Facts of the Case

The petitioner, M/s R.K. Metal Industries, challenged an order dated 28.09.2019 whereby its GST registration was cancelled retrospectively from 01.07.2017.

The cancellation order did not provide any reasoning and merely referred to a Show Cause Notice (SCN) dated 26.09.2019. The SCN alleged that the petitioner failed to file GST returns for a continuous period of six months.

In response, the petitioner submitted that:

  • The business had been closed in September 2018 due to a sealing drive by the municipal authorities.
  • Attempts were made to surrender GST registration, but technical errors in the GST portal prevented the same.
  • A formal request for cancellation had already been made.

Issues Involved

  1. Whether GST registration can be cancelled retrospectively without assigning reasons.
  2. Whether the power under Section 29(2) of CGST Act can be exercised arbitrarily.
  3. Whether cancellation can extend to periods where returns were duly filed.

Petitioner’s Arguments

  • The impugned order is non-speaking and arbitrary, lacking any reasoning.
  • Retrospective cancellation from 01.07.2017 is unjustified, especially when returns were filed for part of the period.
  • The failure to file returns was due to closure of business and technical issues, not deliberate non-compliance.
  • The authority failed to consider the petitioner’s explanation and supporting documents. 

Respondent’s Arguments

  • The petitioner failed to file GST returns for a continuous period of six months, justifying cancellation under Section 29(2).
  • The proper officer is empowered to cancel registration retrospectively. 

Court’s Findings / Order

The Delhi High Court held:

  • Although Section 29(2) permits retrospective cancellation, such discretion cannot be exercised arbitrarily.
  • The impugned order did not provide any reasons, making it legally unsustainable.
  • The cancellation was wrongly applied even for periods where returns had been filed.

Final Order

  • The retrospective cancellation from 01.07.2017 was set aside.
  • The GST registration was directed to be cancelled only from September 2018 (when business actually closed).
  • Liberty was granted to the department to initiate proceedings if any statutory violations exist.

Important Clarifications

  • Retrospective cancellation under GST law must be reasoned and justified.
  • Authorities cannot mechanically apply cancellation powers without examining facts.
  • Non-speaking orders violate principles of natural justice.
  • Filing of returns for certain periods restricts blanket retrospective cancellation.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/VIB12122023CW159312023_141525.pdf

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