Facts of the Case

The Petitioner, Kalpatru Industries, a Hindu Undivided Family (HUF), was registered under the Central Goods and Services Tax Act, 2017. The petitioner applied for cancellation of GST registration on 06.05.2019 citing closure of business.

Subsequently:

  • The application for cancellation was rejected by order dated 05.06.2020, without assigning any reasons.
  • A Show Cause Notice dated 13.01.2021 was issued alleging non-filing of returns for six months, but:
    • It lacked specific reasons,
    • It did not specify date/time for hearing,
    • It did not mention retrospective cancellation.

Thereafter, by order dated 27.01.2021, the GST registration was cancelled retrospectively w.e.f. 01.07.2017, without proper reasoning and with contradictory statements regarding submission of reply.

The petitioner challenged both the Show Cause Notice and the cancellation order.

Issues Involved

  1. Whether GST registration can be cancelled retrospectively without assigning reasons.
  2. Whether a Show Cause Notice lacking material particulars violates principles of natural justice.
  3. Whether non-filing of returns automatically justifies retrospective cancellation.
  4. Scope and interpretation of Section 29(2) of the CGST Act, 2017. 

Petitioner’s Arguments

  • The impugned Show Cause Notice was vague and lacked essential details such as:
    • Grounds for cancellation,
    • Date and time of personal hearing.
  • The cancellation order was:
    • Non-speaking and arbitrary,
    • Contradictory (mentions reply and also states no reply filed).
  • Retrospective cancellation from 01.07.2017 was unjustified as:
    • No reasons or material were provided,
    • The petitioner had filed returns during part of the period.
  • The petitioner had already closed business and only sought prospective cancellation. 

Respondent’s Arguments

  • The petitioner failed to file GST returns for a continuous period.
  • The authority is empowered under Section 29(2) CGST Act to cancel registration, including retrospectively.
  • Retrospective cancellation may affect Input Tax Credit (ITC) claims of recipients.

Court’s Findings / Order

The Hon’ble Delhi High Court held:

  • The Show Cause Notice and cancellation order were bereft of reasons and particulars, thus unsustainable.
  • Retrospective cancellation cannot be done mechanically.
  • The authority must form an objective satisfaction based on material facts before invoking retrospective effect.
  • Mere non-filing of returns does not automatically justify retrospective cancellation.

Final Order:

  • The impugned order dated 27.01.2021 was modified.
  • GST registration cancellation was made effective from 06.05.2019 (date of application for cancellation).
  • The petitioner was directed to comply with statutory requirements under the Act.
  • Liberty granted to the department to initiate fresh proceedings, if required, after due process.

Important Clarifications by the Court

  • Retrospective cancellation has serious consequences, including denial of Input Tax Credit to customers.
  • Such power must be exercised only when warranted and justified.
  • Proper notice and opportunity of hearing are mandatory before taking adverse action.
  • Administrative orders must be reasoned and non-arbitrary.

Sections Involved

  • Section 29(2), Central Goods and Services Tax Act, 2017 – Cancellation of Registration
  • Principles of Natural Justice (Audi Alteram Partem)

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/SAS27052024CW76352024_122255.pdf

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