M/S. Mishka Steels LLP And Anr. vs. The Superintendent Of Central Goods And Service Tax, Cx, Range-Ii, Behala Div. And Ors.

Facts

The petitioners, M/s. Mishka Steels LLP & Anr., filed a writ petition challenging a show cause notice dated January 17, 2025, and a consequential order dated January 14, 2026, issued under the Central Goods and Services Act, 2017. They also challenged a show cause notice for cancellation of registration and the order of cancellation dated August 19, 2026. The petitioners contended that despite filing a reply to the show cause notice, the Adjudicating Authority erroneously noted no reply was filed and granted personal hearings. Subsequently, they received a notice for suspension and cancellation of registration dated May 29, 2026, which rendered their Electronic Credit Ledger inoperative, causing significant hardship. The petitioners argued that no order was passed for negative blocking of the Electronic Credit Ledger.

Held

The Court held that the Adjudicating Authority erred in observing that the petitioners did not file a reply to the show cause notice dated February 16, 2025, and in passing an ex-parte order confirming a demand of Rs. two crores ninety lakhs. The Court noted that the filing of the reply was evident from page 91 of the writ petition. Furthermore, the Court found that the decision to cancel the registration and negatively block the Electronic Credit Ledger (ECL) due to non-filing of returns for six months was dehors the mandate of settled principles of law. The Court relied on the Supreme Court's decision in Deputy Director, Directorate General of GST Intelligence, DZU –versus- Kings Security Guard Services Pvt. Ltd. (2025) 30 Centax 404 (S.C.), which held that the ECL cannot be negatively blocked for wrongful availment of ITC. The Court quashed and set aside the impugned order dated January 14, 2026. The respondent no. 3 was directed to re-visit the issue, considering the petitioners' reply dated February 16, 2025, and dispose of the matter by passing a reasoned and speaking order after affording an opportunity of personal hearing. The Adjudicating Authority was directed to consider the non-filing of returns and negative blocking of ECL in light of the judgments in Best Crop Science Pvt. Ltd. and Deputy Director, Directorate General of GST Intelligence. Upon satisfaction, the Adjudicating Authority was to direct the revocation of registration cancellation and make the ECL operational, subject to statutory formalities. The entire exercise was to be completed within four weeks from the date of the order, on or before November 15, 2026.

Key Issues

1. Whether the Adjudicating Authority erred in observing that the petitioners did not file a reply to the show cause notice dated January 17, 2025, and in passing an ex-parte order confirming a demand of Rs. two crores ninety lakhs, including tax and penalty, despite the petitioners having filed a reply on February 16, 2025, as evident from page 91 of the writ petition? 2. Whether the negative blocking of the Electronic Credit Ledger (ECL) and the cancellation of registration, based on non-filing of returns for six months and alleged availment of inadmissible/fake Input Tax Credit (ITC), are in accordance with settled principles of law, particularly in light of Rule 86A of the CGST Rules and Supreme Court pronouncements? Petitioner's arguments: The petitioners argued that the Adjudicating Authority made an erroneous finding regarding the non-filing of their reply to the show cause notice and passed an ex-parte order. They relied on paragraph 82 of Best Crop Science Pvt. Ltd. – versus- Principal Commissioner, CGST Commissionerate, Meerut, to argue that Rule 86A does not contemplate an order requiring replenishment of the ECL for past availment of ITC believed to be fraudulent or ineligible, as this would amount to recovery of tax. They also argued that the negative blocking of the ECL and cancellation of registration were dehors settled principles of law. Revenue's arguments: The CGST Authorities opposed the submissions, stating that the petitioners' registration was cancelled due to non-filing of returns for the last six months. They further contended that the ECL was made inoperative based on an investigation into the availment of inadmissible/fake ITC on invoices from non-existent entities. They claimed the petitioners are habitual offenders, indulging in fake ITC, and that a partner admitted to availing fake ITC of Rs. 3,96,96,478/- in a voluntary statement dated December 9, 2025. They asserted that the negative blocking of the ECL was compelled by this investigation report.