GST registration cancellation from inception overturned, limited to business transfer date only

Delhi HC set aside GST registration cancellation order that cancelled petitioner's registration ab-initio from 2017. Court found petitioner had legitimately operated business, filed returns, and paid taxes from August 2017 to November 2022 before transferring business to partnership firm in Haryana in July 2021. While petitioner failed to file requisite returns for stock/capital goods transfer, HC held cancellation from registration date was excessive. Court directed respondent to cancel registration only from July 31, 2021 (transfer date) and determine applicable tax/penalty for non-compliance. Refund rejection order also set aside.

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Issues Involved:
1. Cancellation of GST registration.
2. Rejection of the claim for Input Tax Credit (ITC) refund.
3. Non-filing of returns regarding the transfer of stock and capital goods.

Summary:

1. Cancellation of GST Registration:
The petitioner challenged the order dated 31.10.2022 by the Appellate Authority which rejected the appeal against the Adjudicating Authority's order dated 22.02.2022. The Adjudicating Authority had canceled the petitioner's GST registration ab-initio and rejected the application for its restoration. The petitioner argued that the business had shifted to Haryana and had obtained a new GST registration there. The court found no ground for the respondent to believe that the petitioner was non-existent from the date of its registration and directed that the cancellation order be set aside. The court instructed the respondent to initiate proceedings for cancellation of the petitioner's registration with effect from 31.07.2021 instead.

2. Rejection of the Claim for ITC Refund:
The petitioner also contested the rejection of the ITC refund claim of Rs. 24,91,347 by the Adjudicating Authority on 09.03.2022. The rejection was primarily due to the petitioner being found non-existent at the registered place of business. The court noted that the discrepancies flagged in the show-cause notice were satisfactorily resolved by the petitioner, except for a small amount of Rs. 1,28,175 which was beyond the stipulated period. The court set aside the order rejecting the ITC refund application and directed the respondent to reconsider the application in light of the new directions.

3. Non-filing of Returns Regarding Transfer of Stock and Capital Goods:
The petitioner admitted to not filing the necessary returns for the transfer of stock and capital goods due to a lack of professional assistance during the pandemic. The court acknowledged that while this failure might invite necessary consequences under the Act, it should not be a ground to withhold the refund of accumulated ITC. The court emphasized that the petitioner had continued the business under a new partnership and had paid all due taxes.

Conclusion:
The court directed that the impugned orders be set aside, and the respondent should initiate fresh proceedings for cancellation of GST registration from 31.07.2021. The respondent was also instructed to reconsider the petitioner's application for an ITC refund. The petition was disposed of with these directions.

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