Telangana High Court Holds That Cancellation of GST Registration Does Not Wipe Out Past Tax Liabilities and Penalties

1. The Core Dispute: “Zero Liability” Declaration vs. Subsequent SCN

The petitioner (Assessee) voluntarily applied for the cancellation of its GST registration, declaring that it had zero tax liability. The department accepted the application and cancelled the registration. However, subsequently, the Assessing Authority issued a Show Cause Notice (SCN) for the period 2018-19, alleging that the assessee had suppressed taxable turnover and failed to declare correct input/output taxes in the returns filed before cancellation.

Assessee’s Stand: The petitioner did not file a reply to the SCN, presumably believing that since the registration was already cancelled and a “zero liability” was declared, the department could no longer initiate proceedings.
Revenue’s Stand: The Assessing Authority proceeded to pass an ex-parte order imposing tax and penalties, maintaining that cancellation is not a “clean chit” for past periods.

2. Legal Analysis: The Continuity of Liability (Section 29)

The High Court examined the statutory interplay between registration status and tax obligations.

I. Section 29(3): The Legal “Survival” Clause

The Court highlighted that under Section 29(3) of the CGST Act, the cancellation of registration shall not affect the liability of the person to pay tax and other dues for any period prior to the date of cancellation.

The Ruling: Whether or not the tax dues were determined at the time of cancellation, the taxpayer remains liable for any commissions or omissions made during the period they were registered.

II. Scope of Rectification (Section 161)

The assessee had filed a rectification application to challenge the assessment, which was rejected by the department.

The Ruling: The Court upheld the rejection, noting that Section 161 is only for correcting “errors apparent on the face of record” (like clerical or arithmetical mistakes). It cannot be used as a “backdoor” to seek a full re-examination of the merits of a case where the assessee originally failed to file a reply.

3. Final Verdict: Procedural Propriety Upheld

The Telangana High Court found no infirmity in the Assessing Authority’s actions.

Verdict: The writ petition was dismissed. The court confirmed that the department was within its rights to impose tax and penalties even after registration was cancelled.
Liberty to Assessee: In a minor relief, the Court granted the assessee the liberty to prefer a statutory appeal under Section 107 to contest the facts and legal grounds of the assessment, provided it meets the limitation requirements.

Key Takeaways for Taxpayers

Cancellation is Not Immunity: Do not assume that a “cancelled” status protects you from future audits or notices for the years you were active.
Respond to Post-Cancellation SCNs: If you receive a notice (even after closing your business), you must file a reply. Ignoring an SCN leads to an ex-parte order that is very difficult to overturn via “rectification.”
Audit Your Records Before Closing: Before applying for voluntary cancellation, ensure your GSTR-1, GSTR-3B, and GSTR-9 (Annual Return) are perfectly reconciled to avoid “suppression” allegations later.

HIGH COURT OF TELANGANA

Manikanta Electronics Services Center

State of Telangana, Department of Commercial Tax^*

APARESH KUMAR SINGH, CJ.
and G.M. MOHIUDDIN, J.

WRIT PETITION No. 1362 of 2026

JANUARY 19, 2026

Kailash Nath P S S, Learned counsel for the Petitioner. Swaroop Oorilla, Learned Special Govt. Pleader for the Respondent.

ORDER:

1. Sri Kailash Nath P S S, learned counsel appears for petitioner.

Sri Swaroop Oorilla, learned Special Government Pleader for State Tax appears for respondent Nos.1 to 3.

2. The order dated 22.04.2024 imposes tax liability along with penalty upon the petitioner for the period 2018-19 which has been assailed in the instant Writ Petition primarily on the ground that after cancellation of his GST registration on 16.07.2021 on voluntary application, indicating zero tax liability, there was no reason for the petitioner to keep checking upon the portal. The order impugned has been passed pursuant to the show cause notice dated 23.01.2024 after three (3) years of cancellation of his registration. The petitioner had sought voluntary cancellation of registration as his business of installation and servicing of electronic appliances was not encouraging. The application for rectification has also been rejected on 26.11.2025 on the ground that the petitioner is seeking reexamination of the entire subject matter which is not within the scope of Section 161 of the Goods and Services Tax Act, 2017 (for short ‘the Act’). The petitioner had also not appeared for hearing despite notice.

3. The learned counsel for the petitioner submits that if the matter is remanded, the petitioner would be able to properly defend himself before the Proper Officer. He has relied upon the decision of Allahabad High Court in the case of Katyal Industries v. State of UP [2024 (2) TMI 1447] in support of his submissions.

4. The learned Special Government Pleader for State Tax submits that in terms of Section 29(3) of the Central Goods and Services Tax Act, 2017, cancellation of registration does not wipe out any liability which may be detected for the period prior to the cancellation. The petitioner also cannot claim to have no obligation to check the portal where the impugned order was duly intimated. Even during the proceedings of rectification, he did not appear for hearing despite notice. He submitted that the petitioner may prefer an appeal against the impugned order with all grounds of law and on facts as may be available to him which may be considered by the appellate authority in accordance with law.

5. We have considered the submissions of the learned counsel for the parties and taken note of the materials placed on record.

6. We are of the considered view that cancellation of registration does not absolve the taxpayer of any existing liability which the petitioner may have to face. The order impugned deals with tax liability for the period 2018-19 on the ground that he had failed to declare correct input/output taxes in his returns which warranted a notice under Section 73 of the Act. A show cause notice was also served upon him along with DRC-01 under Rule 142(2)/142(3) of the Central Goods and Services Tax Rules, 2017, through common portal calling for objections and also an option to pay the tax shown in the notice in DRC-03 by 23.02.2024. Despite a remainder notice, the taxpayer did not file any reply. Three/four reminders and personal hearing were also given. Therefore, the assessing authority proceeded to impose tax and penalty for the relevant period.

7. Having regard to the aforesaid facts and circumstances, we are unable to accept the contention of the petitioner that the impugned order suffers from any infirmity which requires interference for reconsideration. However, the petitioner has a liberty to prefer an appeal taking all grounds of law and on facts. If he prefers such appeal within a period of two (2) weeks with statutory pre-deposit, the appellate authority would consider it in accordance with law.

8. The instant Writ Petition is accordingly disposed of. There shall be no order as to costs.

9. Miscellaneous applications, if any pending, shall stand closed.