Court holds that retrospective cancellation affecting customer's input tax credit requires consideration of unintended consequences

The Hon'ble High Court of Delhi in Ruby Bansal vs. C.G.S.T. Delhi East Commissioner & Anr. [W.P.(C) 18496/2025] dated December 5, 2025 held that in exercise of writ jurisdiction under Article 226 of the Constitution, the High Court can extend time for filing an appeal under Section 107 of the CGST Act beyond the statutory limitation period where the delay is explained and the petitioner was pursuing remedies before constitutional courts. The Court set aside the First Appellate Authority's order rejecting the appeal on grounds of limitation and directed that the appeal be heard on merits. The Court relied on the Supreme Court's decision in Ganpati Polymers which upheld the High Court's power to grant extended time for filing statutory appeals. The Court further observed that retrospective cancellation of GST registration must consider the unintended consequences, particularly the cascading effect on clients' Input Tax Credit, and cannot be done mechanically without such consideration.

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FACTS OF THE CASE

The Petitioner, Ruby Bansal, was granted GST Registration with effect from July 1, 2017, and was regularly filing GST returns thereafter.

However, during the COVID-19 pandemic in 2021, the Petitioner failed to file GST returns for a period of 6 months. This led to the issuance of a Show Cause Notice (SCN) dated August 5, 2021, by the Sales Tax Officer Class II/AVATO, Ward 46, Zone 7, Delhi. The SCN proposed cancellation of the Petitioner's GST Registration on the ground of non-filing of GST returns.

The Petitioner did not file any reply to the SCN, and consequently, the Sales Tax Officer Class II/AVATO, Ward 76 passed a cancellation order dated March 15, 2022, cancelling the GST registration of the Petitioner retrospectively with effect from July 1, 2017 (i.e., from the very date of grant of registration).

The retrospective cancellation of GST registration had cascading consequences for the Petitioner. The Petitioner's clients (customers who had purchased goods/services from the Petitioner and availed Input Tax Credit on such purchases) started receiving notices from the GST Department for reversal of Input Tax Credit (ITC). This meant that all the ITC claimed by the Petitioner's clients during the period from July 1, 2017 to March 15, 2022 was being demanded back, causing severe financial hardship to both the Petitioner and its clients.

The Petitioner became aware of the cancellation order only when its clients started receiving these ITC reversal notices. According to the Petitioner, it did not receive the SCN dated August 5, 2021, and was unaware of the cancellation proceedings until the clients brought it to the Petitioner's attention.

Pursuant to becoming aware of the situation, the Petitioner preferred an appeal against the cancellation order dated March 15, 2022 before the Special Commissioner (First Appellate Authority) on December 13, 2023. However, this appeal was filed much beyond the statutory limitation period prescribed under Section 107 of the CGST Act, 2017.

The First Appellate Authority passed an order dated November 19, 2025 (impugned order), rejecting the Petitioner's appeal purely on the ground of limitation, without deciding the appeal on merits. The Appellate Authority held that it had no power to condone the delay in filing the appeal.

Aggrieved by the impugned order dated November 19, 2025 and the original cancellation order dated March 15, 2022, the Petitioner filed the present Writ Petition under Article 226 of the Constitution of India before the Delhi High Court, challenging both orders and seeking directions for the appeal to be decided on merits.

ISSUE

Whether the High Court, in exercise of its writ jurisdiction under Article 226 of the Constitution of India, can extend the time for filing an appeal under Section 107 of the CGST Act beyond the statutory limitation period and direct the Appellate Authority to decide the appeal on merits without dismissing it on the ground of limitation, particularly where: (i) the delay in filing the appeal is explained by the petitioner not receiving the Show Cause Notice and becoming aware of the cancellation only through clients' ITC reversal notices, (ii) the non-filing of returns was during the COVID-19 pandemic period, (iii) the GST registration was cancelled retrospectively from the date of registration causing cascading consequences to clients' Input Tax Credit, and (iv) the Appellate Authority has rejected the appeal purely on limitation grounds without examining the merits?

HELD BY THE COURT

The Hon'ble High Court of Delhi in W.P.(C) 18496/2025 held that:

The Court observed that the Petitioner's counsel, Mr. Rehan Narula, relied upon the decision of a Coordinate Bench of the Delhi High Court in W.P.(C) 4010/2024 titled Anil Soni Prop. of M/s. Soni Sales Corp v. Superintendent, Ward-49, CGST Delhi & Anr. The Court noted that in the said decision, the High Court had observed that if the Show Cause Notice does not consider the unintended consequences of the cancellation of GST registration, the retrospective cancellation of GST registration would not be tenable.

