Facts of the Case

The Petitioner, engaged in the business of metal trading, held a valid GST registration. Subsequently, due to closure of business, the Petitioner applied for cancellation of registration.

Despite this:

  • The department issued a Show Cause Notice (SCN) seeking cancellation on allegations of issuing invoices without supply.
  • The SCN lacked crucial details such as date and time of hearing and did not mention retrospective cancellation.
  • The GST registration was cancelled retrospectively from 25.05.2018, without proper reasoning.
  • The Petitioner’s replies and subsequent revocation application were rejected without due consideration.
  • Appeal filed by the Petitioner was dismissed due to non-appearance.

Issues Involved

  1. Whether GST registration can be cancelled retrospectively without proper reasoning.
  2. Whether a vague Show Cause Notice violates principles of natural justice.
  3. Whether the Proper Officer can mechanically cancel registration with retrospective effect.
  4. Whether non-consideration of replies invalidates administrative orders. 

Petitioner’s Arguments

  • The SCN was defective and vague, lacking essential particulars.
  • No opportunity was given to object to retrospective cancellation.
  • Detailed replies submitted were ignored by the authorities.
  • Cancellation order was non-speaking and arbitrary.
  • Business had already been discontinued, and retrospective cancellation was unjustified.

Respondent’s Arguments

  • The department justified cancellation based on alleged irregular invoicing practices.
  • It was argued that cancellation, including retrospective effect, is permissible under Section 29(2).
  • Authorities maintained that replies were unsatisfactory. 

Court’s Findings / Order

The Court held:

  • The Show Cause Notice and cancellation order were invalid due to lack of reasons and details.
  • Retrospective cancellation cannot be done mechanically.
  • Satisfaction of the Proper Officer must be objective and based on material evidence.
  • Failure to provide proper hearing and reasoning violates principles of natural justice.

Final Order:

  • The impugned order was modified.
  • GST registration cancellation was made effective from 31.12.2019 (date of business closure), instead of retrospective date 25.05.2018.
  • Authorities were granted liberty to initiate fresh proceedings in accordance with law. 

Important Clarifications by the Court

  • Retrospective cancellation impacts input tax credit of customers, hence must be exercised cautiously.
  • Such cancellation must be intentional, justified, and reasoned.
  • Mere non-filing of returns does not justify retrospective cancellation.
  • Authorities must issue proper SCN with clear allegations and hearing opportunity.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/62704042024CW43982024_161109.pdf

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