In a recent legal development, the Delhi High Court addressed the issue of retrospective cancellation of GST registration in the case of Veenu Bajaj, proprietor of M/s Addvertex, versus the Commissioner of CGST and another. The court examined the cancellation of Bajaj's GST registration, which was initially retroactively annulled from October 31, 2017, based on the assertion that the business was non-existent. This decision was made following a show-cause notice issued in October 2024, which did not specify the intention for retrospective action. Despite Bajaj's submission of a revocation application with supporting documentation, the request was denied in April 2025.
The core issue revolved around whether such retrospective cancellation was lawful, given the absence of a clear proposal for retrospective action in the show-cause notice and the lack of detailed reasoning in the cancellation order. The court acknowledged that while the law permits retrospective cancellation under Section 29(2) of the CGST Act, this authority must be exercised judiciously and accompanied by explicit reasoning. The court emphasized the significant impact of retrospective cancellation, particularly the denial of Input Tax Credit (ITC) to buyers, necessitating prior notice to the taxpayer regarding any intended retrospective effect.
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Consequently, the court modified the effective cancellation date to align with the issuance date of the show-cause notice. It also granted the department the opportunity to issue a new notice with appropriate justification if retrospective cancellation remained the objective. This decision underscores the necessity for transparency and detailed reasoning in tax-related actions affecting businesses.
Date of Order: 22 September 2025
Parties: Veenu Bajaj (Proprietor, M/s Addvertex) v. Commissioner of CGST & Anr.
Facts –
- The petitioner’s GST registration was cancelled by order dated 11.12.2024 with retrospective effect from 31.10.2017 under Section 29(2)(e) CGST Act on the ground that the business was “not found existing.”
- A show-cause notice dated 09.10.2024 was issued, but it did not indicate that retrospective cancellation was proposed.
- The petitioner filed a revocation application on 16.12.2024 with supporting documents (lease, bank records, electricity bill, ITR, Aadhaar), but it was rejected on 16.04.2025.
- The petitioner challenged the order, contending that retrospective cancellation without specific notice and reasons was unlawful and prejudicial.
Issue –
- Whether cancellation of GST registration with retrospective effect is valid when the SCN did not propose retrospective action and the order lacks cogent reasons.
Order –
- The Court held that while Section 29(2) empowers retrospective cancellation, such power must be exercised with caution and supported by clear reasoning.
- It emphasized that retrospective cancellation has significant consequences, including denial of ITC to buyers, and therefore, the taxpayer must be put on notice of the proposed retrospective effect in the SCN.
- The show-cause notice in this case did not mention retrospective cancellation, and the order lacked adequate reasoning.
- Accordingly, the Court modified the effective date of cancellation to the date of the SCN’s issuance. The department was granted liberty to issue a fresh notice with proper reasoning if retrospective cancellation was still sought.
