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of <h1>Retrospective GST Registration Cancellation Unjustified Without Proper Notice or Reasons Under GST Rules</h1> <h3>M/s. V.R. Impex Through Its Proprietor Mr Vishal Versus Commissioner Of Delhi Goods And Services Tax And Anr.</h3> M/s. V.R. Impex Through Its Proprietor Mr Vishal Versus Commissioner Of Delhi Goods And Services Tax And Anr. - 2025:DHC:6789 - DB 1. ISSUES PRESENTED and CONSIDERED Whether retrospective cancellation of GST registration is permissible under the GST law. Whether the Show Cause Notice (SCN) issued for cancellation of GST registration must explicitly indicate the intention to cancel registration retrospectively. Whether the order of cancellation must provide reasons, especially when cancellation is retrospective. Whether principles of natural justice are violated if the SCN or cancellation order does not afford an opportunity to be heard or specify reasons for retrospective cancellation. The extent to which retrospective cancellation affects the taxpayer and their customers, including denial of input tax credit. The proper application and interpretation of Section 29(2) of the Central Goods and Services Tax Act, 2017 regarding cancellation of GST registration. The validity of retrospective cancellation orders passed without objective satisfaction or reasons. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Permissibility of Retrospective Cancellation of GST Registration Legal Framework and Precedents: Section 29(2) of the Central Goods and Services Tax Act, 2017 empowers the proper officer to cancel GST registration from such date, including retrospective dates, as deemed fit if certain conditions are met. However, this power is not absolute or mechanical and must be exercised with due application of mind and objective satisfaction. Precedents emphasize that retrospective cancellation can have deleterious consequences, such as denial of input tax credit to customers, and therefore requires careful consideration. Judgments consistently hold that retrospective cancellation must be justified by objective reasons and not applied routinely or arbitrarily. Court's Interpretation and Reasoning: The Court reiterates that retrospective cancellation is permissible only if the proper officer is satisfied on objective grounds and reasons are clearly recorded in the cancellation order. Mere existence of the power under Section 29(2) does not justify retrospective cancellation without due cause. The Court notes that retrospective cancellation cannot be 'robotic' or routine and must be supported by reasons reflecting the circumstances warranting such action. Application to Facts: In the present case, the order cancelling registration retrospectively was passed without assigning any reasons or objective satisfaction. The SCN did not indicate any intention to cancel registration retrospectively. Conclusion: Retrospective cancellation without reasons or prior notice is impermissible and cannot be sustained. Issue 2: Requirement of Explicit Notice of Retrospective Cancellation in Show Cause Notice Legal Framework and Precedents: Principles of natural justice require that the SCN specify grounds and consequences of proposed action. Precedents establish that if retrospective cancellation is proposed, the SCN must clearly indicate this to enable the taxpayer to respond. Court's Interpretation and Reasoning: The Court observes that in multiple judgments, SCNs failing to mention retrospective cancellation violate natural justice as they deny the taxpayer an opportunity to contest such cancellation. Application to Facts: The SCN issued in the present matter did not mention retrospective cancellation. Therefore, the petitioner was not put on notice of such a drastic consequence and was deprived of an opportunity to be heard on this aspect. Conclusion: Absence of any mention of retrospective cancellation in the SCN renders the subsequent retrospective cancellation order invalid. Issue 3: Necessity of Reasoned Orders for Cancellation, Especially Retrospective Legal Framework and Precedents: The cancellation order must reflect the reasons and objective satisfaction for cancellation, particularly when retrospective effect is given. This ensures transparency and accountability and safeguards against arbitrary exercise of power. Court's Interpretation and Reasoning: The Court emphasizes that orders lacking reasons for retrospective cancellation fail to demonstrate due application of mind and are liable to be set aside. The Court notes contradictions and absence of reasons in impugned orders in various precedents, which led to their invalidation. Application to Facts: The cancellation order in the instant case did not assign any reasons for retrospective cancellation, nor did it demonstrate objective satisfaction. This failure is fatal to the order's validity. Conclusion: Reasoned orders are mandatory, and failure to provide reasons for retrospective cancellation invalidates the order. Issue 4: Violation of Principles of Natural Justice in Absence of Opportunity to be Heard Legal Framework and Precedents: Natural justice mandates that a person affected by an order must be given an opportunity to be heard. This includes clear notice of grounds and consequences, including retrospective effects. Court's Interpretation and Reasoning: The Court notes that SCNs which do not specify retrospective cancellation or fail to fix a date/time for hearing violate natural justice. The petitioner is thereby denied a fair chance to present its case. Application to Facts: The SCN in this case did not specify retrospective cancellation and did not provide adequate hearing opportunity, violating natural justice. Conclusion: The cancellation order is liable to be set aside for violation of natural justice. Issue 5: Consequences of Retrospective Cancellation on Taxpayer and Customers Legal Framework and Precedents: Retrospective cancellation may deny input tax credit to customers for supplies made during the retrospective period, causing significant commercial and financial consequences. Court's Interpretation and Reasoning: The Court acknowledges that such consequences must be considered by the proper officer before ordering retrospective cancellation. The absence of such consideration militates against the validity of retrospective cancellation. Application to Facts: The impugned order does not reflect any consideration of adverse consequences on the petitioner's customers or the taxpayer itself. Conclusion: Retrospective cancellation orders passed without considering adverse consequences are unsustainable. Issue 6: Interpretation and Application of Section 29(2) of the CGST Act Legal Framework and Precedents: Section 29(2) allows cancellation of GST registration from any date including retrospective dates if conditions are met. However, the power must be exercised based on objective satisfaction and with due reasons. Court's Interpretation and Reasoning: The Court reiterates that retrospective cancellation under Section 29(2) is discretionary and not automatic. The proper officer must be satisfied objectively and record reasons. Cancellation cannot be based solely on non-filing of returns without considering compliance during the retrospective period. Application to Facts: The cancellation order in question fails to demonstrate objective satisfaction or reasons under Section 29(2). The retrospective cancellation is therefore not justified under the statutory scheme. Conclusion: Section 29(2) must be applied with due care, and retrospective cancellation orders lacking objective reasons are invalid. Issue 7: Validity of Retrospective Cancellation Orders Passed Without Objective Satisfaction or Reasons Legal Framework and Precedents: Orders cancelling registration retrospectively without objective satisfaction or reasons are arbitrary and liable to be quashed. Court's Interpretation and Reasoning: The Court relies on prior decisions invalidating such orders for failure to demonstrate due application of mind and absence of reasons. Application to Facts: The impugned retrospective cancellation order is devoid of reasons and objective satisfaction. The SCN did not contemplate retrospective cancellation. Hence, the order is invalid. Conclusion: Retrospective cancellation orders without objective reasons are unsustainable and must be set aside. Final Disposition and Directions The Court directs that the cancellation of GST registration shall take effect from the date of the SCN (4th April 2022) and not retrospectively from 30th August 2019. The retrospective cancellation order is set aside for failure to comply with statutory requirements and principles of natural justice. The petitioner's GST registration is restored subject to compliance with filing of requisite returns.
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