Retrospective GST registration cancellation must be backed by
objective reasoning—Delhi High Court
Summary
In this landmark ruling,
the Delhi High Court quashed an order issued by the GST Department
cancelling the registration of JSD Traders LLP with retrospective
effect from 09 November 2017. The cancellation was based on allegations
under Section 29(2)(e) of the CGST Act, 2017—namely that registration
was obtained by fraud, willful misstatement, or suppression of facts.
However, the High Court
noted that the Show Cause Notice (SCN) and the cancellation order
lacked any material justification or reasoned explanation for
invoking retrospective effect. Accordingly, the Court set aside the
cancellation insofar as it sought to operate retrospectively, allowing
the department to initiate fresh proceedings if appropriate and grounded in
law.
Case
Details
- Petitioner:
JSD Traders LLP
- Respondents:
Additional Commissioner, CGST & Another
- Case No.:
W.P.(C) 2608/2025
- Date of Judgment:
03 March 2025
Reliefs
Sought
The petitioner prayed for
the following key reliefs:
1. Quashing
of the cancellation order dated 20 March 2024 under Section 29 of the
CGST Act;
2. Quashing
of the appellate order dated 10 January 2025, which dismissed their
appeal as time-barred;
3. Restoration
of GST registration (GSTIN: 07AANFJ4541J1Z3);
4. Any
other appropriate relief.
Factual
Background
1. SCN
Issued: On 01 August 2023, a Show Cause Notice
(SCN) was issued to the petitioner under Section 29(2)(e) of the
CGST Act, 2017, citing:
“Registration obtained by
means of fraud, willful misstatement or suppression of facts.”
The petitioner was
directed to respond within 7 working days and appear for a personal
hearing.
2. GST
Registration Suspended: The same notice also suspended
the GST registration from 01 August 2023.
3. No
Reply Filed: The petitioner did not file a reply to
the SCN, which led to the cancellation of registration by the department via
order dated 20 March 2024, with retrospective effect from 09 November
2017.
4. Appeal
Dismissed on Limitation: The petitioner’s appeal against the
cancellation was dismissed on 10 January 2025 solely on the ground that
it was time-barred under Section 107(4) of the CGST Act.
Legal
Issues
1. Whether
the retrospective cancellation of GST registration from 2017 was legally
valid and reasoned;
2. Whether
the absence of justification or material in the SCN and order vitiated
the entire cancellation process;
3. Whether
the dismissal of the appeal on limitation grounds should preclude the
petitioner from asserting its rights.
Court’s
Observations and Legal Reasoning
1. No Basis for
Retrospective Cancellation
The Court analyzed the
SCN and found it to be completely devoid of supporting evidence or reasoning:
“Neither the SCN nor the
final order alludes to or rests upon any material on the basis of which the
respondent would have formed the opinion that Section 29(2)(e) of the CGST Act
was violated.”
The Court reiterated that
Section 29(2) indeed permits cancellation with retrospective effect,
but such a power:
- Must be exercised cautiously;
- Requires specific reasoning;
- Cannot be applied routinely or
mechanically.
2. Reliance on Precedents
The Court extensively
referred to its previous rulings, including:
Riddhi Siddhi
Enterprises v. CGST, South Delhi:
“The power to cancel
retrospectively can neither be robotic nor routinely applied unless
circumstances so warrant.”
The order must
demonstrate:
- Application of mind;
- The intent to cancel
retrospectively;
- An evaluation of consequences,
especially to third parties like buyers.
Ramesh Chander v.
Assistant Commissioner, CGST:
- Retroactive cancellation that affects
filings already made and compliant periods must be justified
with clarity;
- Orders must align with the show
cause basis, failing which they are liable to be set aside.
Delhi Polymers v. Commissioner, Trade and
Taxes:
- Orders cannot simply state “no reply
filed” as a reason for cancellation;
- Contradictory or template-style
reasoning undermines the rule of law.
3. Dismissal of Appeal on
Limitation Not a Bar
While the petitioner’s
appeal was dismissed as time-barred, the Court clarified that:
“The proceedings shall be
drawn and concluded notwithstanding the dismissal of the statutory appeal...”
Thus, even though the statutory
appeal failed on limitation, the writ court could intervene to
uphold substantive justice, especially where procedural irregularity
vitiated the very basis of cancellation.
Final
Judgment and Directions
The High Court ruled as
follows:
1. Quashed
the order dated 20 March 2024, insofar as it retrospectively
cancelled GST registration from 09 November 2017.
2. Directed
the department to adjudicate afresh, allowing the SCN
proceedings to continue only if:
o The
petitioner is clearly informed of the material relied upon;
o Opportunity
of hearing is provided.
3. Clarified
that the order would operate notwithstanding the statutory appeal’s
dismissal due to limitation.
4. All
rights and contentions on merits were left open
to both parties.
Conclusion
The JSD Traders LLP
case underscores a critical message to tax administrators:
Retrospective
cancellation of GST registration is a drastic power. It must not be exercised
in a templated, unjustified manner.
The judgment ensures that
registration cancellation must be transparent, reasoned, and compliant
with Section 29 and principles of natural justice. The ruling
also reflects the High Court's growing insistence on procedural due process,
especially in matters that can adversely impact business continuity, ITC
chains, and compliance integrity.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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