Retrospective GST cancellation in absence of specific reasons will take effect from the date of issue of SCN: Delhi HC

Citing absence of such reasons in the present case, the division bench of Judges Yashwant Varma and Dharmesh Sharma the said cancellation of the petitioner’s GST registration would be effective only from the date of issuance of the Show Cause Notice.

It relied on Riddhi Siddhi Enterprises vs. Commissioner of Goods and Services Tax (CGST), South Delhi & Anr. (2024) where a coordinate bench of the Supreme Court had held that mere transfer of the power to cancel GST registration with retrospective effect under Section 29 of the Goods and Services Tax Act 2017 would not justify a cancellation.

It was held: “The order under Section 29(2) must itself reflect the reasons which may have pressed upon the respondents to cancel the registration with retrospective effect. Given the harmful consequences that would result from and be associated with a retroactive cancellation, it is all the more important that the order is reasoned and demonstrates the correct application of the spirit.”

The Supreme Court had also taken note of Ramesh Chander vs. Assistant Commissioner of Goods and Services Tax, Dwarka Division, CGST Delhi & Anr. (2024) which held that the registration cannot be canceled mechanically with retroactive effect.

“It can only be canceled if the appropriate official deems it appropriate. Such satisfaction cannot be subjective, but must be based on some objective criteria. The mere fact that a taxpayer has not filed the returns for a certain period does not mean that the taxpayer’s registration must be canceled with a retroactive effect that also covers the period in which the returns were filed and the taxpayer complied.‘ It was held.

In the present case, the GST Department has contended that the petitioner had not filed returns for a continuous period of six months as required under Section 39 of the Act. It thus revoked the registration order of February 28, 2023, with effect from July 2, 2017.

The High Court said that in the absence of any indication in the SCN of the reasons that pressed the ministry to revoke the registration retrospectively, it cannot uphold the impugned decision.

“The contested decision of February 28, 2023, insofar as it claims to operate from July 2, 2017, will be annulled. The termination will therefore take effect from the date of issuance of the SCN, namely January 15, 2023,The court ordered and granted the petition.

Appearance: Advocate NK Sharma as the applicant; SPC Shreya Bhardwaj, SSC Harpreet Singh with advocates Suhani Mathur and Shivag Chawla for respondents

Case title: M/S Akash Garments India Pvt Ltd v Union Of India & Anr.

Case no.: WP(C) 5892/2024

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