The High Court of Delhi held that the cancellation of Goods and Services Tax ( GST ) registration cannot be applied retrospectively if the Show Cause Notice ( SCN ) does not clearly specify the reasons for such action. The court directed that the cancellation of the petitioner’s GST registration be effective from the date of suspension i.e., May 24, 2022, instead of the retrospective date of September 11, 2017, as initially ordered by the tax authorities.
The petitioner, M/s Balaji Industries, registered under the Central Goods and Services Tax (CGST) Act, 2017, had its GST registration cancelled by the Principal Commissioner of CGST, Delhi North Commissionerate, with retrospective effect from September 11, 2017. The cancellation was based on the petitioner’s alleged non-compliance with certain provisions of the CGST Act and rules.
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The petitioner, represented by Mr. Roopesh Kumar Mishra and Mr. Vikash Singh contended that it had ceased its business operations in March 2022 and had instructed its Chartered Accountant (CA) to apply for the cancellation of its GST registration. An SCN was issued to the petitioner on May 24, 2022, citing general non-compliance with the GST Act but without detailing specific reasons for the proposed cancellation.
The petitioner, unaware of the SCN, did not respond or attend the hearing scheduled by the tax authorities, leading to the cancellation of its GST registration.
The petitioner argued that since it had ceased operations in 2022, it did not object to the cancellation but was aggrieved by its retrospective effect from 2017. The petitioner claimed that the retrospective cancellation exposed it to undue liabilities for a period when no business activity had occurred.
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The respondent revenue, represented by Ms. Neha Malik, Ms. Damini Vishwakarma and Mr. Sahil Malik contended that the cancellation of the petitioner’s GST registration was justified due to non-compliance with provisions under the CGST Act, including failure to update bank account details and submit required documents.
The Delhi High Court found merit in the petitioner’s arguments, observing that the reasons cited in the SCN were vague and did not offer any clear justification for the retrospective cancellation.
The court emphasised that an SCN must clearly state specific reasons so that the taxpayer has a fair opportunity to respond.
In this case, the SCN only referred to a generalised “non-compliance of specified provisions” without specifying the exact nature of the violations. Additionally, the reasons cited in the final cancellation order did not align with those mentioned in the SCN. The court held that this lack of clarity and specificity deprived the petitioner of a proper opportunity to defend itself.
Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here
In result, the division bench comprising Justice Vibhu Bakhru and Justice Sachin Datta modified the impugned order issued by the respondent revenue, directing that the cancellation of the GST registration take effect from the date of suspension, May 24, 2022, rather than the retrospective date of September 11, 2017.
The bench also clarified that the tax authorities were not precluded from initiating any fresh proceedings for statutory violations or recovery of dues, provided they did so in accordance with the law.
This bench stressed the need for tax authorities to issue well-reasoned SCNs that provide taxpayers with adequate grounds and opportunity to address the issues raised. It also stressed that retrospective cancellations or penalties must be backed by clear and specific reasoning.
The decision highlights the importance of providing clear and specific reasons in an SCN before any adverse action, such as the cancellation of GST registration, can be taken against a taxpayer.
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