Retrospective GST cancellation requires recorded reasons and fair opportunity; cancellation may be sustained prospectively if not otherwise disputed.

Section 29(2) of the CGST Act permits retrospective cancellation of GST registration, but that power must be exercised on a recorded rational basis and after giving the taxpayer a meaningful opportunity to meet the proposed retrospective effect. Where neither the show cause notice nor the cancellation order states reasons for selecting a retrospective date, the retrospective component cannot be sustained. The cancellation itself was maintained because the taxpayer did not dispute it on merits, but its operation was confined prospectively from the date of the impugned order.

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Issues: (i) Whether GST registration could be cancelled with retrospective effect in the absence of reasons in the show cause notice and order; (ii) whether the cancellation order should be confined to the date of the order.

Issue (i): Whether GST registration could be cancelled with retrospective effect in the absence of reasons in the show cause notice and order.

Analysis: Section 29(2) of the Central Goods and Services Tax Act, 2017 permits cancellation of registration from a retrospective date, but the power cannot be exercised mechanically or whimsically. A retrospective cancellation must rest on a rational basis, and the taxpayer must have a fair opportunity to contest that proposal. Where neither the show cause notice nor the order records any reason for selecting a retrospective date, the retrospective component lacks justification.

Conclusion: Retrospective cancellation was not justified on the material recorded and could not be sustained.

Issue (ii): Whether the cancellation order should be confined to the date of the order.

Analysis: The cancellation itself was not disputed, as the taxpayer had admittedly ceased filing returns after a certain point and did not contest the cancellation on merits. However, the absence of reasons for taking the drastic step of cancellation from the inception of the GST regime warranted modification of the order. The appropriate course was to preserve the cancellation but limit its operation prospectively from the date of the impugned order.

Conclusion: The cancellation was confined to the date of the impugned order and the retrospective operation was set aside.

Final Conclusion: The challenge succeeded only to the extent of deleting the retrospective effect of cancellation, while the cancellation itself was maintained prospectively.

Ratio Decidendi: Though Section 29(2) of the Central Goods and Services Tax Act, 2017 authorises retrospective cancellation of registration, such power must be exercised on a recorded rational basis and after affording the taxpayer a meaningful opportunity to meet the proposed retrospective consequence.

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