Deepali Kapoor v. Avato Ward-63, State Goods and Services Tax & Anr.,
Delhi High Court, W.P.(C) 132/2024,
Category of dispute: GST Registration – Retrospective Cancellation,
Decision dated 29 January 2024
Facts
The petitioner assailed an order dated 26 July 2023 cancelling her GST registration retrospectively with effect from 02 July 2017, along with the underlying show cause notice dated 03 February 2023. The show cause notice broadly alleged non-filing of returns under Section 39 of the CGST Act, 2017, with a vague observation regarding failure to furnish returns for a continuous period of six months. The notice neither disclosed any proposal for retrospective cancellation nor indicated reasons justifying such drastic action. The final cancellation order mechanically recorded non-submission of reply and non-appearance, and proceeded to cancel the registration retrospectively from the inception of GST, without recording any objective satisfaction. The petitioner later clarified that her business had already been shut down and she was not seeking restoration of registration. These facts emerge from paras 1 to 8 of the judgment
Questions of Law
Whether cancellation of GST registration with retrospective effect can be sustained when the show cause notice does not put the taxpayer to notice of such proposal, and when the proper officer fails to record objective reasons demonstrating necessity for retrospective cancellation, as required under Section 29(2) of the CGST Act, 2017. This issue is discussed in paras 5 and 9 of the judgment.
Observations of the Court
The Court observed that Section 29(2) of the CGST Act vests discretion in the proper officer to cancel registration from a retrospective date, but such discretion is not mechanical or automatic. It must be exercised on the basis of objective criteria and conscious application of mind. Mere non-filing of returns for a particular period cannot, by itself, justify wiping out the registration retrospectively, including periods when the taxpayer was compliant. The Court further noted that retrospective cancellation carries serious civil consequences, particularly denial of input tax credit to recipients, and therefore such consequences must be specifically intended and warranted. Importantly, the Court held that absence of prior notice regarding retrospective cancellation amounts to denial of opportunity and violates principles of natural justice. These findings are elaborated in paras 9 and 10 of the judgment
Judgment / Final Verdict
In view of the above, the High Court modified the impugned cancellation order and restricted its operation prospectively from 03 February 2023, being the date on which registration was suspended pursuant to the show cause notice. The petitioner was directed to furnish all pending returns up to the effective date of cancellation. At the same time, the Court clarified that the tax authorities were not precluded from initiating recovery proceedings for any lawful dues in accordance with law. The writ petition was accordingly disposed of. This relief is recorded in paras 11 to 13 of the judgment.
Relevant Statutory Provisions
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Section 29(2), CGST Act, 2017 – Cancellation of registration
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Section 39, CGST Act, 2017 – Furnishing of returns
Between the Fine Lines – Practical Takeaway for Trade & Industry
This ruling reiterates that retrospective cancellation of GST registration is an exception, not the rule. Tax authorities must expressly propose and justify retrospective action in the show cause notice itself and record clear, objective reasons demonstrating why past compliance deserves to be nullified. For businesses, the judgment offers strong protection against blanket retrospective cancellations that jeopardise customer ITC and distort past tax positions, while simultaneously affirming the department’s right to recover legitimate dues independently.
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