Facts of the Case

The petitioner, Parshant Timber, had applied via Form GST REG-16 for cancellation of its GST registration (GSTIN 07AKMPG7225K1ZW) with effect from 31.07.2021, on the ground of discontinuance of business. In response, the department issued a notice dated 23.11.2021 stating it was not satisfied with the application, citing only "Basic Details - Others (Please specify) - Please reply ASMT 10 and pay due tax with interest and penalty," without disclosing any specific reasons. The petitioner did not respond, and the application was rejected by order dated 27.12.2021 in Form GST REG-05, which itself gave no reasons, referring only to a reply the petitioner had never in fact filed. Subsequently, on 18.05.2022, the department issued a show-cause notice for cancellation on the separate ground of non-filing of returns for six continuous months, and on 24.08.2022 cancelled the petitioner's registration with retrospective effect from 02.07.2017 — i.e., effectively from the date of original registration itself.

Issues Involved

  1. Whether an order rejecting an application for voluntary cancellation of GST registration, disclosing no reasons and referring to a reply the applicant never filed, could be sustained.
  2. Whether the subsequent cancellation of registration with retrospective effect back to the original date of registration (02.07.2017), far beyond the six-month non-filing period alleged, was justified.

Petitioner's Arguments

  • The petitioner argued it had an indisputable right to seek cancellation on discontinuance of business, that the rejection order of 27.12.2021 was passed without application of mind (referring to a reply the petitioner never filed) and disclosed no reasons, and that the retrospective cancellation to 2017 had no rational connection to the six-month non-filing period cited in the show-cause notice.

Respondent's Arguments

  • The respondents did not file any response to the petition despite notice having been issued, leaving the department's position unexplained before the Court.

Court Order / Findings

  • The Court found the rejection order dated 27.12.2021 "ex-facie erroneous," as it purported to examine a reply the petitioner had never filed, and disclosed no reasons for rejection.
  • The Court held there was no reason why the petitioner's registration was cancelled with retrospective effect back to 02.07.2017, that the underlying show-cause notice was itself cryptic and lacked particulars, and directed the respondents to cancel the petitioner's registration with effect from 31.07.2021, the date originally sought by the petitioner.
  • The Court clarified that this direction would not preclude the department from separately pursuing recovery of any tax, interest or penalty otherwise found due from the petitioner.

Important Clarification

  • A retrospective cancellation of GST registration must bear some rational connection to the ground alleged (e.g., cancellation cannot reach back to the original date of registration itself merely because returns were not filed for a subsequent six-month period); an unexplained retrospective effect going back years beyond the alleged default is arbitrary and liable to be corrected to the date actually justified by the record or originally sought by the assessee.
  • Setting aside a retrospective cancellation and directing effect from the date the assessee itself sought (on account of business closure) does not immunise the assessee from the department's separate right to recover any tax, interest, or penalty genuinely due for the period up to that date.

Sections Involved

  • Section 29 of the CGST Act, 2017 - governs both voluntary cancellation of registration and cancellation for default such as non-filing of returns, including the discretion to give retrospective effect.
  • Form GST REG-16 and Form GST REG-05 under the CGST Rules, 2017 - the prescribed forms for the cancellation application and the order of rejection respectively.

Decision – In Favour of

The writ petition was allowed in favour of the Assessee; the rejection order was set aside and the department directed to cancel the registration from the date the petitioner had originally sought (31.07.2021), without prejudice to recovery of any dues otherwise found payable.

Case Details

High Court of Delhi at New Delhi, W.P.(C) 1734/2023 with CM APPL. 6618/2023; Coram: Hon'ble Mr. Justice Vibhu Bakhru and Hon'ble Mr. Justice Amit Mahajan; decided on 10 March 2023.

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