GST registration cancellation requires objective criteria and proper officer satisfaction, not mechanical retrospective application affecting customer credits

Delhi HC held that retrospective cancellation of GST registration requires objective criteria and proper officer's satisfaction, not mechanical application. SCN lacked cogent reasons violating natural justice principles. Court noted retrospective cancellation affects customers' input tax credit, requiring careful consideration of consequences. Since petitioner ceased business operations, registration cancellation was modified to take effect from actual business closure date rather than arbitrary retrospective date. Petitioner directed to comply with Section 29 requirements.

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Issues:
The issues in this case involve the retrospective cancellation of GST registration, repeated applications for cancellation, lack of reasons provided for cancellation, and the need for objective criteria for such cancellations.

Retrospective Cancellation of GST Registration:
The petitioner challenged the retrospective cancellation of their GST registration, which was cancelled with effect from 18.01.2022. The petitioner had submitted multiple applications seeking cancellation due to the closure of business, but these were rejected. The impugned order of 20.03.2023 did not provide clear reasons for cancellation, leading to confusion as it stated the registration was liable to be cancelled but showed nil dues against the petitioner.

Lack of Reasons for Cancellation:
The Show Cause Notice dated 06.03.2023 did not specify a clear reason for cancellation, and subsequent orders failed to provide detailed explanations. The petitioner was not adequately informed about the retrospective cancellation, depriving them of the opportunity to object.

Objective Criteria for Cancellation:
The court emphasized that the proper officer must have objective criteria for cancelling GST registration with retrospective effect. Mere non-filing of returns does not automatically warrant retrospective cancellation, and satisfaction for cancellation should not be subjective. The consequences of such cancellations on input tax credit for customers must also be considered before retrospective cancellation is deemed necessary.

Judgment:
The court modified the impugned order, stating that the registration shall be treated as cancelled from the date the petitioner closed down business activities, i.e., 26.07.2022. The petitioner was directed to comply with Section 29 of the Central Goods and Services Tax Act, 2017. The respondents were allowed to take steps for recovery of any outstanding dues in accordance with the law, including retrospective cancellation of GST registration. The petition was disposed of accordingly.

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