Retroactive Cancellation of GST Registration for Non-Filing Struck Down by Delhi High Court

Retroactive Cancellation of GST Registration for Non-Filing Struck Down by Delhi High Court

In a significant judgment, the Delhi High Court held that the cancellation of Goods and Services Tax (GST) registration with retrospective application based solely on the non-filing of returns is not permissible.

The Bench, comprised of Justices Sanjeev Sachdev and Ravinder Dudeja, observed that the mere failure to file GST returns in a specific period does not warrant the cancellation of a taxpayer's registration with a retrospective effect that encompasses compliant periods when returns were duly filed.

The petitioner, in this case the assessee, challenged the order cancelling their GST registration retrospectively to July 1, 2017, and also contested the issued Show Cause Notice.

Following the cessation of business operations on March 31, 2019, the petitioner submitted a formal application for the cancellation of their GST registration on May 6, 2019. Subsequently, a Show Cause Notice was issued, requiring the petitioner to demonstrate why the registration should not be revoked.

The order mandated the cancellation of the registration with retroactive effect. Notably, the record lacked any material substantiating the rationale behind this retrospective cancellation.

The petitioner argued that the show cause notice failed to clearly inform them of the potential for retrospective cancellation, thereby denying them the chance to raise objections to this action.

The petitioner duly submitted a formal application for the cancellation of their GST registration. Subsequently, and to the petitioner's detriment, the registration was retroactively revoked, citing non-filing as the rationale. In light of the already cancelled registration, such justification for revocation is demonstrably unsustainable.

While Section 29(2) provides the legal framework for retrospective cancellation of GST registration under certain conditions, it does not automatically justify such cancellation for non-filing periods that include compliant periods with filed returns.

The Court issued a judgment modifying the order of cancellation. The modified order shall be effective from May 6, 2019, coinciding with the petitioner's first application for registration cancellation. Additionally, the Court clarified that the respondents' right to pursue lawful recovery of any outstanding tax, penalty, or interest owed by the petitioner remains unaffected.