GST Registration Cancellation Invalidated: Retrospective Order Overturned, Effective Date Modified to Business Discontinuation

HC ruled that retrospective GST registration cancellation from 01.07.2017 was invalid. The court modified the cancellation order to be effective from 31.03.2020, when business was discontinued. The decision emphasized that retrospective cancellation lacks proper justification and can adversely impact taxpayers' input tax credit. The show cause notice was deemed unsustainable, and the department was allowed to recover any outstanding dues through legal procedures.

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Issues involved:
Cancellation of GST registration retrospectively and validity of show cause notice.

Cancellation of GST registration retrospectively:
The petitioner challenged the retrospective cancellation of GST registration from 01.07.2017 and the show cause notice dated 13.01.2021. The petitioner, operating as a proprietorship firm engaged in manufacturing, regularly filed GST returns and claimed input tax credit. After closing down the business and vacating the premises, the petitioner applied for cancellation of registration, which was rejected without providing reasons. Subsequently, a show cause notice was issued without indicating the retrospective cancellation. The final cancellation order lacked reasons and was contradictory, mentioning the absence of a reply to the show cause notice despite referencing a reply. The cancellation with retrospective effect lacked justification and failed to specify any dues against the petitioner.

Validity of show cause notice:
The court noted that the petitioner's registration was suspended after the application for cancellation and the show cause notice, rendering the failure to file returns unsustainable as a ground for cancellation. Referring to Section 29(2) of the CGST Act, the court emphasized that registration cannot be cancelled retrospectively without objective criteria and proper justification. The consequences of retrospective cancellation, such as denying input tax credit to the taxpayer's customers, must be considered by the proper officer. The court modified the cancellation order to operate from the date of business discontinuation, i.e., 31.03.2020, allowing recovery of any due tax, penalty, or interest in accordance with the law. Both the petitioner and the department sought cancellation of registration, albeit for different reasons, leading to the modification of the cancellation order.

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