M/s Deepak Trading Co. v. Government of NCT of Delhi & Ors.
Delhi High Court – W.P.(C) 1899/2024
Date of Judgment: 09 February 2024
Category of Dispute: GST Registration – Retrospective Cancellation
Relevant Provisions: Section 29(2) of the Central Goods and Services Tax Act, 2017; Rule 20 of the CGST Rules, 2017
Facts
The petitioner, a proprietorship concern engaged in facilitating renting of commercial immovable property, was duly registered under the CGST Act, 2017. Upon discontinuation of business with effect from 31.03.2020, the petitioner applied for voluntary cancellation of GST registration on 17.07.2020. The proper officer issued a notice dated 12.09.2020 seeking additional information, and thereafter rejected the cancellation application vide order dated 08.10.2020, without disclosing any cogent or specific reasons for dissatisfaction with the reply. Subsequently, a show cause notice dated 02.12.2021 was issued alleging non-filing of returns under Section 39 for a continuous period of six months. Eventually, the registration was cancelled retrospectively with effect from 01.07.2017 by order dated 30.09.2022. The statutory appeal against this order was dismissed on limitation by order dated 29.12.2023, prompting the writ petition before the High Court.
Questions for Consideration
Whether cancellation of GST registration with retrospective effect from 01.07.2017 was legally sustainable when the show cause notice did not propose retrospective cancellation and no objective reasons were recorded by the proper officer.
Whether mechanical retrospective cancellation, merely on the ground of non-filing of returns for a limited period, is permissible under Section 29(2) of the CGST Act.
Observations
The Court noted that the rejection of the petitioner’s voluntary cancellation application was cryptic and appeared to be issued using a standard template, without assigning any discernible reasons, thereby violating principles of natural justice. The show cause notice dated 02.12.2021 merely alleged non-filing of returns and did not put the petitioner to notice regarding any proposed retrospective cancellation. The impugned cancellation order also failed to disclose any material or rationale justifying cancellation from 01.07.2017.
Interpreting Section 29(2) of the CGST Act, the Court held that although the statute empowers retrospective cancellation, such power cannot be exercised mechanically. The satisfaction of the proper officer must be objective and reasoned. Mere non-filing of returns for a particular period does not ipso facto justify wiping out the registration for periods during which the taxpayer was compliant. The Court further observed that retrospective cancellation has serious downstream consequences, including denial of input tax credit to recipients, and therefore such action must be taken only when expressly intended and warranted by facts
Judgment
Allowing the writ petition, the Delhi High Court modified the cancellation order and directed that the GST registration of the petitioner shall stand cancelled only with effect from 31.03.2020, being the date on which the business was discontinued. The Court clarified that the petitioner must furnish requisite information sought in the earlier notice to enable the department to determine any tax liability. It was further clarified that the respondents remain at liberty to initiate recovery proceedings for any tax, interest, or penalty lawfully due, in accordance with law
Between Fine Lines – Practical Takeaway
This judgment reinforces that retrospective cancellation of GST registration is an exceptional power and not a routine consequence of return defaults. Tax authorities must record clear, objective reasons and specifically put the taxpayer to notice before invoking retrospective effect. For trade and industry, the ruling provides critical protection against blanket cancellation orders that disrupt past compliance and adversely affect customers’ input tax credit positions.
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