Facts of the Case

The Petitioner, a partnership firm engaged in manufacturing plastic products and dealing in gold, held a valid GST registration.

  • A Show Cause Notice (SCN) dated 31.01.2023 was issued proposing cancellation of GST registration on vague grounds of “non-compliance.”
  • Subsequently, the GST registration was cancelled retrospectively from 02.07.2017 by order dated 09.02.2023 without providing clear reasons.
  • A demand order under Section 73 was also passed raising tax liability along with penalty.

The Petitioner challenged:

  1. SCN dated 31.01.2023
  2. Cancellation order dated 09.02.2023
  3. Demand order dated 14.12.2023
  4. Rejection of revocation application dated 14.03.2024 

Issues Involved

  1. Whether GST registration can be cancelled retrospectively without proper reasoning.
  2. Whether a vague Show Cause Notice satisfies principles of natural justice.
  3. Whether contradictory and non-speaking orders are legally sustainable.
  4. Whether retrospective cancellation affects third-party rights (ITC claims).

Petitioner’s Arguments

  • The SCN lacked specific allegations and did not disclose grounds for cancellation.
  • No opportunity was given to contest retrospective cancellation.
  • The cancellation order was contradictory, stating both that no reply was filed and referring to a reply.
  • Retrospective cancellation prevented business operations and compliance.
  • The demand order was passed without proper consideration of the detailed reply. 

Respondent’s Arguments

  • The petitioner was allegedly non-functional at the registered premises during field inspection.
  • Delay in filing revocation application was not properly justified.
  • The petitioner had incorrectly declared tax liability for FY 2017–18. 

Court’s Findings / Order

The Court held:

  • The SCN and cancellation order were vague, non-speaking, and devoid of reasons.
  • Retrospective cancellation cannot be done mechanically without objective satisfaction.
  • Contradictory findings in the order rendered it unsustainable in law.
  • Authorities failed to justify why cancellation was applied retrospectively from 2017.
  • The consequences of retrospective cancellation (e.g., denial of ITC to customers) must be carefully considered.

Final Order:

  • Cancellation order dated 09.02.2023 – Set aside
  • Revocation rejection order dated 14.03.2024 – Set aside
  • Demand order dated 14.12.2023 – Set aside and remanded
  • GST Registration – Restored
  • Matter remitted for fresh adjudication with opportunity of hearing

Important Clarifications by the Court

  • Retrospective cancellation requires objective justification, not mere procedural default.
  • Non-filing of returns alone does not justify retrospective cancellation.
  • Authorities must consider impact on Input Tax Credit (ITC) of recipients.
  • Orders must be reasoned, consistent, and legally sustainable.
  • Taxpayer must be given proper opportunity to respond and be heard.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/SAS19032024CW14002024_115058.pdf

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