The Court quoted the relevant portion from the Anil Soni judgment: "It is important to note that, according to the respondent, one of the consequences for cancelling a tax payer's registration with retrospective effect is that the taxpayer's customers are denied the input tax credit availed in respect of the supplies made by the tax payer during such period. Although, we do not consider it apposite to examine this aspect but assuming that the respondent's contention is required to consider this aspect while passing any order for cancellation of GST registration with retrospective effect. Thus, a taxpayer's registration can be cancelled with retrospective effect only where such consequences are intended and are warranted."

The Court acknowledged that the Revenue's counsel, Mr. Sumit K. Batra, relied upon decisions in W.P.(C) 14279/2024 titled M/s Addichem Speciality LLP v. Special Commissioner I, Department of Trade and Taxes & Anr. and M.A.T. 81/2022 titled S.K. Chakraborty & Sons v. Union of India & Ors. to argue that the delay in filing the appeal cannot be condoned by the Appellate Authority.

The Court held that there can be no doubt that in Addichem Speciality (supra) the clear rationale of the judgment is that the Appellate Authority cannot condone the delay. However, the Court distinguished this position by observing that in writ jurisdiction, the High Court has the power to extend time for filing appeals.

The Court relied on its own decision in W.P.(C) 11906/2025 titled Ganpati Polymers Through Its Proprietor Prop. Ankur Jain v. Commissioner of Central Goods and Service Tax and Another where the Court had extended time for filing an appeal under Section 107 of the CGST Act. The Court quoted the operative portion of the order dated August 8, 2025: "At this stage, ld. Counsel for the Petitioner submits that the Petitioner may be permitted to avail of appellate remedy as the present writ petition was filed within the period of limitation prescribed under Section 107 of the Central Goods and Service Act, 2017. Accordingly, the Petitioner is granted time till 31st August, 2025 to avail of its appellate remedy. If the appeal is filed by 31st August, 2025 along with the requisite predeposit, the same shall not be dismissed being barred by limitation and the same shall be decided on merits."

The Court further noted that the Supreme Court in SLP(C) No. 27867/2025 titled M/s Ganpati Polymers v. Commissioner of Central Goods and Services Tax & Anr. had upheld the Delhi High Court's decision vide order dated August 8, 2025. The Court quoted the Supreme Court's observations: "4. If any statutory appeal is preferred by the petitioner, the issue of delay may be considered accordingly, more particularly keeping in mind that the petitioner was pursuing its remedy before the High Court and thereafter before this Court. 5. We grant the petitioner time upto 31-10-2025 to prefer the statutory appeal as provided in law."

The Court held that in the present case, the Petitioner's grievance was that it did not come to know about the SCN until the notices were received by the Petitioner's clients regarding ITC reversal. Hence, there was a delay in filing the appeal. Accordingly, there was an explanation to the belated filing of the appeal.

The Court opined that moreover, the non-filing of returns was also due to the COVID-19 pandemic which is a reasonable explanation. Therefore, the Court held that the Petitioner deserves a hearing on merits.

The Court held that following the decision in Ganpati Polymers (Supra), this Court is inclined to permit the Petitioner to avail of its Appellate Remedy. The Court directed that the appeal shall now be heard on merits by the Appellate Authority and shall not be held to be barred by limitation.

Accordingly, the Court set aside the impugned order dated November 19, 2025. The Court directed that the Petitioner be afforded a personal hearing by the Appellate Authority and then the appeal shall be decided with a reasoned order.

The Court clarified that "This order is being passed in the peculiar facts of this case." The petition was disposed of in these terms along with all pending applications.

RELEVANT SECTIONS

Section 107 of the CGST Act, 2017 - "Appeals to Appellate Authority"

This section provides for filing of appeals before the First Appellate Authority against orders passed by adjudicating authorities. Sub-section (1) provides that any person aggrieved by certain specified orders may appeal to the Appellate Authority within three months from the date of communication of such order. Sub-section (4) provides for condonation of delay by a further period of one month if the Appellate Authority is satisfied that the appellant was prevented by sufficient cause from presenting the appeal within the period of three months.

Section 29 of the CGST Act, 2017 - "Cancellation or suspension of registration"

This section provides for cancellation of GST registration under various circumstances including: (a) contravention of Act/Rules, (b) not furnishing returns, (c) not commencing business within six months, (d) business discontinuation, etc. Sub-section (2) provides the procedure for cancellation including issuance of Show Cause Notice and opportunity of being heard. Sub-section (2) specifically provides for cancellation with effect from a date to be determined by the proper officer, which can be retrospective.

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