Punjab & Haryana High Court Holds Retrospective GST Registration Cancellation Invalid Without Prior Notice and Reasoned Order

In a significant judgment, the Punjab & Haryana High Court addressed the legality of retrospective cancellation of GST registrations under the Central Goods and Services Tax Act, 2017 (CGST Act) and the Haryana Goods and Services Tax Act, 2017 (HGST Act). The Court considered three writ petitions together, as they raised common questions regarding the procedural fairness and legality of cancellation orders issued by the tax authorities.

Background and Issues: The petitioners challenged the cancellation of their GST registrations, contending that the show cause notices did not propose retrospective cancellation, that supporting documents referenced in the notices were never supplied, and that the final cancellation orders were cryptic and non-speaking. The respondents argued that retrospective cancellation is permissible under the CGST Act, but conceded that the show cause notices did not specifically propose such action and that supporting documents were not provided.

Court’s Analysis: The Court undertook a detailed examination of the relevant statutory provisions, including Section 29 of the CGST Act and Rules 21 and 22 of the CGST Rules. It acknowledged that while the law permits retrospective cancellation of registration, such power must be exercised judiciously and only after following due process. The Court emphasized that a show cause notice must clearly state the grounds and the specific action proposed, including any intention to cancel registration retrospectively. Furthermore, any material or documents relied upon must be supplied to the affected party to enable an effective defense.

The Court cited the Supreme Court’s decision in ORYX Fisheries Pvt. Ltd. v. Union of India and the Delhi High Court’s ruling in Riddhi Siddhi Enterprises v. Commissioner of Goods and Service Tax (CGST), reiterating that quasi-judicial authorities must act fairly and with an open mind, and that orders must reflect the reasons for the action taken, especially when exercising the serious power of retrospective cancellation.

Findings: The High Court found that in all three cases, the show cause notices failed to propose retrospective cancellation and did not supply the referenced supporting documents. The cancellation orders themselves were found to be non-speaking, lacking any substantive reasoning or application of mind, and appeared to be cyclostyled. The Court held that such procedural lapses rendered the entire proceedings unsustainable.

Relief Granted: The Court set aside the impugned cancellation orders and the corresponding show cause notices in each case. It granted liberty to the authorities to initiate fresh proceedings, including for retrospective cancellation if warranted, but only after issuing proper notice, supplying all relevant material, and affording the petitioners an opportunity of hearing in accordance with law.

Conclusion: This judgment reinforces the principle that the power to cancel GST registration, particularly with retrospective effect, must be exercised with transparency, fairness, and strict adherence to procedural safeguards. Authorities must ensure that affected parties are given clear notice of the proposed action and the reasons therefor, and that final orders are reasoned and reflect due application of mind. The decision sets an important precedent for GST administration, ensuring that taxpayers’ rights to due process are protected.