2026 (3) TMI 398 - HC - GST

Retrospective Cancellation invalid without proposal in notice; relied documents must be supplied and orders must state reasons.

Whether GST registration may be cancelled retrospectively was decided by applying the principle that retrospective cancellation is permissible only when ... Retrospective cancellation of GST registration - duty to disclose supporting documents and material in show cause proceedings - requirement of reasoned and speaking order reflecting application of mind - Retrospective cancellation of GST registration requires specific proposal in show cause notice - HELD THAT:- The Court found as an undisputed fact that the show cause notice did not propose cancellation with retrospective effect and held that Section 29 permits retrospective cancellation only upon specific contingencies and that the authority must put the person to notice of the action intended. A show cause must contain the basic grounds or premises on which retrospective action is sought and the material on which reliance is placed; absence of any proposal for retrospective cancellation in the notice vitiates exercise of that power. [Paras 8, 9, 11] Impugned cancellation cannot be sustained insofar as it is retrospective when no such proposal appeared in the show cause notice; the order is set aside on this ground and the authority may proceed afresh after serving proper notice proposing retrospective cancellation if warranted. Duty to disclose supporting documents and material in show cause proceedings - HELD THAT: - The Court recorded that no supporting documents or the physical verification report were supplied to the petitioner although the show cause notice referred to discrepancies and to attached material. It held that where a notice alleges reliance on supporting documents, such material should be supplied so that the person proceeded against has a fair opportunity to meet the case; failure to supply the material undermines the validity of the cancellation order. [Paras 8, 14] Cancellation is unsustainable for want of supply of supporting documents; authority is directed to supply material and afford opportunity before taking any fresh action. Requirement of reasoned and speaking order reflecting application of mind - HELD THAT: - On perusal of the impugned order, the Court observed absence of any recorded reasons or reference to material on which the authority formed an opinion. Reliance was placed on precedent emphasising that orders under Section 29(2) must demonstrate due application of mind, particularly where retrospective cancellation with deleterious consequences is involved. A robotic or routine invocation of retrospective power without demonstrable reasoning cannot be sustained. [Paras 12] Impugned non speaking order is set aside; the authority must record reasons and apply its mind in any fresh order passed after giving proper notice and opportunity of hearing. Final Conclusion: The impugned cancellation order is set aside for absence of any proposal for retrospective cancellation in the show cause notice, failure to supply supporting material, and for being non speaking; respondent authorities are permitted to proceed afresh in accordance with law after serving proper notice, supplying relevant documents and affording opportunity of hearing, and may pursue recovery of any tax, penalty or interest in accordance with law. Issues: (i) Whether registration under the Central Goods and Services Tax Act, 2017 could be cancelled with retrospective effect when such retrospective cancellation was not proposed in the show cause notice; (ii) Whether proceedings are vitiated where supporting documents referred to in the show cause notice were not supplied to the registrant; (iii) Whether an order of cancellation that is cryptic or non-speaking and does not reflect reasons or application of mind is sustainable.Issue (i): Whether registration under the Central Goods and Services Tax Act, 2017 could be cancelled with retrospective effect when such retrospective cancellation was not proposed in the show cause notice.Analysis: Section 29 of the Central Goods and Services Tax Act, 2017 permits retrospective cancellation subject to the conditions contained therein. The power to cancel retrospectively must be exercised on specified contingencies and the order of cancellation with retrospective effect must reflect the reasons and premises for such action. A show cause notice initiating cancellation proceedings is required to put the registrant on notice of the specific proposal sought to be acted upon, including retrospective cancellation if intended.Conclusion: Retrospective cancellation cannot be validly imposed where the show cause notice did not propose retrospective cancellation and the order does not state reasons justifying retrospective effect; conclusion is in favour of the assessee.Issue (ii): Whether proceedings are vitiated where supporting documents referred to in the show cause notice were not supplied to the registrant.Analysis: A show cause notice that refers to case-specific supporting documents must either supply such material or identify the material on which the authority relies, to enable effective response. Failure to supply or disclose the relied-upon supporting documents deprives the registrant of a meaningful opportunity to contest the proposal.Conclusion: Proceedings are vitiated by non-supply of supporting documents; conclusion is in favour of the assessee.Issue (iii): Whether an order of cancellation that is cryptic or non-speaking and does not reflect reasons or application of mind is sustainable.Analysis: An order under Section 29 must demonstrate due application of mind and set out reasons for cancellation, particularly when retrospective effect is imposed. A cryptic or non-speaking order that merely records cancellation without referencing material or reasons fails to meet this requirement and cannot be sustained.Conclusion: A cryptic or non-speaking cancellation order is unsustainable; conclusion is in favour of the assessee.Final Conclusion: The impugned cancellation order is set aside; respondent-authorities are granted liberty to proceed lawfully, including serving proper notice, supplying relied-upon material, affording an opportunity of hearing, and passing a reasoned order if justified.Ratio Decidendi: Section 29 of the Central Goods and Services Tax Act, 2017 permits retrospective cancellation only when expressly proposed and supported by reasons and material; absence of proposal in the show cause notice, failure to supply supporting documents, and issuance of a non-speaking order negate the validity of retrospective cancellation.