Case Details
M/s Friends Media Add Company v. Principal Commissioner of Goods and Service Tax, West Delhi
Delhi High Court
W.P.(C) 1260/2024
Category of Dispute: GST Registration – Retrospective Cancellation
Date of Judgment: 12 February 2024
Relevant Provisions:
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Section 29(2), Central Goods and Services Tax Act, 2017
Facts
The petitioner, a registered taxable person, challenged the order dated 12.12.2023 whereby its GST registration was cancelled retrospectively with effect from 30.05.2022. The cancellation was preceded by a show cause notice dated 25.08.2023 alleging issuance of invoices without supply of goods and/or services leading to wrongful availment or utilisation of input tax credit. The petitioner sought restoration of registration or, in the alternative, limitation of cancellation to a prospective date (paras 1–2).
Questions before the Court
Whether cancellation of GST registration with retrospective effect could be sustained when the show cause notice and the cancellation order were bereft of particulars, reasoning, and any indication that retrospective cancellation was contemplated, and whether such cancellation satisfied the statutory threshold under Section 29(2) of the CGST Act (paras 3–5, 9, 11).
Observations
The Court observed that the show cause notice merely reproduced a standard template allegation without disclosing any invoice details, period involved, or quantum of alleged wrongful ITC. There was no clarity as to whether the allegation pertained to bogus invoicing, wrongful ITC availment, or refund claims. The impugned cancellation order was equally silent on reasons justifying retrospective effect, rendering both the notice and order legally unsustainable for want of reasoning and application of mind (paras 3–5).
The Court further held that Section 29(2) empowers retrospective cancellation only where the proper officer forms an objective satisfaction based on material circumstances. Retrospective cancellation cannot be ordered mechanically, particularly for periods where the taxpayer was compliant. The Court also took note of the cascading impact of retrospective cancellation on third-party recipients who may lose legitimately availed input tax credit, holding that such serious civil consequences must be consciously intended and justified (paras 9–10).
It was specifically noted that the show cause notice did not even put the petitioner to notice that retrospective cancellation was proposed, thereby violating principles of natural justice and depriving the petitioner of an opportunity to object to such drastic action (para 11).
Judgment
The Delhi High Court modified the cancellation order and directed that the GST registration shall stand cancelled only with effect from 25.08.2023, being the date of issuance of the show cause notice. The Court clarified that the tax authorities were not precluded from initiating recovery proceedings for any tax, interest, or penalty lawfully due, but retrospective cancellation prior to the notice date was held unsustainable in law. The writ petition was disposed of accordingly (paras 12–14).
Classification of the Case under GST Act, 2017
GST Registration – Cancellation / Retrospective Cancellation under Section 29
Between Fine Lines – Practical Takeaway for Trade & Industry
This judgment reiterates that retrospective cancellation of GST registration is an exception, not the rule. Tax authorities must issue reasoned show cause notices with specific allegations and must consciously justify retrospective effect after considering downstream ITC consequences. For businesses, the ruling offers strong grounds to challenge mechanical cancellations that are based on template notices or lack disclosure of material facts.
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