Facts of the Case

The Petitioner, a proprietorship firm engaged in manufacturing copper wires and cables, challenged:

  • Show Cause Notice dated 13.01.2021, and
  • Order dated 29.01.2021 cancelling GST registration retrospectively w.e.f. 01.07.2017.

The Petitioner had:

  • Regularly filed GST returns and claimed input tax credit,
  • Subsequently discontinued business and applied for cancellation of registration w.e.f. 31.03.2020.

However:

  • The application for cancellation was rejected without assigning reasons,
  • A Show Cause Notice was issued alleging non-filing of returns for six months,
  • Registration was cancelled retrospectively without proper reasoning or clarity.

Issues Involved

  1. Whether GST registration can be cancelled retrospectively without proper reasoning.
  2. Whether non-speaking orders and vague show cause notices violate principles of natural justice.
  3. Whether cancellation based on non-filing of returns is valid when registration was already under suspension.

Petitioner’s Arguments

  • The Petitioner had regularly complied with GST requirements and filed returns.
  • Business had already been closed, and a valid application for cancellation was filed.
  • The Show Cause Notice did not mention retrospective cancellation, denying opportunity to respond.
  • The cancellation order was non-speaking and contradictory.
  • Retrospective cancellation without justification is arbitrary and illegal.

Respondent’s Arguments

  • Registration was liable to be cancelled due to non-filing of returns for a continuous period.
  • Proper officer is empowered under Section 29(2) CGST Act to cancel registration retrospectively.
  • The Petitioner failed to comply with statutory requirements.

Court’s Findings / Order

The Delhi High Court held:

  • The Show Cause Notice and cancellation order lacked reasons and were vague.
  • The cancellation order was contradictory (referring to reply but stating none was filed).
  • Retrospective cancellation cannot be done mechanically without objective satisfaction.
  • Once registration was suspended, non-filing of returns cannot be a valid ground.
  • Authorities must consider consequences, including denial of ITC to recipients.

Final Order:

  • The cancellation order was modified.
  • GST registration cancellation shall be effective from 31.03.2020 (date of business closure) instead of 01.07.2017.
  • Department is free to recover any dues as per law.

Important Clarifications by the Court

  • Retrospective cancellation must be based on objective criteria, not automatic.
  • Proper officer must record clear reasons before cancelling registration.
  • Consequences on third parties (like ITC denial) must be considered.
  • Non-speaking orders are legally unsustainable.

Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/62712022024CW19862024_132837.pdf

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