Facts of the Case

The Petitioner, Hansraj Tiles World, engaged in the business of trading sanitary goods, held a valid GST registration. Due to business closure arising from lockdown conditions and the ill health of the proprietor, the Petitioner applied for cancellation of GST registration on 17.10.2020.

Subsequently:

  • The cancellation application was rejected.
  • A Show Cause Notice dated 11.03.2021 was issued alleging non-filing of returns for six months.
  • The GST registration was cancelled via order dated 29.06.2021, with retrospective effect from 01.07.2017.
  • The Petitioner’s appeal was dismissed on 13.02.2024 on grounds of limitation.

The Petitioner challenged:

  1. The appellate order dismissing the appeal,
  2. The retrospective cancellation order, and
  3. The Show Cause Notice.

Issues Involved

  1. Whether GST registration can be cancelled retrospectively without proper reasoning.
  2. Whether a Show Cause Notice lacking material particulars is legally sustainable.
  3. Whether dismissal of appeal on limitation bars judicial review in writ jurisdiction.
  4. Scope and application of Section 29(2) of the CGST Act, 2017 in retrospective cancellation.

Petitioner’s Arguments

  • The cancellation order and Show Cause Notice were non-speaking and vague, lacking specific reasons.
  • No opportunity was provided to contest retrospective cancellation.
  • The order contained contradictions, acknowledging a reply but simultaneously stating no reply was filed.
  • Retrospective cancellation from 01.07.2017 was arbitrary and unsupported by record.
  • The Petitioner had already ceased business and voluntarily sought cancellation. 

Respondent’s Arguments

  • The registration was cancelled due to continuous non-filing of GST returns.
  • Authorities are empowered under Section 29(2) CGST Act to cancel registration, including retrospectively.
  • Appeal was rightly dismissed as time-barred.

Court’s Findings

  • The Show Cause Notice was vague and did not disclose any cogent reasons or intention for retrospective cancellation.
  • The impugned cancellation order was contradictory and unreasoned, making it legally unsustainable.
  • Retrospective cancellation cannot be applied mechanically or arbitrarily.
  • The authority must base such action on objective satisfaction and relevant material.
  • Non-filing of returns alone does not justify retrospective cancellation covering compliant periods.
  • The Court emphasized that retrospective cancellation may adversely affect third parties (e.g., denial of Input Tax Credit).

Court Order

  • The impugned orders were modified.
  • GST registration cancellation was upheld only from 17.10.2020 (date of application for cancellation), instead of 01.07.2017.
  • The Petitioner was directed to comply with statutory requirements under Section 29 CGST Act.
  • Authorities were granted liberty to recover any dues, interest, or penalties in accordance with law. 

Important Clarifications by Court

  • Retrospective cancellation must be:
    • Based on objective criteria, not subjective satisfaction.
    • Supported by reasons and material evidence.
  • Authorities must consider impact on Input Tax Credit of third parties.
  • Even if both parties agree to cancellation, legal procedure and justification remain mandatory.

Section Involved

  • Section 29(2), Central Goods and Services Tax Act, 2017 – Cancellation of Registration (including retrospective cancellation).

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/SAS08042024CW50522024_120604.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.