liability came to Rs.226225/-. Likewise for financial year from 01.04.2021 to 31.03.2022 (Annexure P-6) as per GSTR-2B the sale of Rs.710015/- was found, in which the ITC Rs.108641/- was availed and the tax liability came to Rs.119505/- and for financial year from 01.04.2022 to 31.03.2023 (Annexure P-7) as per GSTR-2B the sale of Rs.7511719/- was found, in which the ITC Rs.1355910/- was availed and the tax liability came to Rs.1491501/-. So therefore, both the allegations cannot co-exist; first that the petitioner has not been doing any business despite obtaining the registration and secondly that there has been tax liabilities. There cannot be tax liabilities without doing the business for three financial years. Hence, the entire action of the respondents in respect of the show-cause notice, cancellation of registration, and dismissal of appeal are unsustainable hence hereby set aside.

8. So far the final assessment orders dated 11.06.2025 (Annexure IA-1) passed under section 63 passed by the Deputy Commissioner, State Tax, Sagar for all three financial years 2019-20, 2021-22 and 2022-23 are concerned, the petitioner may prefer appeals before the Appellate Authority. That orders are appealable and the petitioner has remedy to appeal. The petitioner has not challenged the said orders by way of amendment in this petition.So therefore, the validity of those orders cannot be examined in this petition. In result the registration license of the petitioner is restored.

9. With the aforesaid, this petition is allowed.