Retrospective cancellation set aside when SCN and Order bereft of details are liable to be quashed

Case Title: Visiontek Engineers v. Commissioner of SGST, Delhi

Court: High Court of Delhi

Petition Number: W.P. (C) No. 6729 of 2024

Date of Judgment: May 27, 2024

Category of Dispute: Cancellation of GST Registration

Relevant Section: Section 29(2) of CGST Act, 2017; Rule 23 of CGST Rules, 2017

Facts of the Case

1. The petitioner, Visiontek Engineers, held GST registration number 07AEYPB6907R2ZK and was engaged in trading and servicing air conditioning systems [Para 2].
2. A Show Cause Notice dated 11.10.2021 was issued without specifying any cogent reasons, merely stating non-filing of returns for six months. The notice did not provide a date/time for hearing or mention that cancellation would be retrospective [Para 3–4].
3. The subsequent cancellation order dated 23.07.2022 cited non-submission of reply as a reason for cancellation but contradicted itself by also acknowledging receipt of reply dated 07.01.2022 [Para 5].
4. The cancellation was made effective retrospectively from 01.07.2017, but no justification or grounds were provided for such retrospective effect. No dues were reflected in the cancellation order [Para 6].
5. The petitioner submitted that no business was carried out after the cancellation [Para 7].

Question(s) in Consideration

1. Whether cancellation of GST registration retrospectively from 01.07.2017 without giving proper notice and reasoning was valid under the CGST Act?
2. Whether a mechanical retrospective cancellation is sustainable when the taxpayer had been compliant during earlier periods? [Para 9]

Observation of Court

1. The Court held that cancellation of registration with retrospective effect cannot be done mechanically and must be based on objective satisfaction of conditions laid down under Section 29(2) of the CGST Act, 2017 [Para 9].
2. The Court noted the Show Cause Notice and cancellation order lacked substantive reasoning or evidence justifying retrospective cancellation [Para 8–9].
3. The Court highlighted that cancellation with retrospective effect adversely affects customers by denying them ITC, which must be considered by the proper officer [Para 10].
4. There was no indication that such consequences or legal reasoning were considered in the cancellation order [Para 10].

Judgment of the Court

1. The Court set aside the cancellation order dated 23.07.2022 and restored the petitioner’s GST registration [Para 11].
2. It directed the petitioner to comply with necessary requirements and file returns as per Rule 23 of CGST Rules, 2017 [Para 11].
3. The Court clarified that the department could initiate fresh proceedings for cancellation, including retrospective cancellation, provided due process and hearing were ensured [Para 12].
4. The writ petition was accordingly disposed of [Para 13].

Between Fine Lines

• The Court quashed the GST cancellation order as it was arbitrary, lacked due process, and unjustifiably applied retrospectivity.
• It emphasized that registration cannot be cancelled mechanically without examining legal consequences and providing adequate reasoning.
• Taxpayers’ rights and procedural safeguards under Section 29(2) must be honoured.
• Restoration does not bar fresh proceedings, but those must follow law and fair opportunity.
• This ruling reinforces the principle that retrospective action must be reasoned, justified, and fair

Summary of Referred Cases

Case Name    Citation          Summary       Verdict

None cited explicitly           —        No other judgments were cited or relied upon in the decision            —

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