Facts of the Case

The Petitioner, being the legal heir of the deceased proprietor of M/s Hari Gopal Steel, challenged the appellate order dated 11.01.2024, which dismissed the appeal on the ground of limitation. The challenge also extended to the cancellation order dated 24.11.2020 and the Show Cause Notice dated 14.08.2019.

The GST registration of the Petitioner’s firm was cancelled retrospectively with effect from 01.07.2017 on the ground that the business was found non-functioning during a departmental inspection conducted on 13.08.2019.

It was contended that the proprietor had been suffering from severe illness (cerebral/brain atrophy) since November 2018 and had ceased business operations prior to his death on 09.03.2021. 

Issues Involved

  1. Whether GST registration can be cancelled retrospectively without proper justification under law.
  2. Whether cancellation of registration from a back date (01.07.2017) was valid when the business was operational and compliant during that period.
  3. Whether the Show Cause Notice adequately informed the taxpayer about retrospective cancellation.
  4. Whether dismissal of appeal solely on limitation was justified in the given facts.

Petitioner’s Arguments

  • The cancellation order was passed after an unexplained delay of more than 15 months from issuance of Show Cause Notice.
  • No tax demand was raised; however, registration was cancelled retrospectively, adversely affecting Input Tax Credit (ITC).
  • The business had already ceased due to the illness and subsequent demise of the proprietor.
  • Retrospective cancellation was arbitrary and excessive, especially when returns had been filed earlier in compliance with law.

Respondent’s Arguments

  • The firm was found non-functional during inspection, justifying cancellation of GST registration.
  • Under statutory provisions, authorities have the power to cancel registration retrospectively.

Court’s Findings / Order

The Delhi High Court held:

  • Under Section 29(2) of the CGST Act, cancellation of GST registration with retrospective effect is permissible but cannot be exercised mechanically.
  • Such cancellation must be based on objective satisfaction and justified reasons, not merely non-filing of returns for a certain period.
  • Retrospective cancellation should not cover periods where the taxpayer was compliant.
  • The Show Cause Notice did not indicate that retrospective cancellation was proposed.

Final Order:

  • The impugned cancellation order was modified.
  • GST registration was directed to be treated as cancelled from 14.08.2019 (date of Show Cause Notice) instead of 01.07.2017.
  • Authorities were given liberty to recover any dues in accordance with law.

Important Clarification

  • Retrospective GST cancellation impacts Input Tax Credit of customers, hence requires careful consideration.
  • Cancellation cannot be backdated arbitrarily; intention and consequences must be evaluated before passing such orders.

Sections Involved

  • Section 29(2), Central Goods and Services Tax Act, 2017 (Cancellation of Registration)

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/62714022024CW21542024_143553.pdf

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