2025 (8) TMI 1390 - HC - GST

Retrospective GST registration cancellation set aside; department must freshly adjudicate taxpayer's cancellation application and SCN

Manish Goel Huf Versus The Commissioner Delhi Goods And Services Tax Trade And Tax Department New Delhi And Ors.

Manish Goel Huf Versus The Commissioner Delhi Goods And Services Tax Trade And Tax Department New Delhi And Ors. - 2025:DHC:7174 - DB ISSUES PRESENTED AND CONSIDERED 1. Whether an order cancelling GST registration with retrospective effect can be sustained where the Show Cause Notice (SCN) did not indicate retrospective cancellation as a proposed relief and the final order assigns different or no reasons. 2. Whether rejection of an applicant's request for voluntary cancellation for failure to reply to a departmental query, followed by a separate SCN and retrospective cancellation, reflects proper application of mind and compliance with principles of natural justice. 3. The extent and manner in which the power under Section 29(2) (power to cancel registration with effect from any date, including retrospective dates) must be exercised - i.e., requirement of objective satisfaction, reasoned order and consideration of consequences (including impact on third-party input tax credit). 4. Whether appellate dismissal on the ground of delay can sustain an order of retrospective cancellation when the impugned cancellation itself is procedurally and substantively flawed. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of retrospective cancellation where SCN did not contemplate retrospective effect Legal framework: Section 29(2) confers power to cancel GST registration from such date including retrospective dates as the proper officer may deem fit. Principles of natural justice require that grounds and reliefs contemplated in an SCN must enable the affected person to respond meaningfully. Precedent Treatment: The Court relied on its prior decisions holding that retrospective cancellation is impermissible if the SCN does not put the assessee on notice of retrospective cancellation; earlier orders that imposed retrospective cancellation without corresponding notice or reasons were set aside. Interpretation and reasoning: The Court held that retrospective cancellation cannot be mechanically imposed. The power must be exercised on objective criteria and the SCN must state that retrospective cancellation is sought so that the taxpayer can respond to that specific relief. An order giving retrospective effect without such notice or without reasons demonstrating the necessity for retrospective effect reflects non-application of mind and violates the statutory scheme and natural justice. Ratio vs. Obiter: Ratio - retrospective cancellation requires the SCN to contemplate such relief and the order to record objective reasons justifying retrospective operation. Obiter - emphasis on the implications for third-party input tax credit as a factor the officer must consider when deciding on retrospective effect. Conclusions: The impugned retrospective cancellation is unsustainable where neither the SCN nor the rejection order put the petitioner on notice of retrospective cancellation or supplied reasons justifying such a measure. Issue 2: Procedural infirmity where applicant sought voluntary cancellation but department both rejected cancellation application and subsequently cancelled registration retrospectively Legal framework: Administrative decisions must reflect coherent reasoning and consistent application of legal standards; the principle of reasoned decision-making requires that orders and notices not be internally inconsistent and that the authority apply its mind. Precedent Treatment: The Court relies on earlier pronouncements that set aside orders which are contradictory (e.g., rejecting a cancellation application for non-response but then cancelling retrospectively) or which do not afford an effective opportunity to be heard. Interpretation and reasoning: The Court found clear inconsistency: the petitioner applied for cancellation; the department issued a query on the application and rejected it for non-response; yet, a later SCN alleged issuance of invoices without supply and suspended registration, culminating in retrospective cancellation. The Court characterized these actions as an abject failure to apply mind and as contradictory, thereby violating natural justice and statutory scheme. Ratio vs. Obiter: Ratio - where administrative actions are internally inconsistent and not reasoned, they cannot be sustained and require fresh adjudication. Obiter - the Court criticized routine or robotic invocation of retrospective cancellation power. Conclusions: Both the rejection of the voluntary cancellation application and the subsequent retrospective cancellation order suffer from procedural and substantive infirmities and must be set aside for fresh adjudication. Issue 3: Requirement that cancellation orders (especially retrospective) be reasoned, objective and consider consequences Legal framework: Section 29(2) permits cancellation from any date the proper officer deems fit, but the exercise of this discretion must be based on objective criteria, articulable reasons, and mindful of consequences including denial of input tax credit to third parties. Precedent Treatment: The Court followed prior rulings holding that mere conferral of power to cancel retrospectively does not justify its routine application; orders must reflect due application of mind and reasoning aligned with statutory safeguards. Interpretation and reasoning: The Court emphasized that retrospective cancellation has deleterious consequences; therefore, the officer must demonstrate why retrospective operation is warranted, consider the impact on third parties, and ensure the satisfaction is objective rather than subjective or mechanical. The SCN and order must reflect such considerations and reasons. Ratio vs. Obiter: Ratio - invocation of retrospective cancellation must be supported by objective reasons in the order; lack of such reasons renders the cancellation invalid. Obiter - the Court noted that consequences for customers (denial of input credit) are relevant considerations though not exhaustively analyzed here. Conclusions: Cancellation orders lacking reasoned findings justifying retrospective effect are invalid and must be remitted for reconsideration with direction to address these factors. Issue 4: Consequence of appellate dismissal on limitation where underlying cancellation is flawed Legal framework: Appealability and limitation do not shield a substantively and procedurally infirm administrative order from judicial review; appellate rejection for delay cannot validate an order that lacked notice of retrospective effect or reasoned findings. Precedent Treatment: The Court referred to prior instances where appellate authorities refused appeals as time-barred but where the impugned cancellation itself was found to be invalid and therefore required setting aside regardless of appellate limitation. Interpretation and reasoning: The Court observed that the appellate authority's dismissal for delay does not cure the primary defects in the cancellation order. Where the cancellation order is vitiated by procedural infirmity (non-notification of retrospective relief, lack of reasons), the remedy lies in setting aside the impugned order and remitting the matter for fresh adjudication, irrespective of delay in appeal. Ratio vs. Obiter: Ratio - appellate procedural bars cannot sustain an order that is nullified for violation of natural justice and statutory requirements. Obiter - procedural technicalities (limitation) must be considered in appropriate contexts but cannot validate fundamentally flawed orders. Conclusions: The appellate rejection for delay does not preclude judicial intervention to set aside the invalid cancellation; the matter must be heard afresh on merits and procedure. Remedial Directions and Outcome (Court's Conclusion) The Court set aside the impugned cancellation and appellate orders, directed that both the application for voluntary cancellation and the SCN be adjudicated afresh together, afforded the petitioner an opportunity to reply and for a personal hearing, and required the authority to pass a comprehensive, reasoned order addressing the SCN, the cancellation application, and any question of retrospective effect. All rights and contentions of the parties were left open for reconsideration.