GST Registration Cancellation Overturned: Insufficient Reasoning Invalidates Order Under Section 29, Restores Taxpayer's Rights

HC found the GST registration cancellation order invalid due to lack of clear reasoning. The retrospective cancellation from 31.03.2022 was deemed improper, as the show cause notice and cancellation order did not provide specific grounds. The court restored the petitioner's registration and directed filing of pending returns, allowing respondent to initiate appropriate proceedings if needed.

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Issues involved:
The judgment deals with the cancellation of GST registration retrospectively and the dismissal of an appeal solely on the ground of limitation.

Cancellation of GST registration:
The petitioner's appeal was dismissed based on the ground of limitation, challenging the retrospective cancellation of GST registration from 31.03.2022. The show cause notice issued to the petitioner did not specify a clear reason for cancellation but mentioned the failure to furnish returns for a continuous period of six months. The order of cancellation passed on 07.02.2023 did not provide specific reasons for the cancellation but mentioned the requirement to file all returns and pay all dues, if any. The order was deemed insufficient as it did not clearly state the reasons for cancellation, and the table showed nil demand against the petitioner.

Validity of cancellation order:
The High Court observed that both the show cause notice and the order of cancellation lacked clarity and reasons, rendering them vitiated. The appeal was dismissed solely on the ground of limitation, but since the foundation of the proceedings was flawed, the petitioner was not required to go through the appeal process. The Court highlighted that the cancellation of registration cannot be done mechanically with retrospective effect and must be based on objective criteria, not merely the non-filing of returns.

Consequences of retrospective cancellation:
The judgment emphasized that cancelling a taxpayer's registration with retrospective effect could impact the taxpayer's customers by denying them input tax credit. The proper officer must consider this consequence before passing any order for cancellation with retrospective effect. The show cause notice did not mention the retrospective cancellation of registration, further highlighting the lack of clarity in the proceedings.

Judgment and restoration of registration:
The High Court allowed the petition, setting aside the show cause notice, cancellation order, and the order of appeal. The GST registration of the petitioner was restored, and the petitioner was directed to file returns for the relevant period within two weeks. The respondent was given the liberty to initiate appropriate proceedings in accordance with the law if necessary, without precluding any steps if the petitioner violated any provisions of the Act.

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