Facts of the Case

The petitioner, M/s Smart World Communications, a partnership firm, filed a writ petition challenging the order dated 17.03.2022 whereby its GST registration was cancelled retrospectively with effect from 29.09.2018. The petitioner had closed its business in June 2021.

A Show Cause Notice dated 02.02.2022 was issued proposing cancellation of GST registration on the ground of non-filing of returns. The Show Cause Notice did not propose or indicate that the cancellation would be with retrospective effect. Despite this, the impugned order cancelled the registration retrospectively.

Issues Involved

Whether GST registration could be cancelled retrospectively when the Show Cause Notice did not propose such retrospective cancellation, whether retrospective cancellation without reasons was sustainable under Section 29 of the CGST Act, and whether the impugned order suffered from violation of settled principles of law.

Petitioner’s Arguments

The petitioner contended that the Show Cause Notice did not propose retrospective cancellation and therefore the impugned order was illegal to the extent it cancelled registration retrospectively. It was further submitted that the business had already been closed and the petitioner did not seek restoration of GST registration, but only sought restriction of cancellation from the date of the Show Cause Notice.

Respondent’s Arguments

The Department argued that the writ petition was belated as the cancellation order was passed in March 2022. It was contended that the authorities were empowered under Section 29 of the CGST Act to cancel registration, including retrospectively.

Court Order / Findings

The Delhi High Court reiterated the settled legal position that if the Show Cause Notice does not propose retrospective cancellation, such cancellation cannot be given retrospective effect. The Court relied upon its earlier decisions in Akash Bansal v. Superintendent CGST, Subhana Fashion v. Commissioner Delhi GST, M/s Balaji Industries v. Principal Commissioner CGST Delhi North, Ridhi Sidhi Enterprises v. Commissioner of CGST, Ramesh Chander v. Assistant Commissioner of GST, and Delhi Polymers v. Commissioner, Trade and Taxes.

The Court held that retrospective cancellation has serious civil consequences and therefore requires explicit proposal in the Show Cause Notice and a reasoned order demonstrating due application of mind. The impugned order failed to satisfy these requirements.

Important Clarification

The High Court clarified that although Section 29(2) of the CGST Act permits retrospective cancellation, such power cannot be exercised mechanically or routinely. Retrospective cancellation must be expressly proposed in the Show Cause Notice and supported by cogent reasons in the cancellation order.

Final Outcome

The writ petition was disposed of. The impugned order dated 17.03.2022 was modified to the extent that the GST registration of M/s Smart World Communications shall stand cancelled with effect from 02.02.2022, being the date of issuance of the Show Cause Notice, and not retrospectively from 29.09.2018. The Department was left free to proceed in accordance with law, if so advised. All pending applications were disposed of accordingly.

Source Link- https://delhihighcourt.nic.in/app/showFileJudgment/PMS08092025CW137472025_180842.pdf

 

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