Facts of the Case

The Petitioner, engaged in the business of trading woven fabrics, challenged:

  1. Show Cause Notice dated 20.09.2021
  2. Order dated 26.10.2021 cancelling GST registration retrospectively from 26.07.2017
  3. Appellate Order dated 01.01.2023 dismissing appeal on limitation grounds

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

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

The cancellation order:

  • Contained contradictory statements (acknowledging reply but stating none filed)
  • Failed to provide reasons
  • Imposed retrospective cancellation without justification

The Petitioner had already ceased business operations post lockdown.

Issues Involved

  1. Whether GST registration can be cancelled retrospectively without proper reasoning
  2. Whether defective Show Cause Notice violates principles of natural justice
  3. Whether cancellation orders lacking clarity and reasoning are legally sustainable 

Petitioner’s Arguments

  • Show Cause Notice was vague and non-speaking
  • No opportunity for personal hearing was provided
  • Retrospective cancellation was imposed without notice or justification
  • Cancellation order was contradictory and arbitrary
  • Business had already been discontinued

Respondent’s Arguments

  • Petitioner failed to file GST returns for a continuous period
  • Authorities are empowered under Section 29(2) to cancel registration, including retrospectively
  • Appeal was rightly dismissed as time-barred

Court’s Findings / Order

The Court held:

  • Show Cause Notice invalid:
    It lacked material particulars and failed to inform about retrospective cancellation
  • Cancellation Order unsustainable:
    • No reasoning provided
    • Contradictory statements
    • No justification for retrospective effect
  • Retrospective cancellation cannot be mechanical:
    Must be based on objective satisfaction and justified circumstances
  • Modification of Order:
    GST registration cancellation modified to 20.09.2021 (date of SCN) instead of 26.07.2017
  • Petition disposed of with liberty to authorities to recover dues as per law

Important Clarifications by the Court

  • Retrospective cancellation impacts Input Tax Credit (ITC) of customers, hence must be exercised cautiously
  • Mere non-filing of returns does not justify cancellation for earlier compliant periods
  • Authorities must apply reasoned decision-making and not act mechanically

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/SAS22032024CW43832024_120712.pdf

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