Facts of the Case

The petitioner challenged the order dated 31.07.2019 whereby the GST registration was cancelled retrospectively with effect from 01.07.2017, along with the Show Cause Notice dated 17.07.2019.

The original registered taxpayer, Late Shri Krishan Mohan, had passed away on 14.03.2018. The petition was filed by his legal heir, who stated that:

  • The business had been discontinued after the death of the proprietor.
  • No business activity was carried out thereafter under the same registration.

The Show Cause Notice alleged non-filing of returns for a continuous period of six months but failed to provide detailed reasoning. 

Issues Involved

  1. Whether GST registration can be cancelled retrospectively without proper reasoning.
  2. Whether a vague Show Cause Notice satisfies legal requirements.
  3. Whether non-filing of returns alone justifies retrospective cancellation.
  4. Whether principles of natural justice were violated.

Petitioner’s Arguments

  • The Show Cause Notice was vague and non-speaking, lacking specific grounds.
  • The cancellation order was contradictory, stating both that no reply was filed and also referring to a reply.
  • Retrospective cancellation from 01.07.2017 was arbitrary, especially when compliance existed earlier.
  • The business had ceased upon the death of the proprietor; hence, retrospective cancellation was unjustified. 

Respondent’s Arguments

  • The taxpayer had failed to file returns for six months, justifying cancellation under law.
  • The authority has power under Section 29(2) of the CGST Act, 2017 to cancel registration retrospectively.
  • Non-compliance warranted cancellation action.

Court’s Findings / Order

  • The Court held that:
    • The Show Cause Notice was deficient and lacked clarity.
    • The cancellation order was contradictory and non-reasoned, thus unsustainable.
    • Retrospective cancellation cannot be done mechanically and must be based on objective satisfaction.
  • The Court modified the cancellation:
    • GST registration shall be treated as cancelled w.e.f. 14.03.2018 (date of death of the proprietor), instead of 01.07.2017.
    • The petitioner must comply with statutory requirements under law.
  • The petition was disposed of with modifications.

Important Clarifications by the Court

  • Retrospective cancellation has serious consequences, including denial of Input Tax Credit (ITC) to customers.
  • Authorities must:
    • Apply objective criteria before retrospective cancellation.
    • Ensure that notice clearly specifies retrospective intent.
  • Authorities are still free to recover tax, interest, or penalty as per law.

Sections Involved

  • Section 29(2), Central Goods and Services Tax Act, 2017 – Cancellation of registration (including retrospective effect)

Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/62711032024CW35972024_162840.pdf

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