Facts of the Case

The Petitioner, Mukesh Kumar Singh, engaged in the business of TMT bars, challenged:

  • Order dated 28.03.2024 dismissing his appeal on limitation grounds
  • Order dated 04.05.2023 cancelling GST registration retrospectively from 01.07.2017
  • Show Cause Notice dated 18.08.2021 issued under the Central Goods and Services Tax Act, 2017

The Show Cause Notice alleged non-filing of returns for six months but:

  • Did not specify proper reasons
  • Did not mention date/time of personal hearing
  • Did not indicate retrospective cancellation

The cancellation order:

  • Contained contradictions (mentioning reply yet stating no reply filed)
  • Provided no reasoning
  • Imposed retrospective cancellation without justification
  • Showed nil dues despite cancellation 

Issues Involved

  1. Whether GST registration can be cancelled retrospectively without proper reasoning
  2. Whether vague Show Cause Notices violate principles of natural justice
  3. Whether cancellation orders lacking reasons are legally sustainable
  4. Scope and application of retrospective cancellation under GST law 

Petitioner’s Arguments

  • The Show Cause Notice was vague and defective
  • No opportunity of hearing was effectively provided
  • Retrospective cancellation was done without notice or justification
  • The cancellation order was contradictory and non-speaking
  • Returns had been filed up to August 2021
  • The Petitioner was unaware of proceedings and had ceased business

Respondent’s Arguments

  • The GST registration was cancelled due to non-filing of returns
  • Appeal was rightly dismissed on limitation grounds
  • Department retained authority to cancel registration under GST law 

Court’s Findings / Order

The Delhi High Court held:

  • Show Cause Notice and cancellation order were invalid due to lack of reasons
  • Retrospective cancellation cannot be applied mechanically
  • Proper officer must base decision on objective criteria
  • Mere non-filing of returns does not justify retrospective cancellation covering compliant periods
  • Orders must adhere to principles of natural justice

Final Direction:

  • Cancellation modified to be effective from 18.08.2021 (date of SCN)
  • Petitioner directed to comply with statutory requirements
  • Department allowed to initiate fresh proceedings with proper notice

Important Clarifications by the Court

  • Retrospective cancellation affects Input Tax Credit (ITC) of customers
  • Such consequences must be consciously considered before passing orders
  • Authorities must issue clear, reasoned, and detailed notices
  • Mechanical and arbitrary exercise of power is impermissible

Sections Involved

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

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/62725042024CW57912024_124721.pdf 

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