2025 (3) TMI 733 - HC - GST

Cancellation of GST Registration under 29 of the Central Goods and Service Tax Act 2017 - no proper reasons assigned in the SCN - Violation of principles of natural justice - HELD THAT - 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 Central GST Act 2017 was violated nor did it embody an intent of a proposed retrospective cancellation of the GST registration of the petitioner. In the absence of reasons having been assigned in the original SCN 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 writ petition is entitled to succeed on this short ground alone. This however would be without prejudice to the right of the respondent to continue the SCN proceedings on the allegation of the initial registration having been obtained by practise of fraud or misrepresentation subject to the condition that the petitioner shall be duly apprised of the material on the basis of which that opinion has been formed. Time limitation - HELD THAT - The said issue already stands answered against the writ petitioner in light of decision in M/s Addichem Speciality LLP v. Special Commissioner Department of Trade and Taxes 2025 (2) TMI 366 - DELHI HIGH COURT where it was held that The power to condone delay caused in pursuing a statutory remedy would always be dependent upon the statutory provision that governs. The right to seek condonation of delay and invoke the discretionary power inhering in an appellate authority would depend upon whether the statute creates a special and independent regime with respect to limitation or leaves an avenue open for the appellant to invoke the general provisions of the Limitation Act to seek condonation of delay. Conclusion - Retrospective cancellation of GST registration requires a reasoned order reflecting due application of mind and adherence to procedural fairness. The order of 20 March 2024 insofar as it proceeds to cancel the registration of the petitioner from a retrospective date is quashed - petition allowed.

ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment are:

Whether the order canceling the GST registration of the petitioner with retrospective effect is valid under Section 29 of the Central Goods and Services Tax Act, 2017 (CGST Act).
Whether the appeal filed by the petitioner against the cancellation order was rightly dismissed on the grounds of limitation.
Whether the respondents followed due process in issuing the Show Cause Notice (SCN) and subsequent cancellation order.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Retrospective Cancellation of GST Registration

Relevant Legal Framework and Precedents: Section 29(2) of the CGST Act allows for the cancellation of GST registration from a retrospective date under certain circumstances, such as when registration is obtained by means of fraud or suppression of facts. The precedents cited, including Riddhi Siddhi Enterprises and Ramesh Chander, emphasize that retrospective cancellation must be reasoned and cannot be applied mechanically.
Court's Interpretation and Reasoning: The Court noted that neither the SCN nor the final cancellation order provided reasons for the retrospective cancellation. The Court stressed the necessity for such orders to be reasoned, reflecting due application of mind, especially given the significant consequences of retrospective cancellation.
Key Evidence and Findings: The SCN and the cancellation order lacked specific material or reasoning justifying the retrospective cancellation. This absence of reasoning was deemed a critical flaw.
Application of Law to Facts: The Court applied the principles from previous judgments, highlighting the need for clear reasons and prior notice to the petitioner about the intent of retrospective cancellation.
Treatment of Competing Arguments: The Court acknowledged the respondent's power to cancel registration retrospectively but underscored that such power must be exercised with due process and reasoned orders.
Conclusions: The retrospective cancellation was invalid due to the lack of reasoning and failure to notify the petitioner adequately.

2. Dismissal of Appeal on Grounds of Limitation

Relevant Legal Framework and Precedents: The appeal was dismissed based on the statutory period of limitation as per Section 107(4) of the CGST Act. The Court referenced its decision in M/s Addichem Speciality LLP, which upheld the dismissal of appeals filed beyond the limitation period.
Court's Interpretation and Reasoning: The Court conceded that the dismissal of the appeal on limitation grounds was consistent with its previous rulings and statutory requirements.
Conclusions: The appeal's dismissal on limitation grounds was upheld, but this did not preclude the petitioner from challenging the substantive validity of the cancellation order.

3. Due Process in Issuance of SCN and Cancellation Order

Relevant Legal Framework and Precedents: The requirement for due process in issuing SCNs and cancellation orders is underscored by the need for clarity, specific reasons, and an opportunity for the affected party to respond.
Court's Interpretation and Reasoning: The Court found that the SCN and cancellation order failed to provide specific reasons or evidence supporting the allegations of fraud or misrepresentation.
Key Evidence and Findings: The lack of detailed reasoning and evidence in the SCN and cancellation order was a significant procedural flaw.
Application of Law to Facts: The Court emphasized the necessity for procedural fairness, requiring that the petitioner be informed of the basis for the cancellation and be given an opportunity to respond.
Conclusions: The procedural deficiencies invalidated the cancellation order, necessitating a fresh adjudication process.

SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "The power to cancel retrospectively can neither be robotic nor routinely applied unless circumstances so warrant."
Core Principles Established: Retrospective cancellation of GST registration requires a reasoned order, reflecting due application of mind and adherence to procedural fairness.
Final Determinations on Each Issue: The Court quashed the retrospective cancellation order due to lack of reasoning and procedural deficiencies. The dismissal of the appeal on limitation grounds was upheld, but the petitioner was allowed a fresh opportunity to contest the cancellation substantively.

The Court ultimately allowed the writ petition, quashing the order of 20 March 2024, and directed the respondents to adjudicate the SCN afresh, ensuring the petitioner is afforded an opportunity for a hearing. All rights and contentions on merits were kept open for future proceedings.

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