In W.P.(C) 6652/2023 -DEL HC- Delhi High Court rules against retrospective GST registration cancellation, cites cascading effects
Justice Vibhu Bakhru & Justice Amit Mahajan [20-07-2023]

Read Order: Ashish Garg V. Assistant Commissioner of State Goods and Service Tax

Chahat Varma

New Delhi, August 9, 2023: The Delhi High Court recently ruled that retrospective cancellation of GST registration has a cascading effect, leading to the denial of Input Tax Credit (ITC) for other taxpayers who received supplies from the cancelled entity.

In the matter at hand, the petitioner had filed the present petition, challenging an order issued by the Adjudicating Authority. The order, dated 22.07.2021, cancelled the petitioner's GST registration, and this cancellation was applied retrospectively from 02.07.2017.

The division bench of Justice Vibhu Bakhru and Justice Amit Mahajan held that there was no sufficient evidence or material on record to justify the retrospective cancellation of the petitioner's GST registration by the Adjudicating Authority. The reason given by the authority for proposing the cancellation in the Show Cause Notice, dated 30.06.2021, was the non-filing of returns for a continuous period of six months. The bench emphasized that the retrospective cancellation cannot be extended to include the period for which the petitioner had filed returns.

“Although in terms of Section 29 of the Central Goods and Services Tax Act, 2017, the concerned authority has the discretion to cancel the registration from a retrospective date, however, the said power cannot be exercised arbitrarily,” said the bench.

The bench observed that the petitioner claimed to have ceased their business activities from June 2019. Given this claim, the petitioner should not be required to file returns for the period after they had closed down their business. However, despite several rounds of proceedings, the concerned authority did not properly consider the petitioner's assertion that they had closed their business in June 2019. The bench further remarked that the orders passed by the Adjudicating Authority were belatedly issued and appeared to be done in a mechanical manner.

In light of the specific facts and circumstances of the case, the bench held that the concerned authorities should process the petitioner's application for cancellation of GST registration, but only with effect from 30.06.2019. However, the bench clarified that the concerned authorities are not restricted from taking further action if they discover evidence indicating that the petitioner was still conducting business activities beyond 30.06.2019 and had violated any statutory provisions during that period.