GST Registration Cancellation Overturned: Retrospective Order Invalid Without Clear Objective Criteria and Proper Notice

HC ruled that retrospective GST registration cancellation from 01.07.2017 was improper. The court modified the cancellation order to 06.05.2019, emphasizing that retrospective cancellation must be based on objective criteria. The Show Cause Notice was found deficient for not adequately informing the petitioner about potential retrospective cancellation, thereby ensuring procedural fairness in tax administration.

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Issues:
The issues involved in this case are the retrospective cancellation of GST registration and the validity of the Show Cause Notice.

Retrospective Cancellation of GST Registration:
The petitioner challenged the order cancelling their GST registration retrospectively from 01.07.2017. The court noted that there was no justification provided for the retrospective cancellation and the petitioner was not informed about this possibility in the Show Cause Notice. The court emphasized that registration cannot be cancelled with retrospective effect mechanically; it must be based on objective criteria and not merely due to non-filing of returns. The court highlighted that the proper officer must consider the consequences, such as denial of input tax credit to customers, before cancelling registration retrospectively. The court modified the cancellation order to operate from 06.05.2019, the date when the petitioner first applied for cancellation, to ensure fairness.

Validity of Show Cause Notice:
The Show Cause Notice issued to the petitioner cited non-filing of returns for a continuous period of six months as a reason for potential cancellation of registration. However, the court observed that the notice did not mention the possibility of retrospective cancellation, depriving the petitioner of the opportunity to object to it. The court stressed that proper procedures must be followed, and taxpayers should be adequately informed of the consequences of non-compliance before any retrospective action is taken. The court directed that the respondents are not prevented from recovering any outstanding dues from the petitioner in accordance with the law.

This judgment by the Delhi High Court, delivered by Hon'ble Mr. Justice Sanjeev Sachdeva and Hon'ble Mr. Justice Ravinder Dudeja, clarifies the principles governing the retrospective cancellation of GST registration and the importance of providing proper notice to taxpayers in such cases. The court's decision to modify the cancellation order to a fairer date underscores the need for procedural fairness and objective criteria in tax matters.

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