Facts of the Case

The Petitioner challenged the order dated 24.03.2021 whereby its GST registration was cancelled retrospectively with effect from 01.07.2017. The cancellation was based on a Show Cause Notice dated 17.02.2021 alleging non-filing of GST returns for a continuous period of six months.

The Petitioner submitted that GST returns had been duly filed up to 30.09.2020 and thereafter no business activities were carried out as the Petitioner intended to close operations.

The impugned cancellation order stated that no reply to the Show Cause Notice had been filed and proceeded to cancel the registration retrospectively without assigning proper reasons for such retrospective effect.

Issues Involved

  1. Whether GST registration can be cancelled retrospectively without proper justification.
  2. Whether absence of reply to a Show Cause Notice justifies retrospective cancellation.
  3. Whether failure to mention retrospective cancellation in the Show Cause Notice violates principles of natural justice.
  4. Scope and application of Section 29(2) of the CGST Act, 2017 regarding retrospective cancellation.

Petitioner’s Arguments

  • The Petitioner had complied with GST return filing requirements up to 30.09.2020.
  • There was no business activity thereafter, and the Petitioner intended to discontinue business.
  • The Show Cause Notice did not indicate that cancellation could be retrospective.
  • Retrospective cancellation was arbitrary and lacked any supporting material or reasoning.
  • The Petitioner was denied an opportunity to contest retrospective cancellation. 

Respondent’s Arguments

  • The registration was liable to be cancelled due to non-filing of returns for a continuous period of six months.
  • The cancellation was justified as no reply to the Show Cause Notice was submitted.
  • Retrospective cancellation falls within the powers of the proper officer under Section 29(2) of the CGST Act.

Court’s Findings / Order

  • The Court observed that retrospective cancellation cannot be done mechanically and must be based on objective satisfaction of the proper officer.
  • The Show Cause Notice did not put the Petitioner to notice regarding retrospective cancellation, thereby violating principles of natural justice.
  • Mere non-filing of returns does not automatically justify retrospective cancellation covering periods where the taxpayer was compliant.
  • The Court emphasized that consequences such as denial of input tax credit to customers must also be considered before retrospective cancellation.

Final Order

  • The impugned order was modified.
  • GST registration cancellation shall be effective from 30.09.2020, i.e., the date up to which returns were filed.
  • The Respondent is free to take further action in accordance with law, including recovery of dues.

Important Clarification

  • Retrospective cancellation is not automatic and must be supported by objective reasoning.
  • Proper officer must consider impact on third parties (input tax credit) before passing such orders.
  • Show Cause Notice must clearly mention retrospective effect, failing which such action may be invalid.

Sections Involved

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

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/62712022024CW12622024_133519.pdf

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