GST registration cancellation set aside as retrospective cancellation was held arbitrary and appellate rejection on limitation alone was found unsustainable

Case Reference

M/s Elasto Rubber Pvt. Ltd. v. Commissioner of SGST Delhi & Ors.
Delhi High Court
W.P.(C) 9516/2024
Category of Dispute: GST Registration – Cancellation with Retrospective Effect / Appellate Delay
Date of Judgment: 15 July 2024

Facts

The petitioner, a registered taxpayer under GST since 01.07.2017, was engaged in business operations and had regularly filed GST returns for the period 2017–2021. Due to severe disruption caused by the COVID-19 pandemic, including medical exigencies within the family and operational difficulties, statutory compliances for the subsequent period were affected. A consultant engaged during 2021–22 failed to inform the petitioner about notices uploaded on the GST portal.

A show cause notice dated 08.10.2022 was issued proposing cancellation of GST registration for non-filing of returns for a continuous period of six months. The petitioner neither replied nor appeared, resulting in cancellation of registration vide order dated 21.08.2023, with retrospective effect from 01.07.2017. The petitioner later filed an appeal under Section 107 of the CGST Act, which was rejected solely on the ground of limitation by order dated 28.06.2024. (Paras 3–16)

Questions Involved

Whether an appeal against GST registration cancellation could be dismissed mechanically on limitation without examining the legality of retrospective cancellation.

Whether cancellation of GST registration with retrospective effect from the date of initial registration, without recording reasons and without prior notice, satisfies the requirements of Section 29(2) of the CGST Act. (Paras 16–21)

Observations

The Court noted that the show cause notice merely proposed cancellation for non-filing of returns and did not put the petitioner to notice that cancellation was contemplated with retrospective effect. The cancellation order itself was found to be completely unreasoned on the issue of retrospectivity.

While Section 29(2) empowers the proper officer to cancel registration from such date as deemed fit, such discretion must be exercised rationally and supported by reasons. The Court found no justification for nullifying the registration even for periods where returns had admittedly been filed and taxes discharged. The appellate authority, in turn, erred in rejecting the appeal only on limitation without examining these substantive infirmities. (Paras 17–23)

Judgment

The Delhi High Court set aside the appellate order dated 28.06.2024 and remanded the matter to the Appellate Authority with directions to decide the appeal afresh on merits, uninfluenced by the issue of delay and after granting an opportunity of hearing to the petitioner. The Court emphasized that unreasoned retrospective cancellation cannot be sustained in law. (Paras 24–26)

Relevant Statutory Provisions

• Section 29(2), Central Goods and Services Tax Act, 2017

• Section 107, Central Goods and Services Tax Act, 2017

Between the Fine Lines – Practical Takeaway for Trade & Industry

This judgment reinforces that GST registration cannot be retrospectively cancelled in a routine or mechanical manner, especially for periods where compliance existed. Appellate authorities are expected to adjudicate on substantive legality rather than reject appeals solely on procedural delay, particularly where cancellation orders are patently unreasoned. Businesses affected by pandemic-era defaults have a strong basis to challenge retrospective cancellations lacking statutory justification.

Cases Referred – Summary Table

Disclaimer – “The above summary is for academic purpose only; not formal legal opinion. Seek professional opinion before application. Author or publisher or website shall not be responsible for any usage in any form.”