Cancellation of Registration must be Reasonable and not Arbitrary u/s 29(2) of GST Act: Delhi HC sets aside Order [Read Order]

The Delhi High Court emphasised that the cancellation of GST registration must be reasonable and not arbitrary under Section 29(2) of the Goods and Services Tax (GST) Act. The court set aside an order cancelling the GST registration of M/s. Elasto Rubber Pvt Ltd, remanding the matter to the Appellate Authority for a fresh decision on merits.

The petitioner, M/s. Elasto Rubber Pvt Ltd, challenged the order dated 28.06.2024, which rejected their appeal under Section 107 of the Central Goods and Services Tax Act, 2017/Delhi Goods and Services Tax Act (CGST Act, 2017/DGST Act) due to delay.

The petitioner was registered with the GST Authorities from 01.07.2017 with GSTIN 07AAACE6120CIZB and regularly filed GST returns from 2017 to 2021. However, due to medical issues in the family and the impact of COVID-19, there were defaults in statutory compliances. The petitioner admitted to remissness in filing the required returns for 2021-22 and claimed that their consultant failed to inform them about notices from the GST Department.

On 08.10.2022, a Show Cause Notice (SCN) was issued to the petitioner for failing to file returns for six months, with a direction to reply within seven days and appear before the proper officer on 07.11.2022. The petitioner's GST registration was suspended from 08.10.2022 and subsequently cancelled on 21.08.2023, effective from 01.07.2017.

The petitioner claimed unawareness of both the SCN and the cancellation order, learning of them later. An appeal was filed on 19.03.2024, which was dismissed solely due to delay.

The petitioner, represented by Vibhas Kumar Jha, Rajat Pandey, and Manju Pandey, argued that the SCN did not indicate that the GST registration would be cancelled retrospectively and that the cancellation order lacked reasoning for the retrospective effect. They also highlighted the impact of the pandemic on their business and their intent to recommence operations.

The court noted that the cancellation order did not specify reasons for the retrospective cancellation from 01.07.2017. According to Section 29(2) of the GST Act, the proper officer can cancel registration from a date deemed fit, but this decision must be reasoned and not arbitrary.

The bench of Justices Vibhu Bakhru and Sachin Datta expressed reservations about whether a taxpayer's GST registration cancellation should preclude them from reapplying for fresh registration, implying that such a consequence could prevent legitimate business activities. However, the court did not delve into this controversy.

The court set aside the impugned order dated 28.06.2024, remanding the matter to the Appellate Authority for a fresh decision on merits, uninfluenced by the question of delay, and directed the authority to dispose of the appeal expeditiously within eight weeks. The petition was disposed of accordingly, along with all pending applications.

To Read the full text of the Order CLICK HERE

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