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 non-filing of returns does not automatically justify retrospective cancellation. The court directed GST registration cancellation from the date of petitioner's application (17.01.2020), while preserving respondent's right to investigate potential prior violations.

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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.

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