Facts of the Case

The Petitioner, proprietor of Jainna Enterprises, was engaged in the manufacturing of copper wire and cables and held a valid GST registration.

A Show Cause Notice dated 08.07.2021 was issued alleging non-filing of GST returns for a continuous period of six months. Subsequently, the GST registration of the Petitioner was cancelled vide order dated 28.07.2021, retrospectively effective from 15.11.2017.

The Petitioner contended that:

  • Returns had been filed up to 30.06.2021
  • No business activity was conducted thereafter
  • The cancellation order was contradictory and lacked reasons
  • No opportunity was given to contest retrospective cancellation 

Issues Involved

  1. Whether GST registration can be cancelled retrospectively without proper reasoning.
  2. Whether absence of reasons in the Show Cause Notice and cancellation order violates principles of natural justice.
  3. Whether retrospective cancellation can be applied mechanically due to non-filing of returns.

Petitioner’s Arguments

  • The cancellation order is arbitrary and contradictory, as it mentions both “no response received” and refers to a reply submitted.
  • The Show Cause Notice did not indicate retrospective cancellation, depriving the Petitioner of the opportunity to respond.
  • GST returns were duly filed up to 30.06.2021.
  • The order lacks reasoning and is legally unsustainable. 

Respondent’s Arguments

  • The Petitioner failed to file returns for a continuous period, justifying cancellation.
  • The Proper Officer has authority under Section 29(2) of the CGST Act to cancel registration retrospectively.

Court’s Findings / Observations

  • The Show Cause Notice and cancellation order were bereft of material particulars and reasoning.
  • The order was internally contradictory, referring to a reply while stating no response was received.
  • Retrospective cancellation was imposed without any justification or supporting material.
  • The Court emphasized that:
    • Retrospective cancellation cannot be mechanical
    • It must be based on objective satisfaction
    • Proper Officer must consider consequences such as denial of Input Tax Credit to customers
  • Non-filing of returns alone does not justify retrospective cancellation covering compliant periods.

Court Order / Decision

  • The impugned order dated 28.07.2021 was modified.
  • GST cancellation shall be effective from 30.06.2021, i.e., the last date up to which returns were filed.
  • The Petition was disposed of with liberty to authorities to:
    • Proceed in accordance with law
    • Recover any tax, penalty, or interest due 

Important Clarifications by the Court

  • Retrospective cancellation must not be exercised arbitrarily.
  • Authorities must consider objective criteria and consequences, including impact on Input Tax Credit.
  • Principles of natural justice require that taxpayers be given proper notice and opportunity to respond.
  • Mechanical cancellation orders without reasoning are unsustainable in law.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/62729022024CW3272024_180406.pdf

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