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of <h1>Retrospective GST registration cancellation quashed for violating natural justice; petitioner allowed to file reply by October 15, 2025</h1> <h3>M/s. Gaurav Auto (India) Versus Principal Commissioner Of Goods And Service Tax North Delhi</h3> M/s. Gaurav Auto (India) Versus Principal Commissioner Of Goods And Service Tax North Delhi - 2025:DHC:7599 - DB ISSUES PRESENTED AND CONSIDERED 1. Whether a GST registration can be cancelled retrospectively where the Show Cause Notice does not indicate or propose retrospective cancellation. 2. Whether an order of cancellation with retrospective effect is sustainable in the absence of reasons demonstrating objective satisfaction under Section 29(2) of the Central Goods and Services Tax Act, 2017. 3. Whether principles of natural justice are violated where the Show Cause Notice and/or impugned order do not afford a meaningful opportunity to be heard (including failure to specify date/time for personal hearing) prior to retrospective cancellation. 4. Whether mere non-filing of replies or returns, or an allegation of wrongful availment of Input Tax Credit, justifies retrospective cancellation absent reasoned findings and consideration of consequences to third parties (e.g., denial of ITC to recipients). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Requirement that Show Cause Notice contemplate retrospective cancellation Legal framework: Section 29(2) of the Central Goods and Services Tax Act permits the proper officer to cancel GST registration from such date, including any retrospective date, as he may deem fit if circumstances in sub-section (2) are satisfied. Precedent Treatment: The Court follows prior decisions holding that retrospective cancellation cannot be mechanically applied and that the SCN must put the taxpayer on notice of retrospective cancellation (decisions referenced include Subhana Fashion; M/s Balaji Industries; RidhiSidhi Enterprises; Delhi Polymers; and Ramesh Chander). Interpretation and reasoning: The power to cancel retrospectively is discretionary but not unfettered; the SCN must contemplate and specify retrospective effect so that the person affected has an opportunity to respond to that specific consequence. Where the SCN is silent on retrospective cancellation, the subsequent imposition of such effect in the cancellation order deprives the taxpayer of notice and meaningful opportunity to contest retrospective consequences. Ratio vs. Obiter: Ratio - An SCN that does not propose retrospective cancellation cannot sustain an order that cancels registration retrospectively. Obiter - Emphasis that retrospective cancellation should not be routine but reserved for circumstances warranting it. Conclusion: Retrospective cancellation is unsustainable where the SCN fails to put the taxpayer on notice of retrospective effect; the impugned order is set aside on this ground. Issue 2 - Necessity of reasoned order demonstrating objective satisfaction under Section 29(2) Legal framework: Section 29(2) confers power to cancel registration from an earlier date provided the conditions are met; the order must reflect reasoned application of mind given the serious consequences of retroactive cancellation. Precedent Treatment: Followed prior authorities which require that an order of retrospective cancellation contain demonstrable, objective reasons and not be a mere ipse dixit; reliance placed on RidhiSidhi Enterprises and Ramesh Chander. Interpretation and reasoning: The Court emphasises that the proper officer's satisfaction must be based on objective criteria and articulated in the cancellation order. Given the deleterious consequences (including impact on recipients' ITC), the order must be comprehensive and reasoned, not routine or mechanistic. An order lacking rudimentary reasons for retrospective effect cannot be sustained. Ratio vs. Obiter: Ratio - Cancellation with retrospective effect requires that the order itself set out the reasons which justified retrospective operation; absence of such reasons invalidates the order. Obiter - Consideration of wider policy consequences to third parties should inform the exercise of discretion. Conclusion: The impugned cancellation failed to assign rudimentary reasons for retroactive effect; ergo the order was unsustainable and set aside. Issue 3 - Natural justice: adequacy of opportunity to be heard Legal framework: Principles of natural justice require that a show cause process afford a meaningful opportunity to be heard, which includes clear communication of the date/time for personal hearing and identification of the grounds/reliefs sought (including retrospective cancellation) so that the affected person can respond. Precedent Treatment: The Court follows prior judgments observing violation of natural justice where SCN or cancellation order fails to indicate retrospective cancellation or omits necessary particulars of hearing (Subhana Fashion; Delhi Polymers). Interpretation and reasoning: The SCN must enable an effective response; a SCN that merely calls upon the taxpayer to appear without specifying particulars or without setting out the consequences (e.g., retrospective cancellation) renders the hearing illusory. Moreover, non-filing of reply (especially where disability/ill-health is alleged) does not cure the defect of absence of a meaningful opportunity when the SCN/order itself is silent on material consequences. Ratio vs. Obiter: Ratio - Orders passed without affording the taxpayer a proper opportunity to be heard on the specific question of retrospective cancellation violate principles of natural justice and are liable to be set aside. Obiter - Court notes sensitivity where incapacity of proprietor is asserted but proceeds on legal defects in the process. Conclusion: Natural justice was violated; the petition succeeds on this ground and the order is set aside with directions for fresh opportunity. Issue 4 - Whether allegation of wrongful availment of ITC alone justifies retrospective cancellation Legal framework: Wrongful availment of Input Tax Credit may constitute a ground under the rules (e.g., Rule 21(e) alleged), but cancellation with retrospective effect requires cogent reasoning and consideration of statutory tests in Section 29(2). Precedent Treatment: Courts have held that mere allegation(s) or non-filing of returns do not automatically warrant retrospective cancellation; authorities must objectively satisfy statutory criteria and account for consequences (Ramesh Chander; RidhiSidhi Enterprises; Delhi Polymers). Interpretation and reasoning: The impugned order alleged wrongful availment of ITC without determining any amount payable or providing reasoned findings; the impugned order's table reflected nil demand, and the SCN did not quantify or explicate retrospective liability. Cancellation retrospectively on the basis of an unsubstantiated allegation undermines statutory safeguards and affects third-party rights (recipients' ITC). The proper officer must evaluate the allegation, determine amounts (if any), and articulate justification for retrospectivity. Ratio vs. Obiter: Ratio - Allegation of wrongful availment of ITC, standing alone, is insufficient to sustain retrospective cancellation absent reasoned findings and compliance with procedural safeguards. Obiter - Authorities should consider collateral impacts such as denial of ITC to recipients when deciding on retrospective effect. Conclusion: Retrospective cancellation grounded on the impugned SCN/allegation of wrongful ITC, without objective findings or reasoned consideration, is unsustainable. Remedial Direction and Consequential Findings Interpretation and reasoning: Given the defects (absence of SCN notice of retrospective cancellation, lack of reasons, and breach of natural justice), the Court set aside the cancellation order and directed that the petitioner be permitted to file a reply to the SCN and be granted a personal hearing. The Court required that thereafter a comprehensive and reasoned order be passed. Ratio vs. Obiter: Ratio - Where retrospective cancellation is set aside for these defects, authorities must afford fresh opportunity and pass a reasoned order after hearing; all rights and remedies remain open. Obiter - Specific procedural modalities (e-mail/mobile contact for hearing) were directed to ensure effective communication. Conclusion: The impugned retrospective cancellation was set aside; the taxpayer is to be afforded opportunity to reply and be heard, following which the authority must pass a reasoned order considering statutory criteria, consequences of retroactivity (including on ITC of recipients), and principles of natural justice.
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