Retrospective GST Registration Cancellation Requires Specific Reasoning and Prior Notice in the SCN

Issue

Whether the tax authorities can retrospectively cancel a GST registration when the Show Cause Notice (SCN) fails to propose such retrospectivity and the final order lacks specific reasoning for the chosen date.

Facts

The Notice: The Department issued an SCN proposing to cancel the petitioner’s registration due to non-filing of returns for a continuous period of six months.
The Suspension: Registration was suspended from the date the SCN was issued.
The Order: Despite the SCN not mentioning a backdated effect, the final order cancelled the registration retrospectively from 04.10.2018.
Department’s Justification: The order simply noted that “no reply” was received from the petitioner.
Legal Challenge: The petitioner filed a Writ Petition arguing that the retrospective nature of the cancellation was arbitrary and lacked due process.

Decision

Statutory Power vs. Application: The Court acknowledged that Section 29(2) grants the power to cancel registration retrospectively, but this power is not unfettered.
Requirement of the SCN: For a cancellation to be retrospective, the SCN must explicitly indicate this proposal. This allows the taxpayer to provide an effective response regarding why the cancellation should (or should not) be backdated.
Recording of Reasons: The cancellation order must contain specific reasons justifying why a retrospective date was chosen. A mere “no reply” is insufficient to justify a backdated cancellation that impacts Input Tax Credit (ITC) for the petitioner’s customers.
Restoration: Since both the SCN and the final order failed to reflect an “application of mind” regarding the retrospective date, the order was set aside.
Condition: The registration was ordered to be restored, provided the petitioner clears all pending tax liabilities within 30 days.

Key Takeaways

Due Process in Retrospectivity: Retrospective cancellation has severe consequences for a business’s compliance history and its customers’ ITC. Therefore, it cannot be done casually or without prior warning in the SCN.
The “Reasoned Order” Principle: Authorities must demonstrate why a specific past date is being picked (e.g., if the taxpayer was found to be non-existent since that date).
Compliance Over Cancellation: The courts generally prefer that taxpayers be allowed to regularize their filings rather than facing the “civil death” of a retrospective registration wipeout.

HIGH COURT OF DELHI

Bhagvan Singh

Commissioner of DGST^*

NITIN WASUDEO SAMBRE and AJAY DIGPAUL, JJ.

W.P.(C) 3178 of 2025

FEBRUARY 5, 2026

M. A. Ansari, Ms. Tabbassum Findause and Arvind Kr. Soni, Advs. for the Petitioner. Abhinav Singh and Ms. Swegha Agarwal, Advs. for the Respondent.

ORDER

1. The present writ petition assails order dated 12.10.2023 passed by the Sales Tax officer Class II/ AVATO Ward 29 (respondent no. 2) whereby the petitioner’s Goods and Services Tax¹ registration has been cancelled retrospectively with effect from 04.10.2018.

2. The petitioner, who is engaged in the business of trading retail and wholesale garments/fabrics, received a Show cause Notice² dated 15.01.2023, whereby its GST registration was proposed to be cancelled due to its non-furnishing of returns for a continuous period of six months.

3. Directions were issued to the petitioner to file its reply within 30 days from the date of service this notice, and to appear for a personal hearing before respondent no. 2 on 13.02.2023 at 11.00 am. The notice also stated that the petitioner’s registration stood suspended with effect from the same day, i.e., 15.01.2023.

4. Thereafter, respondent no. 2 passed the Impugned Order on 12.10.2023, noting that no reply to SCN dated 15.01.2023 was received, and that the petitioner’s GST registration effectively stood cancelled from 04.10.2018.

5. The power to cancel GST registration under the Central Goods and Services Tax Act, 2017³ with retrospective effect is contemplated within Section 29(2) of the Act. While the power to effect such retrospective cancellation is undisputed, the authority competent to pass such an order is also shouldered with the responsibility to note the reasons that weighed in favour of such retrospective cancellation.

6. Numerous coordinate benches of this Court have held, unequivocally, that such reasons ought to be appended with the order of retrospective cancellation. These decisions also note that there is also an extension of this obligation to the extent of recording within the SCN the intent of the department to possibly cancel the assessee’s registration retrospectively, allowing the assessee to thereafter object and respond to the proposed action of retrospective cancellation.

7. For this purpose, a reference is made to the decisions of this Court in Ramesh Chander v. Assistant Commissioner of Goods & Service Tax GST 255/82 GSTL 119 (Delhi)/2024 SCC OnLine Del 410, Delhi Polymers v. Commissioner, Trade and Taxes GST 856/83 GSTL 233 (Delhi)/2024 SCC OnLine Del 1134, and Riddhi Siddhi Enterprises v. Commissioner of Goods and Services Tax (CGST), South Delhi GSTL 257 (Delhi)/2024 SCC OnLine Del 9847.

8. The law on the subject of retrospective cancellation of the GST registration of an assessee is trite, holding that it is not merely the order of such retrospective cancellation that ought to contain sufficient reasoning to reflect the application of mind of the authority from which it flows, but also that the relevant SCN served upon the assessee should make mention of such proposed action of retrospective cancellation.

9. In consideration of the aforesaid, we deem it appropriate to set aside the impugned order dated 12.10.2023, as well as SCN dated 15.01.2023, and restore the GST registration of the petitioner. The petitioner shall clear all pending liabilities, if any, within 30 days of its GST registration being restored.

10. This order shall not prejudice the right of the respondents to initiate proceedings de novo, in accordance with law.

11. The present writ petition stands allowed on the aforesaid terms.

12. The petition, along with pending applications, if any, stands disposed of.