GST Registration Cancellation Cannot Be Rejected Due to Ongoing Tax Scrutiny

The Delhi High Court's recent ruling in M/s Sanjay Sales India v. Principal Commissioner of Department of Trade and Taxes, Government of NCT, Delhi has clarified the scope of GST registration cancellations and has set a precedent on how such applications should be treated when there are ongoing scrutiny proceedings.

Case Background and Issue

The petitioner, M/s Sanjay Sales India, had registered for GST since July 1, 2017, but applied for the cancellation of its GST registration on June 13, 2024, following the discontinuation of its business. However, the Department responded with a notice on July 16, 2024, effectively delaying the cancellation process. The Department's notice demanded the petitioner pay any due taxes and penalties and submit detailed, month-wise transactional records dating back to the start of its GST registration, along with stock registers and bank statements. Dissatisfied with this response, the petitioner brought the case to the Delhi High Court.

The primary question addressed was whether a GST registration cancellation application can be denied or delayed based solely on pending scrutiny or the need to assess the Assessee's past tax liabilities.

Court’s Findings

The Delhi High Court found that the Department's grounds for withholding the GST cancellation request lacked merit and ruled that:

1. Unrelated to Past Liabilities: The Court clarified that GST registration cancellation does not absolve an Assessee from settling any outstanding tax dues. Section 29 of the CGST Act specifies that even if a registration is canceled, the Assessee's liability for past dues remains unchanged. Therefore, requiring an Assessee to clear pending liabilities before processing a cancellation is not reasonable.
2. Redundant Record Demand: The Department’s request for extensive records, such as month-wise tax dues, sales/purchase invoices, stock records, and bank statements, was deemed unnecessary. The Court noted that such requirements imposed a procedural delay without serving a justified purpose. The Assessee's past records, while necessary for resolving tax liabilities, do not affect the administrative task of canceling GST registration after business discontinuation.
3. Scrutiny Does Not Justify Delay: Emphasizing the Assessee's right to timely cancellation of GST registration, the Court stated that ongoing scrutiny proceedings should not serve as grounds for withholding or delaying a cancellation request. Scrutiny can continue independently and has no direct bearing on the registration cancellation process.

Conclusion and Direction

The Court ordered the Department to proceed promptly with the petitioner’s application for GST registration cancellation. By reinforcing that ongoing scrutiny or tax assessment proceedings cannot be used to block cancellation requests, the Court reinforced that the right to cancel GST registration is distinct from the obligations to settle any dues arising from past periods.

This ruling has significant implications for businesses, as it clarifies that discontinuing business and canceling GST registration does not negate the obligation to meet prior tax responsibilities. At the same time, the Court's emphasis on a streamlined cancellation process ensures that unnecessary procedural barriers do not hinder business closures.

Takeaway

Section 29 of the CGST Act governs the cancellation of GST registrations, and Section 29(3) specifically ensures that any liabilities from prior periods remain unaffected by the registration status. This case underscores the necessity of balancing compliance obligations with efficient administrative procedures, affirming that business closures should not be delayed due to unrelated procedural scrutiny.