Delhi High Court Quashes Retrospective GST Cancellation, Orders Fresh Adjudication

The case before the Court was the result of the cancellation of the GST registration, as per an order passed on 09.08.2023, which made it effective retrospectively from 01.07.2017. The record revealed that the registration was originally in the sole proprietorship of the deceased sole proprietor, who passed away on 28.04.2021. Later, an application in Form GST REG-16 was submitted by the firm on 27.02.2022, declaring that no proceeding was pending against the firm at that point. However, the notice of Show Cause was issued by the Commissioner on 25.07.2022, stating that the tax was collected without deposit to the treasuries of Government within the period. The notice failed to elicit a reply from the party concerned, and the order of cancellation of registration was passed by the Commissioner without hearing.

It was submitted during proceedings that the cancellation order only came to light when suppliers pointed out that refunds were being withheld due to the retrospective cancellation.

Central Issue: Whether cancellation of GST registration retrospectively from 01.07.2017 without reply to the Show Cause Notice and without affording a hearing could be sustained.

HC’s Decision: It was observed by the Court that the cancellations of GST registration retrospectively could not be sustained when the Show Cause Notice of 25.07.2022 had not been replied to and no hearing had been issued. It was held that the order of 09.08.2023 had to be set aside to that specific extent, and the matter had to be remanded after giving opportunity of reply and hearing. The Court also took into account the fact of demise of the sole proprietor and the application that has been filed in Form GST REG-16, and noted that these should be kept in view by the authorities.

It was ordered that the response to the Show Cause Notice could be submitted within or at the latest by 31.10.2025 and thereafter the concerned authorities shall allow personal hearing and thereafter pass a reasoned order. The petitioner was required to furnish details of suppliers whose refunds were being withheld so that the department could examine them while deciding the matter. The GST portal access was ordered to be restored within one week to enable the filing of the reply. The Court clarified that it had not entered into the merits of cancellation and left the matter open for fresh adjudication. The writ petition and connected applications were disposed of in these terms.

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