Facts of the Case

The Petitioner, a proprietorship concern engaged in trading of copper-related goods, was registered under the GST regime. The Petitioner voluntarily applied for cancellation of GST registration on 16.01.2021 on the ground of discontinuation of business. However, the said application was rejected without assigning cogent reasons.

Subsequently, a Show Cause Notice dated 29.01.2021 was issued alleging that the Petitioner had collected tax but failed to deposit the same within the prescribed period. Thereafter, vide order dated 08.02.2021, the GST registration was cancelled retrospectively with effect from 11.09.2017.

The Petitioner challenged the retrospective cancellation and sought modification of the effective date of cancellation. 

Issues Involved

  1. Whether GST registration can be cancelled retrospectively without proper reasoning and material on record.
  2. Whether absence of specific reasons in rejection of cancellation application violates principles of natural justice.
  3. Whether retrospective cancellation can be imposed without giving prior notice to the taxpayer.
  4. Scope and interpretation of Section 29(2) of the CGST Act, 2017. 

Petitioner’s Arguments

  • The Petitioner had already applied for cancellation due to closure of business; hence, retrospective cancellation was arbitrary.
  • The rejection order of the cancellation application lacked reasons and was passed mechanically.
  • The Show Cause Notice did not mention retrospective cancellation, thereby denying the Petitioner an opportunity to respond.
  • The retrospective effect from 2017 was unjustified and unsupported by any material evidence.

Respondent’s Arguments

  • The Petitioner failed to deposit collected tax within the stipulated period, justifying cancellation.
  • The authority has the power under Section 29(2) of the CGST Act to cancel registration retrospectively.
  • Non-compliance with statutory provisions warranted strict action, including cancellation.

Court’s Findings / Order

  • The Court held that retrospective cancellation cannot be done mechanically and must be based on objective satisfaction supported by material evidence.
  • It was observed that the Show Cause Notice did not indicate retrospective cancellation, thereby violating principles of natural justice.
  • The Court emphasized that mere non-filing of returns does not automatically justify retrospective cancellation, especially for periods where the taxpayer was compliant.
  • The Court also highlighted the adverse consequence of retrospective cancellation on third parties, particularly denial of Input Tax Credit (ITC) to customers.

Final Order:

  • The impugned order was modified.
  • GST registration cancellation was made effective from 16.01.2021 (date of application) instead of 11.09.2017.
  • The Petitioner was directed to furnish necessary details to determine any outstanding liability.
  • The Respondent was permitted to recover any dues as per law.

Important Clarifications by the Court

  • Retrospective cancellation must not be arbitrary and requires objective justification.
  • Proper officer must consider impact on ITC of third parties before retrospective cancellation.
  • Orders passed in a template/mechanical manner without reasons are unsustainable.
  • Natural justice mandates that taxpayer must be specifically put to notice regarding retrospective effect.

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/62709022024CW19302024_105913.pdf 

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.