Facts of the Case

The petitioner, a registered taxpayer under the CGST and DGST Acts, applied for voluntary cancellation of GST registration on the ground that the business had been closed.

A notice dated 04.11.2022 was issued seeking documents relating to purchases, input tax credit, and stock details. The petitioner failed to respond, leading to rejection of the cancellation application on 16.11.2022.

Subsequently, a Show Cause Notice (SCN) dated 17.11.2022 was issued proposing cancellation of GST registration on the ground that the petitioner was “non-existent.”

An internal departmental communication indicated that physical verification allegedly found the petitioner non-existent, and suggested cancellation from the date of registration.

Thereafter, an order dated 25.11.2022 cancelled the GST registration retrospectively from 11.03.2020, without assigning detailed reasons.

Issues Involved

  1. Whether GST registration can be cancelled with retrospective effect without specific proposal in the Show Cause Notice.
  2. Whether cancellation based on vague grounds such as “non-existent” is legally sustainable.
  3. Whether failure to provide adequate opportunity of hearing violates principles of natural justice.

Petitioner’s Arguments

  • The petitioner contended that the cancellation with retrospective effect was illegal as no such proposal was contained in the SCN.
  • It was argued that sufficient opportunity was not granted to respond to allegations.
  • The petitioner submitted that access to the GST portal was restricted, preventing proper compliance.
  • It was emphasized that the business had already been closed voluntarily and cancellation was sought accordingly. 

Respondent’s Arguments

  • The department relied on physical verification findings stating that the petitioner was “non-existent” at the principal place of business.
  • It was argued that failure to respond to earlier notices justified cancellation of registration.
  • The department relied on internal communication recommending cancellation from the date of registration. 

Court’s Findings / Order

  • The Court observed that the SCN merely stated “non-existent” without providing any supporting material or particulars.
  • It noted that retrospective cancellation was not proposed in the SCN, making such action procedurally defective.
  • The Court held that the petitioner was not afforded adequate opportunity to respond to retrospective cancellation.
  • The internal departmental letter lacked details such as date of verification and material evidence.

Final Order:

  • The retrospective cancellation of GST registration was set aside.
  • The petitioner was permitted to file a response to the SCN within three weeks.
  • The proper officer was directed to:
    • Provide a personal hearing
    • Pass a reasoned order within two months 

Important Clarification by the Court

  • Retrospective cancellation of GST registration cannot be imposed without explicit proposal and proper notice.
  • Vague allegations like “non-existent” without evidence are insufficient.
  • Principles of natural justice must be strictly followed in GST cancellation proceedings.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/VIB12092024CW125902024_201438.pdf 

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