Facts of the Case

The petitioner, A and T Security Services Pvt. Ltd., is engaged in the business of providing security services and is registered under the CGST Act. An inspection was conducted at the petitioner’s premises on 18.03.2019, following which a show cause notice dated 12.09.2019 was issued proposing cancellation of GST registration on the ground of non-filing of returns for a continuous period of six months. The petitioner filed a reply stating that all GSTR-1 and GSTR-3B returns had been duly filed. Despite this, the GST registration was cancelled on 29.11.2019 with zero demand. An appeal against cancellation was allowed on 27.08.2021, subject to filing of pending returns and payment of dues. Pursuant thereto, the petitioner paid a sum of ₹2,01,20,299 and the GST registration was restored.

Subsequently, a fresh show cause notice dated 31.07.2024 was issued alleging fraudulent availment of input tax credit. After reply and personal hearing, an order-in-original dated 31.01.2025 was passed imposing penalties under Section 122 of the CGST/SGST Act. The Commissioner (Appeals), by order dated 16.05.2025, upheld substantial penalties against the company and its directors.

Issues Involved

Whether penalties imposed under the CGST Act could be sustained without considering substantial tax payments already made by the petitioner prior to issuance of the show cause notice, whether penalties against directors could survive in light of Section 73 of the CGST Act, and whether the petitioner should be compelled to make further pre-deposit for pursuing the statutory appellate remedy.

Petitioner’s Arguments

The petitioner contended that an amount exceeding ₹2.01 crore had already been paid in proceedings relating to cancellation of GST registration, much prior to issuance of the show cause notice dated 31.07.2024. This material fact was specifically brought on record in the reply to the show cause notice but was completely ignored by the adjudicating authority as well as the appellate authority. It was argued that the impugned order dated 16.05.2025 suffered from non-application of mind and deserved to be set aside, particularly insofar as penalties against the company and its directors were concerned.

Respondent’s Arguments

The Revenue, through its Senior Standing Counsel, fairly conceded that the aspect of payment of ₹2,01,20,299 by the petitioner did not appear to have been considered in the impugned appellate order dated 16.05.2025.

Court Order / Findings

The Delhi High Court observed that the documents on record clearly demonstrated that substantial payments had already been made by the petitioner in relation to cancellation of GST registration and that this aspect was also reflected in the reply to the show cause notice dated 31.07.2024. The Court held that this crucial fact ought to have been considered by both the adjudicating authority and the appellate authority, and the failure to do so constituted a lapse in adjudication.

The Court further noted that the impugned order dated 16.05.2025 was appealable before the GST Appellate Tribunal, which had since been constituted and had commenced functioning. The Tribunal was directed to consider all documents evidencing prior payments while deciding the appeal. The Court also observed that, in terms of Section 73 of the CGST Act, penalties imposed on the directors may not sustain, and even penalties against the company would require reconsideration in light of earlier payments.

Important Clarification

The High Court clarified that where substantial tax amounts have already been deposited prior to issuance of a show cause notice, such payments must be duly examined while determining liability and penalties. It was further clarified that, considering the quantum of payments already made, the petitioner should not be compelled to make any further pre-deposit for availing the appellate remedy before the GST Appellate Tribunal.

Final Outcome

The writ petitions were disposed of with liberty to the petitioner to file appeals before the GST Appellate Tribunal on or before 25.12.2025. The Tribunal was directed to consider the appeals on merits without dismissing them on the ground of limitation and without insisting on any further pre-deposit. Pending applications were also disposed of accordingly.

SOURCE LINK: https://delhihighcourt.nic.in/app/showFileJudgment/75418112025CW169062025_175814.pdf  

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.