Facts of the Case

The present writ petition was filed by the Petitioner challenging the order dated 14.02.2023 whereby the GST registration was cancelled retrospectively with effect from 01.07.2017. The Petitioner also challenged the Show Cause Notice dated 07.10.2022 issued under the Central Goods and Services Tax Act, 2017.

The original registered proprietor, Late Sh. Dershan Kapoor, who operated M/s Sarv Shakti Enterprises, had expired on 18.11.2021. The legal heir, Rajat Kapoor, filed the petition.

The Show Cause Notice merely alleged non-furnishing of returns under Section 39 of the Act for a continuous period of six months. However, it lacked specific details, did not mention the proper officer or place of hearing, and failed to provide clear reasoning.

Subsequently, the impugned order cancelled the GST registration retrospectively without assigning any proper reasons and contained contradictory findings regarding submission of reply.

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 retrospective cancellation without prior notice is legally sustainable.
  4. Whether non-filing of returns automatically justifies retrospective cancellation.

Petitioner’s Arguments

  • The Show Cause Notice was vague and did not specify proper reasons for cancellation.
  • No opportunity was provided to contest retrospective cancellation.
  • The order was contradictory, as it simultaneously recorded that no reply was filed while referring to a reply.
  • The proprietor had already expired, and business operations had ceased.
  • Retrospective cancellation from 01.07.2017 was arbitrary and unjustified. 

Respondent’s Arguments

  • The Petitioner failed to file GST returns for a continuous period.
  • The authority was empowered under Section 29(2) of the CGST Act to cancel registration, including retrospectively.
  • Cancellation was justified due to non-compliance with statutory provisions.

Court’s Findings / Order

The Hon’ble Delhi High Court observed:

  • The Show Cause Notice lacked clarity and did not provide sufficient details.
  • The impugned order was contradictory and reflected non-application of mind.
  • Retrospective cancellation cannot be done mechanically and must be based on objective satisfaction.
  • The taxpayer must be put to notice regarding retrospective cancellation.
  • Non-filing of returns alone does not justify retrospective cancellation covering compliant periods.

Final Order:

  • The cancellation order dated 14.02.2023 was modified.
  • GST registration was directed to be cancelled w.e.f. 18.11.2021 (date of death of the proprietor), instead of 01.07.2017.
  • The Petitioner was directed to comply with Section 29 of the CGST Act.
  • The department was given liberty to recover any dues in accordance with law. 

Important Clarifications by the Court

  • Retrospective cancellation must not be arbitrary or mechanical.
  • Authorities must consider consequences such as denial of Input Tax Credit (ITC) to customers.
  • Proper reasoning and objective criteria are mandatory before invoking retrospective cancellation.
  • Principles of natural justice must be strictly followed. 

Sections Involved

  • Section 29(2) of the Central Goods and Services Tax Act, 2017
  • Section 39 of the Central Goods and Services Tax Act, 2017

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/62703042024CW48602024_173209.pdf

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