Facts of the Case

The petitioner, M/s Raj Enterprises, was engaged in the business of trading magnetic and optical readers and related products. The petitioner obtained GST registration and was assigned a GSTIN. Subsequently, due to cessation of business activities, the petitioner applied for cancellation of its GST registration.

The petitioner initially applied for cancellation, which was rejected due to non-response to queries. A second application was also rejected. Later, a Show Cause Notice (SCN) was issued alleging non-filing of GST returns for a continuous period of six months.

The petitioner did not respond to the SCN, and the respondent authority passed an order cancelling the GST registration retrospectively from the date of its grant (19.10.2020). The petitioner challenged this retrospective cancellation before the Delhi High Court.

Issues Involved

  1. Whether GST registration can be cancelled retrospectively solely on the ground of non-filing of returns for six months.
  2. Whether retrospective cancellation without prior notice violates principles of natural justice.
  3. Whether the proper officer must provide objective justification for retrospective cancellation.

Petitioner’s Arguments

  • The petitioner argued that retrospective cancellation of GST registration was arbitrary and unjustified.
  • It was submitted that returns had been filed up to 31.12.2021 and business operations had ceased thereafter.
  • The Show Cause Notice did not propose retrospective cancellation, thereby denying the petitioner an opportunity to respond.
  • The petitioner contended that cancellation, if any, should only apply prospectively from the date of cessation of business.

Respondent’s Arguments

  • The respondent contended that under Section 29(2)(c) of the CGST Act, GST registration may be cancelled retrospectively.
  • It was argued that non-filing of returns for six months justified cancellation.
  • The respondent further submitted that retrospective cancellation prevents wrongful availment of Input Tax Credit (ITC) by other taxpayers dealing with the petitioner. 

Court Findings / Order

The Delhi High Court held:

  • Although Section 29 permits retrospective cancellation, such power cannot be exercised arbitrarily and must be based on objective criteria.
  • Non-filing of returns for six months alone is insufficient to justify retrospective cancellation covering periods where returns were duly filed.
  • The Show Cause Notice did not indicate retrospective cancellation, thereby violating principles of natural justice.
  • Retrospective cancellation has serious consequences, including denial of ITC to other taxpayers, and therefore requires careful application of mind.

Final Order:
The Court modified the impugned order and directed that cancellation of GST registration shall take effect from 31.12.2021 (i.e., the last date up to which returns were filed), instead of from the date of grant of registration.

Important Clarifications by the Court

  • Retrospective cancellation must not be mechanical or arbitrary.
  • Proper officer must record reasons based on objective criteria.
  • Absence of specific mention in SCN regarding retrospective effect violates natural justice.
  • Authorities remain free to initiate proceedings for any statutory violations independently.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/VIB20122023CW157772023_141458.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.