GST Registration Cancellation Overturned: Procedural Fairness Prevails with Revised Effective Date of Notice

The HC examined a GST registration cancellation case, finding the retrospective cancellation from 11.01.2020 improper. The court modified the cancellation order to be effective from the show cause notice date (08.11.2020), emphasizing that registration cancellations must be based on objective criteria and not mechanically applied. The decision upheld procedural fairness while allowing tax recovery proceedings against the petitioner.

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Issues involved:
The issues involved in the judgment are retrospective cancellation of GST registration, failure to furnish returns for a continuous period, and the proper procedure for cancellation of registration.

Retrospective Cancellation of GST Registration:
The petitioner challenged the retrospective cancellation of their GST registration with effect from 11.01.2020, arguing that the cancellation should have been effective from the date of the show cause notice issued on 08.11.2022. The court noted that there was no justification provided for the retrospective cancellation and that the petitioner was not given an opportunity to object to it. The court emphasized that registration cannot be cancelled with a retrospective effect mechanically, and the decision must be based on objective criteria rather than just non-filing of returns.

Failure to Furnish Returns for a Continuous Period:
The Show Cause Notice issued to the petitioner cited the reason for potential cancellation of registration as the failure to furnish returns for a continuous period of six months. However, the court observed that the notice did not specify that the registration could be cancelled retrospectively. The court highlighted that the proper officer must consider the consequences of cancelling a taxpayer's registration with retrospective effect, particularly regarding the denial of input tax credit to the taxpayer's customers. The court modified the order of cancellation to operate from the date of the show cause notice, i.e., 08.11.2020.

Proper Procedure for Cancellation of Registration:
The court referred to Section 29(2) of the Central Goods and Services Tax Act, 2017, which allows the proper officer to cancel GST registration from a retrospective date if certain conditions are met. The court emphasized that the decision to cancel registration retrospectively should not be subjective but based on objective criteria. Additionally, the court clarified that the respondents are not precluded from taking steps for the recovery of any tax, penalty, or interest due from the petitioner in accordance with the law.

This judgment addressed the concerns raised by the petitioner regarding the retrospective cancellation of their GST registration and provided clarity on the proper procedure for such cancellations, ensuring that the decision-making process is fair and based on objective criteria.

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