Cancelling GST Registration Retroactively Without a Valid Reason is Arbitrary

The Delhi High Court’s recent ruling in the case of Ashish Garg, the Proprietor of Shree Radhey Traders Vs the Assistant Commissioner of State Goods and Services Tax (SGST), Delhi Zone-7 Ward-82 in 2023 (7) TMI 1229, established that while the Revenue Department has the authority to cancel GST registration from retrospective date, such action must be supported by valid reasons, as acting without relevant explanation would be considered an arbitrary exercise of power.

Facts

Ashish Garg, the petitioner, decided to close his business due to medical issues. Consequently, on July 20, 2019, he submitted an application to cancel his GST registration.

The Revenue Department initially requested more documents for the registration cancellation application in a notice dated March 23, 2020. Later, on June 28, 2021, the Petitioner’s cancellation application was denied in an official order.

Subsequently, a show cause notice was issued on June 30, 2021, to the Petitioner for cancelling GST registration due to six months of non-filing of GST returns. The GST registration was suspended from June 30, 2021.

Ultimately, the Adjudicating Authority terminated the Petitioner’s GST registration with retroactive effect from July 02, 2017, in an impugned order dated July 22, 2021.

The petitioner was unsatisfied with the order and approached the Delhi High Court and filed a writ before the court.

The petitioner argued that till June 2019, GST return filing has been filed regularly by them. So there is no ground on which basis the registration can be cancelled from a date before June 2019 otherwise other taxpayers who had received supplies from the petitioner, would also be impacted.

The Case

This case addressed the question of whether the Revenue Department can cancel GST registration from a retrospective date, predating the petitioner’s application for cancellation.

The Ruling

The Hon’ble Delhi High Court recently gave a ruling in the case of Ashish Garg, proprietor of Shri Radhey Traders, against the Assistant Commissioner of State Goods and Services Tax for Delhi Zone-7, Ward-82 – 2023 (7) TMI 1229- Delhi High Court. The court made the following key observations and decisions:

• The court noted that, under Section 29 of the Central Goods and Services Tax (CGST) Act, 2017, the Adjudicating Authority is authorized with the discretion to cancel the registration from a retrospective date. However, it is also stated that this power must not be exercised arbitrarily.
• The court noted that there is a lack of solid record to explain the retrospective cancellation of GST registration by the Adjudicating Authority.
• The court recognized that it is unacceptable to ask the petitioner to file returns for a period after their business had been closed down.
• In conclusion, the court ruled that the petitioner’s application for cancellation of registration should be accepted with effect from June 2019.