Delhi High Court Quashes Retrospective GST Registration Cancellation Without Proper Notice

The Hon'ble High Court of Delhi in Royal Enterprises v. Principal Commissioner of Goods and Service Tax East Delhi, W.P.(C) No. 2461 of 2025, decided on February 27, 2025, held that where a show cause notice issued for cancellation of registration embodied no intent or disclosure contemplating cancellation from a retrospective date, an order cancelling registration retrospectively was to be set aside. The Court observed that the absence of reasons in the show cause notice in support of a proposed retrospective cancellation as well as a failure to place the assessee on prior notice of such an intent clearly invalidated the impugned action of the respondent authority. The Court ruled that the cancellation of the assessee's registration would come into effect from the date of the show cause notice and not from the retrospective date. The Court modified the impugned order and provided that the cancellation of the petitioner's GST registration shall come into effect from the date of the show cause notice dated September 27, 2024. The stipulation in the impugned order of cancellation to come into effect from November 25, 2021 was consequently quashed.

Facts of the Case

The Petitioner, Royal Enterprises, challenged the validity of the final order dated October 22, 2024 in terms of which its Goods and Services Tax registration came to be cancelled with retrospective effect from November 25, 2021. The proceedings had come to be initiated pursuant to a Show Cause Notice dated September 27, 2024. That notice embodied no intent or disclosure of the Respondents contemplating cancellation from a retrospective date.

The Petitioner was aggrieved by the retrospective cancellation of its GST registration which was ordered to be effective from November 25, 2021, despite the show cause notice not indicating any intention of retrospective cancellation. The Respondent authority had issued the show cause notice on September 27, 2024, but subsequently passed an order on October 22, 2024 cancelling the registration with retrospective effect without providing proper reasons or prior notice of such intent to the Petitioner.

Issue

Whether a show cause notice that embodied no intent or disclosure contemplating cancellation from a retrospective date could validly result in an order cancelling registration retrospectively.

Held by the Court

The Hon'ble High Court of Delhi in Royal Enterprises v. Principal Commissioner of Goods and Service Tax East Delhi, W.P.(C) No. 2461 of 2025, decided on February 27, 2025, held that:

The Court observed that Section 29 of the Central Goods and Services Tax Act, 2017 confers upon the respondents the power to cancel registration from a retrospective date, but the mere existence or conferral of that power would not justify a revocation of registration. The Court held that the order under Section 29(2) must itself reflect the reasons which may have weighed upon the respondents to cancel registration with retrospective effect. The Court emphasized that given the deleterious consequences which would ensue and accompany a retroactive cancellation makes it all the more vital that the order be reasoned and demonstrative of due application of mind.

The Court opined that the power to cancel retrospectively can neither be robotic nor routinely applied unless circumstances so warrant. The Court held that when tested on the aforesaid precepts it becomes ex facie evident that the impugned order of cancellation cannot be sustained. The Court observed that the absence of reasons in the original show cause notice in support of a proposed retrospective cancellation as well as a failure to place the petitioner on prior notice of such an intent clearly invalidates the impugned action.

The Court held that the writ petition was entitled to succeed and accordingly allowed the writ petition by modifying the impugned order and providing that the cancellation of the petitioner's GST registration shall come into effect from the date of the show cause notice dated September 27, 2024. The Court ruled that the stipulation in the impugned order of cancellation to come into effect from November 25, 2021 was consequently quashed.

Relevant Sections

• Section 29 of Central Goods and Services Tax Act, 2017

• Section 29(2) of Central Goods and Services Tax Act, 2017

• Delhi Goods and Services Tax Act, 2017

Pari Materia / Cases Referred

Riddhi Siddhi Enterprises v. Commissioner of Goods and Services Tax (CGST) & Anr. - The Delhi High Court held that registration cannot be cancelled with retrospective effect mechanically and can be cancelled only if the proper officer deems it fit to do so based on objective criteria.

Ramesh Chander v. Assistant Commissioner of Goods and Services Tax, Dwarka Division, CGST Delhi & Anr. - The Delhi High Court held that show cause notice as well as order of cancellation were vitiated on account of lack of reason and clarity, and registration cannot be cancelled with retrospective effect mechanically without proper reasons.

Delhi Polymers v. Commissioner, Trade and Taxes & Anr. - The Delhi High Court observed that registration cannot be cancelled with retrospective effect mechanically and such satisfaction cannot be subjective but must be based on objective criteria.

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