Retrospective GST registration cancellation without prior notice is legally unsustainable

Section 29(2) of the Central Goods and Services Tax Act, 2017 empowers the proper officer to cancel a taxpayer’s GST registration from a date he considers appropriate, including retrospective cancellation, under specific circumstances listed in clauses (a) to (e) of the section.

However, it is increasingly observed that GST registrations are often cancelled with retrospective effect even though the Show Cause Notice (SCN) issued beforehand does not disclose any such intention. This lack of disclosure violates basic principles of natural justice and causes significant procedural and commercial hardships.

Adverse Impact of Retrospective Cancellation

When registration is cancelled retrospectively:

• Supplies made during the backdated cancellation period are treated as if made by an unregistered person.

• These transactions no longer reflect in the GSTR-2A of the buyer, leading to mismatch in ITC claims.

• Buyers (recipients of supply) are often served notices for Input Tax Credit (ITC) reversal, even when the transactions were genuine and tax was duly paid.

This creates a ripple effect of tax disputes, compliance difficulties, and legal uncertainty for both the supplier and the buyer.

Show Cause Notice Must Mention Retrospective Effect

It is now well established that if retrospective cancellation is proposed, the SCN must clearly mention:

• The intended retrospective date, and

• Cogent reasons justifying the need for such retrospective cancellation.

Failure to disclose this in the SCN deprives the taxpayer of an opportunity to respond adequately, thus rendering the proceedings procedurally flawed.

Legal Precedent Reinforcing This Principle

This legal requirement was recently reinforced in the case of Royal Enterprises vs. Principal Commissioner of Goods and Services Tax, East Delhi (W.P. (C) No. 2461 of 2025), decided on 27th February 2025 and reported as (2025) 31 Centax 179 (Del.).

In that case, the registration of the petitioner was cancelled with retrospective effect, although the SCN did not contain any mention or indication of such retrospective cancellation. The Delhi High Court held that:

“The absence of reasons in the Show Cause Notice in support of a proposed retrospective cancellation, as well as a failure to place the assessee on prior notice of such an intent, clearly invalidates the cancellation order.”

The Court accordingly modified the cancellation order, holding that the registration cancellation could be effective only from the date of issuance of the SCN, and not retrospectively.

Conclusion

This judgment highlights the necessity for GST officers to act fairly and in accordance with established legal norms. Any cancellation of GST registration with retrospective effect must:

• Be clearly stated in the SCN, and

• Be backed by valid, recorded reasons.

In the absence of these, the cancellation order can be successfully challenged and set aside or modified. Taxpayers facing such arbitrary action should carefully examine the SCN and take timely legal recourse, relying on this binding precedent to assert their rights.

Article is written by CA Ankit Karanpuria and CA. Ankush Karanpuria The author can be reached at karanpuriaankit@gmail.com

The views expressed in the above article are personal and for information purpose. The reader is required to take decision based on his own judgment and analysis. Writer shall not be responsible for any decision taken by the reader in the subject matter.