Facts of the Case

The petitioner, Sun N Sand Exim India Pvt. Ltd., challenged an order dated 14.02.2023 whereby its GST registration was cancelled retrospectively with effect from 02.07.2017.

A Show Cause Notice dated 26.08.2022 was issued on the ground that during physical verification, the firm was found non-existent.

The petitioner contended:

  • It had regularly filed returns till August 2022.
  • The Delhi branch had been closed for about a year, and nil returns were being filed.
  • The business had shifted to Bahadurgarh in 2019 and no activity was carried out in Delhi thereafter.

Despite this, the department passed an order cancelling the registration retrospectively. 

Issues Involved

  1. Whether GST registration can be cancelled retrospectively without proper reasoning.
  2. Whether absence of specific grounds in the Show Cause Notice invalidates retrospective cancellation.
  3. Scope and application of Section 29(2) of the Central Goods and Services Tax Act, 2017.

Petitioner’s Arguments

  • The Show Cause Notice and the impugned order were vague and devoid of material particulars.
  • No opportunity was given to object to retrospective cancellation, as the notice did not mention such intention.
  • The petitioner had been compliant in filing returns, hence retrospective cancellation was unjustified.
  • Business operations had already ceased in Delhi, and cancellation should not affect prior compliant periods.

Respondent’s Arguments

  • The firm was found non-existent during physical verification.
  • Registration cancellation was justified due to closure of business and non-availability at the registered premises.
  • Retrospective cancellation was warranted based on departmental findings.

Court’s Findings / Order

The Court held:

  • The Show Cause Notice and cancellation order lacked proper reasoning and were therefore unsustainable.
  • The petitioner was not put to notice regarding retrospective cancellation, violating principles of natural justice.
  • Under Section 29(2) of the CGST Act, retrospective cancellation:
    • Cannot be done mechanically
    • Must be based on objective satisfaction
  • Mere non-filing of returns does not justify cancelling registration for past compliant periods.

Final Order

  • The impugned order was modified.
  • GST registration was directed to be cancelled prospectively from 26.08.2022 (date of SCN) instead of 02.07.2017.
  • Authorities were given liberty to recover any dues in accordance with law.

Important Clarifications by the Court

  • Retrospective cancellation has serious consequences, including denial of input tax credit to customers.
  • Authorities must consider such consequences before passing retrospective orders.
  • Cancellation orders must be clear, reasoned, and legally sustainable.

Sections Involved

  • Section 29(2), Central Goods and Services Tax Act, 2017 – Cancellation of GST Registration

Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/SAS21032024CW14362024_151340.pdf

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