Delhi High Court sets aside Retrospective GST Registration Cancellation citing Lack of Clarity; Modifies Cancellation date to Petitioner’s Application Date [Read Order]

The Delhi High Court has overturned a decision by the Commissioner of Delhi Goods and Services Tax to cancel the Goods and Services Tax ( GST ) registration of the petitioner retrospectively. The court’s decision came in response to the petition filed by Swati Gupta challenging the cancellation of her GST registration.

The petitioner, Swati Gupta, had sought the cancellation of her GST registration on the grounds of the closure of her business. The petitioner, who was engaged in the trading of raisins, applied for cancellation on June 20, 2020, citing the cessation of business activities.

However, the application was met with resistance from the tax authorities. Despite filing all returns until March 2020, the petitioner’s application for cancellation was rejected on June 25, 2021, without providing specific reasons for the rejection.

Subsequently, a Show Cause Notice dated June 30, 2021, was issued to the petitioner, seeking to cancel her registration. The notice failed to specify cogent reasons for the cancellation and did not inform the petitioner of the possibility of retrospective cancellation.

Further, the order issued on October 28, 2021, cancelling the petitioner’s registration did not provide adequate reasons and contradicted itself by mentioning a lack of response to the Show Cause Notice despite referencing a reply from the petitioner dated October 6, 2021.

The petitioner, represented by Mr. Sumit K. Batra, Mr. Manish Khurana and Ms. Priyanka Jindal, contended that her GST registration should be cancelled due to the closure of her business. The petitioner sought relief from the retrospective cancellation imposed by tax authorities without adequate reasoning.

The respondent revenue, Commissioner of Delhi Goods and Services Tax and Another, represented by Mr. Rajeev Aggarwal argued that retrospective cancellation of GST registration is warranted due to the petitioner's failure to file returns for six consecutive months, impacting Input Tax Credit ( ITC ) availed by customers.

The bench recognised the lack of clarity and reasoning behind the cancellation. The division bench comprising Justice Sanjeev Sachdeva and Justice Ravinder Dudeja observed that cancellation with retrospective effect should not be done mechanically but should be based on objective criteria. The bench emphasised that non-filing of returns alone does not warrant retrospective cancellation.

The court highlighted that retrospective cancellation has implications for ITC, affecting their customers. Therefore, such cancellations should only be made when justified and necessary.

In result, the court modified the cancellation of the petitioner’s GST registration to the date of her application for cancellation, i.e., June 20, 2020.

To Read the full text of the Order CLICK HERE

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