Facts of the Case

The petitioner, engaged in the business of manufacturing paint, was duly registered under the CGST Act, 2017. The business operations were discontinued on 31.01.2019, and thereafter, the petitioner applied for cancellation of GST registration on 25.02.2019.

Subsequently:

  • Multiple notices were issued seeking information already furnished.
  • Orders dated 21.09.2019 and 19.03.2020 cancelled the provisional registration without assigning reasons.
  • A show cause notice dated 01.09.2020 alleged non-filing of returns for six months.
  • Finally, an order dated 12.09.2020 cancelled the GST registration retrospectively from 01.07.2017.

The petitioner challenged the retrospective cancellation.

Issues Involved

  1. Whether GST registration can be cancelled retrospectively without proper reasoning.
  2. Whether non-filing of returns justifies retrospective cancellation covering compliant periods.
  3. Whether absence of notice regarding retrospective effect violates principles of natural justice.

Petitioner’s Arguments

  • The petitioner had voluntarily applied for cancellation in February 2019 after discontinuing business.
  • Authorities passed orders without assigning reasons, making them arbitrary.
  • Once registration stood cancelled, there was no obligation to file returns thereafter.
  • Retrospective cancellation from 2017 was unjustified and excessive, especially when compliance existed during earlier periods.
  • No opportunity was given to object to retrospective cancellation.

Respondent’s Arguments

  • The petitioner failed to file GST returns for a continuous period of six months.
  • Such non-compliance justified cancellation of GST registration.
  • Retrospective cancellation is permissible under Section 29(2) of the CGST Act.

Court’s Findings / Order

  • Retrospective cancellation cannot be done mechanically; it must be based on objective satisfaction.
  • Non-filing of returns does not automatically justify retrospective cancellation, especially for periods when the taxpayer was compliant.
  • Authorities must consider the impact on third parties, such as denial of input tax credit to customers.
  • The show cause notice failed to mention retrospective cancellation, violating natural justice.
  • Once registration was already cancelled earlier, non-filing of returns cannot be a valid ground.

Final Order

  • The impugned order was modified.
  • GST cancellation shall be effective from 25.02.2019 (date of application for cancellation), not from 01.07.2017.
  • Authorities retain the right to recover tax, penalty, or interest as per law. 

Important Clarifications by Court

  • Retrospective cancellation must be intentional, justified, and reasoned.
  • Authorities must evaluate objective criteria, not act arbitrarily.
  • Taxpayer must be put to notice specifically regarding retrospective effect.
  • Impact on Input Tax Credit (ITC) of recipients must be considered.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/SAS12012024CW4912024_142716.pdf

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