Case Summary: Ajay Agarwal & Anr. v. Deputy Commissioner, CGST Delhi North, Daryaganj Range-1 & Ors.

W.P.(C) 4459/2024 | Delhi High Court | Decision dated 16.04.2024
Category: GST Registration Cancellation (Section 29 of CGST Act, 2017)

FACTS OF THE CASE (Paras 1–9)

The petitioners challenged the order dated 10.02.2023 cancelling their GST registration retrospectively from 21.05.2018, as well as the show cause notice (SCN) dated 01.02.2023.

The petitioners were engaged in trading of oils and food grains and held a valid GST registration. The SCN dated 01.02.2023 merely reproduced a generic allegation—“registration obtained by means of fraud, wilful misstatement or suppression of facts”—without disclosing any factual basis, officer name, place of appearance, or material particulars, except a digital signature block.

The SCN did not indicate any proposal for retrospective cancellation. Despite the absence of particulars, the officer passed the cancellation order dated 10.02.2023 stating that physical verification revealed the petitioner to be non-existent. The order also adopted a retrospective date, without reasons, and recorded NIL dues.

The petitioners pointed out that an earlier SCN dated 19.02.2020 on identical grounds had led to cancellation on 16.03.2020, which was subsequently revoked on 30.01.2023. Within two days of restoration, another SCN was issued repeating the same grounds, without referencing prior proceedings or change in circumstances.

The petitioners also clarified that the partnership business had ceased due to the demise of a partner and that they did not intend to continue operations after 16.03.2020.

QUESTIONS / ISSUES BEFORE THE COURT

1. Whether the SCN dated 01.02.2023 was legally sustainable when it lacked particulars, reasons, officer details, and failed to mention the proposal for retrospective cancellation.

2. Whether the cancellation order dated 10.02.2023 was valid when it contained no reasoning and mechanically adopted a retrospective date.

3. Whether retrospective cancellation can be invoked without objective justification under Section 29(2) of the CGST Act, 2017.

4. Whether the department could issue a second SCN on identical grounds immediately after revocation of cancellation, without any new circumstances.

COURT’S OBSERVATIONS (Paras 9–12)

The Court noted that both the SCN and the cancellation order were bereft of material particulars, failed to disclose the foundation of the allegations, and thus violated principles of natural justice. The repetition of earlier grounds, without reference to previous proceedings or changed circumstances, rendered the proceedings unsustainable.

The Court emphasised that retrospective cancellation under Section 29(2) cannot be mechanical. The proper officer must objectively justify retrospective effect and consider its consequences, including denial of ITC to recipients. Retrospective cancellation is permissible only where such consequences are intended and warranted.

The Court remarked that both the petitioners and the department desired cancellation, albeit for different reasons—however, any cancellation must still follow statutory parameters.

JUDGMENT / VERDICT (Paras 13–15)

The Court quashed the impugned order dated 10.02.2023 and held both the order and the SCN unsustainable. However, considering that the petitioners did not wish to continue business, the Court modified the cancellation to take effect from 19.02.2020, the date of the first SCN.

The petitioners were directed to comply with requirements of Section 29 of the CGST Act relating to post-cancellation obligations.

The Court also clarified that the department may initiate fresh proceedings, including retrospective cancellation, provided a proper SCN with reasons and opportunity of hearing is granted.

CASE REFERENCES TABLE

BETWEEN THE FINE LINES (Practical Takeaways)

A GST registration cannot be cancelled—especially retrospectively—based on cryptic, templated, or vague SCNs. Officers must demonstrate objective satisfaction and disclose reasons, particularly when retrospective effect may impact ITC of recipients. Re-initiating cancellation on identical grounds without new facts is impermissible. Taxpayers must also ensure compliance with Section 29 obligations after cessation of business.

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