Delhi HC sets aside Retrospective GST Cancellation from 2018, Says SCN Must Clearly Propose Backdated Cancellation [Read Order]

The Delhi High Court has set aside an order cancelling a taxpayer’s GST registration with retrospective effect from 2018, holding that a show cause notice (SCN) must clearly and specifically propose retrospective cancellation if the department intends to take such action.

In the present case, the petitioner, Bhagvan Singh, a garment and fabric trader, challenged an order dated 12.10.2023 by which the GST registration was cancelled retrospectively from 04.10.2018.

The department had issued an SCN dated 15.01.2023 proposing cancellation of GST registration on the ground of non-furnishing of returns for a continuous period of six months.

The notice directed the petitioner to file a reply within 30 days and also indicated that the registration stood suspended from the date of notice. However, the SCN did not state anywhere that retrospective cancellation from an earlier date was being proposed.

After that, the proper officer passed the impugned order cancelling the registration retrospectively from 04.10.2018 on the ground that no reply to the SCN had been received.

The petitioner went before the High Court contending that while the law permits retrospective cancellation under Section 29(2) of the CGST Act, however the same action cannot be taken without prior notice and recorded reasons.

The bench of Justices Nitin Wasudeo Sambre and Ajay Digpaul, after hearing the contentions noted that “The law on the subject of retrospective cancellation of the GST registration of an assessee is trite, holding that it is not merely the order of such retrospective cancellation that ought to contain sufficient reasoning to reflect the application of mind of the authority from which it flows, but also that the relevant SCN served upon the assessee should make mention of such proposed action of retrospective cancellation.”

The Court observing these said that both the SCN and the final cancellation order must reflect proper application of mind and contain clear reasons for invoking retrospective effect. As it lacks the same, the SCN and order was set aside.

The Delhi High Court ordered to restore the GST registration and also directed the petitioner to clear the pending liabilities within 20 days.

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