GST Registration Cancellation Overturned: Retrospective Invalidation Rejected, Procedural Fairness Upheld Under Section 29(2)

HC ruled that GST registration cancellation with retrospective effect from 01.07.2017 was improper. The court found no valid justification for retrospective cancellation under Section 29(2) of CGST Act. The registration cancellation was modified to be effective from the petitioner's application date of 25.02.2019, allowing tax authorities to pursue legitimate recovery measures while ensuring procedural fairness.

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Issues involved:
The cancellation of GST registration with retrospective effect and the legality of the reasons provided for the cancellation.

Summary:

Issue 1: Cancellation of GST registration with retrospective effect
The petitioner challenged the order cancelling their GST registration with retrospective effect from 01.07.2017. The court observed that the registration had been cancelled without providing specific reasons and that the cancellation with retrospective effect was not justified. The court highlighted that under Section 29(2) of the Central Goods and Services Tax Act, 2017, registration can only be cancelled with retrospective effect if the proper officer deems it necessary based on objective criteria. Merely not filing returns for a period does not automatically warrant retrospective cancellation. The court emphasized that the cancellation with retrospective effect should consider the consequences for the taxpayer's customers who may be denied input tax credit. The petitioner was not given an opportunity to object to the retrospective cancellation, which was deemed unfair.

Issue 2: Legality of reasons for cancellation
The court noted that the petitioner had applied for cancellation of registration on 25.02.2019, and subsequent orders had cancelled the provisional registration without specifying reasons. The court ruled that once the registration was cancelled, there was no obligation for the petitioner to file returns. Therefore, cancelling the registration for failure to file returns was deemed unsustainable. The court modified the order of cancellation to operate from the date of the petitioner's initial application for cancellation, i.e., 25.02.2019. The respondents were allowed to take steps for recovery of any tax, penalty, or interest due from the petitioner in accordance with the law.

Conclusion:
The court disposed of the petition by modifying the cancellation order to be effective from the date of the petitioner's application for cancellation. The court emphasized the need for objective criteria and fairness in cancelling GST registration, especially when considering retrospective effects and potential consequences for the taxpayer's customers.

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