Facts of the Case

The petitioner, Shri Sarabjeet Singh, proprietor of M/s Khurana Associates, had an earlier GST registration which was cancelled following disruption of business during the COVID-19 period. A show cause notice dated 24.09.2023 culminated in an Order-in-Original dated 28.12.2023 raising a GST demand of ₹21,72,324. The petitioner challenged the said order before the Delhi High Court, which by order dated 04.04.2025 permitted him to avail the statutory appellate remedy under Section 107 of the CGST Act. Pursuant thereto, the petitioner filed an appeal along with the mandatory pre-deposit, which was pending adjudication. During pendency of the appeal, the petitioner applied for a fresh GST registration on 05.05.2025. The Department refused to grant registration and withheld issuance of No Objection Certificate on the ground that the petitioner continued to be a defaulter until the demand was fully discharged.

Issues Involved

Whether an assessee can be treated as a defaulter during pendency of an appeal filed under Section 107 of the CGST Act after payment of mandatory pre-deposit, whether recovery proceedings stand stayed under Section 107(7), and whether grant of fresh GST registration can be denied on the basis of a demand which is under appellate challenge.

Petitioner’s Arguments

The petitioner contended that the appeal against the Order-in-Original had been duly filed along with the mandatory pre-deposit and therefore recovery stood stayed by operation of Section 107(7) of the CGST Act. It was argued that the demand had not attained finality and consequently the petitioner could not be treated as a defaulter. On this basis, denial of fresh GST registration and withholding of NOC was stated to be illegal and arbitrary.

Respondent’s Arguments

The Department contended that the petitioner continued to remain a defaulter until the entire demand raised in the Order-in-Original was paid in full and that issuance of NOC for fresh GST registration was not permissible unless the outstanding demand was cleared.

Court Order / Findings

The Delhi High Court held that once an appeal is filed under Section 107 of the CGST Act along with payment of the mandatory pre-deposit, recovery proceedings for the balance amount are deemed to be stayed by virtue of Section 107(7). The Court observed that in such circumstances, the Order-in-Original cannot be treated as having attained finality and the assessee cannot be regarded as a defaulter. The Court rejected the Department’s stand that full payment of demand was a precondition for issuance of NOC and held that withholding of NOC during pendency of appeal was contrary to statutory mandate.

Important Clarification

The Court clarified that statutory stay under Section 107(7) operates automatically upon payment of mandatory pre-deposit and does not require any separate order. During pendency of appeal, the assessee’s status cannot be downgraded to that of a defaulter and administrative actions such as denial of registration cannot be sustained on that basis.

Final Outcome

The writ petition was disposed of with directions to the Department to process the petitioner’s application for fresh GST registration and to issue the requisite No Objection Certificate. Upon issuance of NOC, the application for registration was directed to be processed in accordance with law, and the petitioner was held entitled to continuation of business pending adjudication of the statutory appeal.

Link to Download Order https://www.mytaxexpert.co.in/uploads/1769497923_SHRISARABJEETSINGHPROPRIETOROFMSKHURANAASSOCIATESVsTHECOMMISSIONEROFSGSTDELHISGSTORS..pdf

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