Facts of the Case

  • The Petitioner was engaged in the business of trading rubber and rubber chemicals and held a valid GST registration.
  • A Show Cause Notice dated 26.05.2022 was issued for cancellation of GST registration; however, it vaguely mentioned the reason as “Others” without particulars.
  • Subsequently, an order dated 08.06.2022 cancelled the GST registration retrospectively w.e.f. 02.07.2017, without assigning any justification.
  • The Petitioner challenged the order on the ground that both the notice and the order lacked reasons and violated principles of natural justice.

Issues Involved

  1. Whether GST registration can be cancelled retrospectively without recording reasons.
  2. Whether a vague Show Cause Notice satisfies legal requirements under Section 29(2) of the CGST Act.
  3. Whether retrospective cancellation can be imposed without giving an opportunity to the taxpayer to respond specifically to such action.

Petitioner’s Arguments

  • The Show Cause Notice was non-speaking and vague, failing to disclose any specific grounds.
  • The impugned order lacked reasoning and therefore was arbitrary and unsustainable in law.
  • Retrospective cancellation was imposed without notice, depriving the Petitioner of an opportunity to object.
  • The Petitioner also submitted that the business had already been closed and there was no intention to continue operations.

Respondent’s Arguments

  • The Respondents relied upon powers under Section 29(2) of the CGST Act to justify cancellation, including retrospective effect.
  • It was contended that cancellation may impact input tax credit claims of customers, and such consequences may justify retrospective action. 

Court’s Findings / Order

  • The Hon’ble Court held that both the Show Cause Notice and the cancellation order were bereft of reasons and thus unsustainable.
  • Retrospective cancellation cannot be exercised mechanically; it must be based on objective satisfaction.
  • The Court emphasized that absence of specific notice regarding retrospective cancellation violates natural justice.
  • The impugned order was modified, and GST registration was directed to be cancelled prospectively w.e.f. 08.06.2022 (date of order).
  • The Petition was disposed of with liberty to authorities to recover any dues in accordance with law.

Important Clarifications by Court

  • Retrospective cancellation must be supported by objective criteria and reasons.
  • Mere non-filing of returns does not automatically justify retrospective cancellation.
  • Authorities must consider impact on third parties (e.g., input tax credit) before invoking retrospective effect.
  • Proper opportunity must be given to the taxpayer to respond to such proposed action.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/62721032024CW40102024_122413.pdf 

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