2023 (12) TMI 731 - HC - GST

GST Registration Cancellation Requires Proper Procedure, Cannot Be Arbitrarily Reversed with Retrospective Effect Under Rule 21

HC examined GST registration cancellation with retrospective effect. The court found procedural irregularities in the cancellation order, noting that ... Cancellation of petitioner’s GST registration - impugned order does not indicate any reason for cancelling the petitioner’s GST registration except mentioning that no reply has been received to the SCN - principles of natural justice - HELD THAT:- In terms of Section 29(2) of the Central Goods and Services Tax Act, 2017, the proper officer may cancel the GST registration of a person from such date including any retrospective date, as he may deem fit if the circumstances set out in the said sub-section are satisfied. The registration cannot be cancelled with retrospective effect mechanically. It can be cancelled only if the proper officer deems it fit to do so. Such satisfaction cannot be subjective but must be based on some objective criteria. Merely, because a taxpayer has not filed the returns for some period does not mean that the taxpayer’s registration is required to be cancelled with retrospective date also covering the period when the returns were filed and the taxpayer was compliant. In the present case, the petitioner had indicated that she closed her business in January, 2020. Thus, not filing returns, thereafter, cannot be a ground to cancel her registration in respect of the period while she was carrying on the business in compliance with the provisions of the law - the SCN proposing to cancel the petitioner’s GST registration is flawed. Although, it directed the petitioner to appear for a personal hearing on the appointed date and time but it failed to specify the said date, time, or venue. The impugned order cancelling the petitioner’s GST registration is also liable to be set aside as it is bereft of any reason. It neither specifies the reason for cancelling the GST registration nor gives any clue as to why it was cancelled with retrospective effect. It is considered apposite to allow the present petition and direct that the cancellation of the petitioner’s GST registration shall take effect from 17.01.2020, being the date of the application filed by the petitioner seeking cancellation of her GST registration. Petition allowed. Issues involved: Impugning an order cancelling GST registration with retrospective effect.Summary:The petitioner filed a petition challenging the cancellation of her GST registration with retrospective effect. The petitioner had requested cancellation of her registration in January 2020, but the request was not acted upon for over six months. Subsequently, a notice seeking clarification was issued, to which the petitioner responded. However, the registration was ultimately cancelled citing 'DOCUMENTS NOT SHOW ON PORTAL' as the reason. A show cause notice was then issued proposing cancellation due to non-filing of returns for six months. The registration was suspended, and later cancelled with retrospective effect from 01.07.2017, without providing any specific reason for the cancellation.The Court noted that under Section 29(2) of the Central Goods and Services Tax Act, 2017, registration cannot be cancelled with retrospective effect mechanically, but only if the proper officer deems it fit based on objective criteria. The Court emphasized that non-filing of returns for a period does not automatically warrant retrospective cancellation, especially if the taxpayer was compliant during the period in question. The Court also highlighted the importance of considering the consequences of retrospective cancellation, such as denial of input tax credit to the taxpayer's customers.In this case, the Court found flaws in the show cause notice as it did not specify the date, time, or venue for the personal hearing. The impugned order was also deemed inadequate as it lacked any reason for the retrospective cancellation. Consequently, the Court allowed the petition and directed that the cancellation of the petitioner's GST registration should take effect from the date of her application for cancellation, i.e., 17.01.2020. The Court clarified that this order does not prevent the respondent from taking lawful action if any violations were found prior to the specified date.In conclusion, the petition was allowed, and all pending applications were disposed of accordingly.