Retrospective GST registration cancellations have created significant challenges for taxpayers. In a landmark decision, the Delhi High Court clarified that cancellations under Section 29(2) of the GST Act 2017 must be backed by specific, objective reasons. The case underlines the importance of fair procedures and transparency in tax administration.
Key Ruling: Specific Reasons Are Mandatory
The Delhi High Court recently ruled that retrospective cancellations of GST registration cannot be arbitrary. In the case of Riddhi Siddhi Enterprises vs. CGST South Delhi (2024), the court stated that such cancellations must reflect clear reasoning. Without valid justification, cancellations should only take effect from the date of the Show Cause Notice (SCN) issuance.
Case Context: Retrospective Cancellation Quashed
In the case at hand, the GST Department canceled the petitioner’s registration due to non-filing of returns under Section 39 of the Act for six months. However, the cancellation was made effective from 02 July 2017, despite the SCN being issued on 15 January 2023.
The Delhi High Court held that:
- The SCN lacked specific reasons for applying retrospective effect.
- The cancellation could only take effect from the SCN issuance date.
As a result, the court quashed the retrospective cancellation and set the effective date as 15 January 2023, the SCN issuance date.
Implications for Businesses and Taxpayers
- Avoid arbitrary cancellations: This judgment protects businesses from arbitrary tax department actions.
- Focus on compliance: Taxpayers should file returns timely and address SCNs promptly.
- Challenge unfair cancellations: If SCNs lack specific reasons, taxpayers can contest such orders
The Delhi High Court’s judgment ensures a fair balance between tax compliance and taxpayer rights. It underscores that retrospective cancellations, with their far-reaching consequences, must be supported by clear and valid reasoning.