Facts of the Case

The Petitioner, M/s Sri Sai Vishwas Polymers, a partnership firm engaged in manufacturing plastic chairs and dealing in gold products, challenged:

  • Order dated 09.02.2023 cancelling its GST registration retrospectively from 02.07.2017,
  • Show Cause Notice dated 31.01.2023, and
  • Demand order dated 14.12.2023 passed under Section 73 of the Central Goods and Services Tax Act, 2017.

The initial Show Cause Notice vaguely alleged “non-compliance of provisions of GST Act or Rules” without specifying any concrete grounds. Subsequently, the registration was cancelled retrospectively without proper reasoning.

Further, the Petitioner’s application for revocation of cancellation was rejected, and a separate demand proceeding was initiated alleging incorrect tax liability declarations. 

Issues Involved

  1. Whether GST registration can be cancelled retrospectively without proper reasoning and opportunity of hearing.
  2. Whether a vague Show Cause Notice satisfies legal requirements under GST law.
  3. Whether retrospective cancellation can be applied mechanically under Section 29(2) of the CGST Act, 2017.
  4. Whether subsequent proceedings are valid when the registration itself stands retrospectively cancelled.

Petitioner’s Arguments

  • The Show Cause Notice was vague and non-speaking, lacking specific allegations.
  • No opportunity was provided to contest retrospective cancellation.
  • The cancellation order was contradictory, stating both that no reply was filed and also referring to a reply.
  • Retrospective cancellation prevented the Petitioner from operating business and accessing GST portal.
  • Subsequent proceedings and demand orders were invalid due to such cancellation. 

Respondent’s Arguments

  • The Petitioner failed to comply with GST provisions and did not properly justify delay in revocation application.
  • Field inspection revealed that the firm was non-functional at the registered premises.
  • Demand proceedings were initiated due to discrepancies in Input Tax Credit (ITC) and tax liability declarations.

Court’s Findings / Order

The Delhi High Court held:

  • The Show Cause Notice and cancellation order were bereft of reasons and thus unsustainable.
  • Retrospective cancellation under Section 29(2) CGST Act cannot be done mechanically and must be based on objective satisfaction.
  • Mere non-filing of returns does not justify retrospective cancellation covering compliant periods.
  • Retrospective cancellation has serious consequences, including denial of Input Tax Credit to customers, and must be exercised cautiously.
  • Once registration is cancelled retrospectively, the taxpayer cannot access the GST portal, making subsequent proceedings questionable.

Final Order:

  • Orders dated 09.02.2023, 14.12.2023, and 14.03.2024 were set aside.
  • GST registration of the Petitioner was restored.
  • Matter remanded for fresh adjudication with opportunity of hearing.

Important Clarifications by the Court

  • Retrospective cancellation must be justified with cogent reasons.
  • Authorities must consider impact on third parties (ITC denial).
  • Cancellation orders must be reasoned and non-contradictory.
  • Proper opportunity of hearing is mandatory before adverse action.

Sections Involved

  • Section 29(2), Central Goods and Services Tax Act, 2017 – Cancellation of Registration
  • Section 73, CGST Act, 2017 – Determination of tax not paid/short paid
  • Rule 23, CGST Rules, 2017 – Revocation of cancellation of registration

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/SAS19032024CW14002024_115058.pdf

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