Retrospective GST Registration Cancellation Does Not Bar Audit Of Earlier Registered Period: Delhi High Court

The Delhi High Court has held that retrospective cancellation of GST registration does not bar the authorities from auditing records for the period during which the registration had been granted.

The Division Bench of Justices Anil Kshetarpal and Bharat Parashar observed,

“Where a registration had been granted and had not yet been cancelled during the period proposed for audit, that factual nexus satisfies Section 65 even if the registration is subsequently cancelled retrospectively. “

It thus dismissed a petition challenging the GST audit notice issued to Petitioner under Section 65 of the Central Goods and Services Tax (CGST) Act, 2017.

Petitioner-company had sought cancellation of its GST registration with effect from December 31, 2019, citing closure of business. While its application remained pending, the GST department issued an audit notice on September 15, 2022, proposing an audit for the period from July 1, 2017 to March 31, 2021.

Petitioner argued that following retrospective cancellation of its registration, it could no longer be treated as a “registered person” under Section 65 of the CGST Act. It also contended that the audit could not cover the period after December 31, 2019 (effective date of its retrospective GST registration cancellation).

Rejecting the contention, the Court observed that an audit examines past records, returns and documents maintained or furnished under the GST regime. The expression “registered person” could not be confined to a person whose registration remained effective when the audit was undertaken.

The Court held that where registration had been granted and had not been cancelled during the period proposed for audit, the necessary factual connection for an audit under Section 65 existed, even if the registration was subsequently cancelled retrospectively.

It clarified that the ruling did not validate returns filed after December 31, 2019, or presume that Petitioner had made taxable supplies or incurred tax liability during that period. The decision was confined to the effect of retrospective cancellation on the department's power to conduct the audit.

The Court also noted that Petitioner had failed to disclose the audit notice in an earlier writ petition seeking cancellation of its GST registration. It held that this omission was an additional ground to decline discretionary relief.

The petition was accordingly dismissed,

For Petitioner: Advocates Abhishek Garg, Yash Gaiha, Naman Mehta and Satyam Singhania

For Respondent: Aditya Singla, SSC for CBIC with Akhil Sharma,Nehaol Sri L.V. and Dhananjay Gautam