These two concepts are often misunderstood and confused.

Cancellation of bail is where the prosecution (or the victim) moves the Court to get the bail (already granted!) cancelled due to a post-bail circumstance or violation of conditions after the grant of bail.

This is done in cases where the Bail order was originally proper/tenable but the accused, due to his conduct, and/or change of circumstances, no longer deserves bail and should be taken into custody.

This application is first moved before the same Court which granted the indulgence of Bail.

Challenge to bail, on the other hand, is where the prosecution (or the victim) moves a higher court against a bail order on grounds of improper exercise of discretion in grant of bail.  (meaning – bail should not have been granted in the first place!)

This challenge is moved before a higher Court (and not the same court which granted the Bail).

Visualise this as an appeal of sorts (though not technically!) and a challenge against the original order of Bail itself.

Whereas in Cancellation of Bail, the original order of grant of bail is taken to be correct originally but the same now warrants a reappraisal.

Further reading/Sources:

1. Section 437(5) CrPC
2. Section 439(2) CrPC
3. Bharatbhai Bharwad v. State of Gujarat, 2019 SCC OnlineSC 945 (very instructive!)