Retrospective GST registration cancellation for closed business invalid; defective notice, unreasoned order restricted to prospective effect

HC set aside the retrospective cancellation of petitioner's GST registration, holding the SCN and impugned order legally unsustainable. The court found that non-filing of returns after closure of business with effect from 01.04.2020 could not justify cancellation for the prior period when business was duly conducted. The SCN was held flawed and the cancellation order invalid as it was devoid of reasons and failed to disclose any basis, including for giving retrospective effect. HC allowed the writ petition, directing that cancellation of GST registration shall operate prospectively from 29.05.2020, the date of petitioner's application for cancellation.

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Issues involved:
The cancellation of GST registration with retrospective effect based on non-filing of returns and lack of reasons provided in the impugned order.

Cancellation of GST registration with retrospective effect:
The petitioner's GST registration was cancelled with retrospective effect from 01.07.2017 due to non-filing of returns. The petitioner had requested cancellation from 01.04.2020, and the registration was suspended on 11.01.2022. The impugned order did not provide any specific reason for the retrospective cancellation, which was deemed flawed by the court.

Legal provisions and objective criteria:
The court highlighted Section 29(2) of the Central Goods and Services Tax Act, 2017, which allows the proper officer to cancel GST registration retrospectively based on objective criteria. The court emphasized that cancellation cannot be done mechanically and must be justified by the officer. Merely non-filing of returns does not automatically warrant retrospective cancellation covering periods of compliance.

Consequences of retrospective cancellation:
The court noted that retrospective cancellation affects the input tax credit of the taxpayer's customers. While not delving into this aspect deeply, the court stated that such consequences must be considered by the proper officer before cancelling registration retrospectively. The officer must ensure that the cancellation is intended and warranted based on valid reasons.

Decision and direction of the court:
The court allowed the petition and directed that the cancellation of the petitioner's GST registration should take effect from 29.05.2020, the date of the petitioner's application for cancellation. The court specified that this order does not prevent the respondent from taking legal steps if the petitioner violated any laws before 29.05.2020. All pending applications were disposed of in light of the court's decision.

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