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

In a decision, the Punjab & Haryana High Court has set aside an order cancelling a firm’s GST registration with retrospective effect, holding that such cancellation is invalid if not specifically proposed in the show cause notice and if the cancellation order is non-speaking and unreasoned. The judgment, delivered by Justice Lisa Gill and Justice Ramesh Chander Dimri, underscores the importance of procedural fairness and adherence to statutory requirements under the Central Goods and Services Tax Act, 2017 (CGST Act) and the corresponding Rules.

The petitioner, a proprietorship concern engaged in trading iron and steel products, challenged the order dated 19.01.2024 by which its GST registration was cancelled retrospectively to 17.10.2023. The petitioner contended that the show cause notice issued on 08.01.2024 did not propose retrospective cancellation, was never served, and that no physical verification or supporting documents were provided. The impugned order was also criticized as cryptic and lacking any reasoning or discussion of grounds for cancellation.

The respondents defended the order, arguing that Section 29 of the CGST Act permits retrospective cancellation of registration. However, the Court noted that the show cause notice did not mention any proposal for retrospective cancellation, nor were any documents supplied to the petitioner to justify such action.

The Court referred to its earlier decision in M/s Bansal Casting v. Union of India, which addressed similar issues, including whether registration could be cancelled retrospectively without such a proposal in the show cause notice, and whether non-speaking, cryptic orders of cancellation are sustainable. The Court reiterated that while Section 29 of the CGST Act does confer the power to cancel registration retrospectively, such power must be exercised only upon specific contingencies and with clear reasoning reflected in the order. The affected party must be put on notice regarding the proposed action and the grounds for such action.

Citing the Supreme Court’s decision in ORYX Fisheries Pvt. Ltd. v. Union of India, the High Court emphasized that a quasi-judicial authority must act fairly and provide a reasonable opportunity to the person proceeded against. The show cause notice must contain the basic grounds or premises for the proposed action, and any supporting material relied upon must be supplied to the assessee. The Court also referred to the Delhi High Court’s decision in Riddhi Siddhi Enterprises v. Commissioner of Goods and Service Tax, which held that the power to cancel registration retrospectively cannot be exercised routinely or mechanically, and that the order must demonstrate due application of mind.

Upon review, the High Court found that the impugned order dated 19.01.2024 was unsustainable, as it did not reflect any application of mind, did not mention the reasons for cancellation, and was not even envisaged in the show cause notice. The Court further held that the objection regarding alternate remedy was without merit, as the case fell within recognized exceptions permitting writ jurisdiction.

Accordingly, the Court set aside the cancellation order, while granting liberty to the authorities to initiate fresh proceedings for recovery of any tax, penalty, or interest due, including retrospective cancellation of GST registration, but only after serving proper notice and affording an opportunity of hearing to the petitioner in accordance with law. The writ petition was allowed, and pending applications were disposed of.

This decision reinforces the principle that retrospective cancellation of GST registration must be preceded by clear notice, disclosure of grounds, and a reasoned order, ensuring compliance with principles of natural justice and statutory requirements.