“Merely, because a taxpayer has not filed the returns for some period does not mean that the taxpayer’s registration is required to be cancelled with retrospective date also covering the period when the returns were filed and the taxpayer was compliant.“ – Observed Justices Sanjeev Sachdeva and Ravindar Dudeja The Delhi High Court recently addressed a case wherein the petitioner contested the retrospective cancellation of their GST registration. The petitioner, operating under the name M/S Dashmesh Wires and Cables ( India ), engaged in the manufacturing of copper wire and cables. They regularly filed GST returns and claimed input tax credit ( ITC ) via the GST Portal.

The issue arose when the petitioner closed down their business and vacated the premises, applying for cancellation of their registration certificate effective from March 31, 2020. However, the application was rejected without providing any specific reasons. Subsequently, a show cause notice was issued, leading to the retrospective cancellation of registration from July 1, 2017, without clear justification.

The court found several inconsistencies in the cancellation order, including the absence of reasons for cancellation and contradictory statements within the order itself. Furthermore, the retrospective cancellation lacked proper justification, as mere non-filing of returns does not warrant such action. Highlighting the importance of objective criteria in cancellation decisions, the Delhi court emphasised that the cancellation with retrospective effect should only occur if warranted by specific circumstances, not merely due to non-compliance with return filing.

The bench also addressed the potential consequences of retrospective cancellation on the input tax credit of the petitioner’s customers, stressing the need for the proper officer to consider such implications before making a decision. Consequently, the court modified the cancellation order to be effective from the date of business discontinuation, March 31, 2020, while allowing the authorities to pursue recovery of any outstanding dues in accordance with the law.