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1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether cancellation of GST registration with retrospective effect is legally sustainable when the show cause notice for cancellation does not contemplate retrospective cancellation and no reasons are recorded for such retrospective operation.
1.2 Consequences of failure by the appellate authority to consider the illegality of retrospective cancellation and dismissal of the appeal as barred by limitation.
1.3 Appropriate reliefs and consequential directions regarding restoration of GST registration, filing of returns, and liberty of the Department to conduct fresh verification and take action in accordance with law.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Validity of retrospective cancellation of GST registration
Legal framework
2.1 The Court considered Section 29(2) of the Central/Delhi Goods and Services Tax enactment as interpreted in earlier decisions, holding that although the proper officer has the power to cancel GST registration from any date including a retrospective date, such power must be exercised with reasons, due application of mind, and based on objective criteria.
2.2 The Court relied on the principles laid down in earlier decisions, holding that: (i) the order cancelling registration with retrospective effect must itself reflect reasons justifying retrospective operation; (ii) such power cannot be exercised mechanically or routinely; (iii) the show cause notice should put the taxpayer to notice if retrospective cancellation is proposed; and (iv) consequences such as denial of input tax credit to customers must be borne in mind while ordering retrospective cancellation.
Interpretation and reasoning
2.3 The show cause notice dated 11 November 2021 was issued only on the ground that the petitioner was allegedly non-functioning/non-existent at the principal place of business; the notice did not state that cancellation would be with retrospective effect.
2.4 The cancellation order dated 17 August 2023, however, cancelled the registration from 21 July 2020, thereby giving it retrospective effect, without the show cause notice having contemplated such retrospective period and without recording reasons to justify retroactivity.
2.5 Applying the settled position of law, the Court held that where the show cause notice does not contemplate retrospective cancellation, an order directing cancellation retrospectively is not tenable, particularly in view of the serious consequences, including jeopardising input tax credit.
2.6 The Court noted also that no separate show cause notice had been issued to the petitioner in relation to availment of input tax credit, reinforcing that the foundation for retrospective cancellation and its consequences had not been properly laid.
Conclusions
2.7 The order cancelling the petitioner's GST registration with retrospective effect from 21 July 2020 was held to be legally unsustainable and not tenable in law.
Issue 2 - Effect of appellate dismissal on limitation and sustainability of cancellation
Interpretation and reasoning
2.8 The appellate authority had dismissed the petitioner's appeal against the cancellation order as barred by limitation, without addressing the illegality in ordering retrospective cancellation.
2.9 In view of the Court's finding that the underlying cancellation order itself was unsustainable in law, the appellate order, which merely dismissed the appeal on limitation and upheld such cancellation indirectly, could not be sustained.
Conclusions
2.10 Both the cancellation order dated 17 August 2023 and the appellate order dated 11 March 2025 were set aside.
Issue 3 - Consequential reliefs, restoration, and future action
Interpretation and reasoning
2.11 Since the order of cancellation was held to be untenable, and the petitioner expressed willingness to continue business and comply with statutory requirements, the Court considered it appropriate to restore the GST registration subject to conditions.
2.12 The Court also balanced the Department's interest by reserving liberty to conduct fresh inspection to verify the petitioner's existence and compliance and to proceed in accordance with law in case any violation is found.
Conclusions
2.13 The GST registration of the petitioner was restored.
2.14 The Department was directed to grant access to the GST portal to the petitioner within one week.
2.15 Upon restoration of access, the petitioner was directed to file all previous returns on the portal along with late payment and penalty, if any.
2.16 The Department was granted liberty to conduct fresh inspection to verify the existence of the petitioner and, in case of any violation, to take action in accordance with law.
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