2024 (2) TMI 946 - HC - GST

GST Registration Cancellation Overturned: Retrospective Order Modified to Ensure Fair Tax Compliance and Procedural Transparency

HC ruled on GST registration cancellation, finding the retrospective cancellation from 01.07.2017 unjustified. The court modified the order to operate ... Cancellation of GST registration of the petitioner with retrospective effect - failure to file returns for a continuous period of six months - no reply to SCN submitted - violation of principles of natural justice - HELD THAT:- There is no material on record to show as to why the registration is sought to be cancelled retrospectively - Further, the Show Cause Notice also does not put the petitioner to notice that the registration is liable to be cancelled retrospectively. Accordingly, the petitioner had no opportunity to even object to the retrospective cancellation of the registration. In terms of Section 29(2) of the Central Goods and Services Tax Act, 2017, the proper officer may cancel the GST registration of a person from such date including any retrospective date, as he may deem fit if the circumstances set out in the said sub-section are satisfied. The registration cannot be cancelled with retrospective effect mechanically. It can be cancelled only if the proper officer deems it fit to do so. It is important to note that, according to the respondent, one of the consequences for cancelling a taxpayer’s registration with retrospective effect is that the taxpayer’s customers are denied the input tax credit availed in respect of the supplies made by the tax payer during such period. Although, it is not considered apposite to examine this aspect but assuming that the respondent’s contention in this regard is correct, it would follow that the proper officer is also required to consider this aspect while passing any order for cancellation of GST registration with retrospective effect. Thus, a taxpayer’s registration can be cancelled with retrospective effect only where such consequences are intended and are warranted. The order of cancellation is modified to the extent that the same shall operate with effect from 30.09.2020, i.e., the period upto which the Petitioner has filed its GST returns - Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether an application filed in the Registry to place additional documents on record requires listing, or whether the documents can be taken on record without listing. 2. Whether a GST registration can be cancelled with retrospective effect under Section 29(2) of the Central Goods and Services Tax Act, 2017 merely because returns were not filed for a continuous period of six months. 3. Whether a Show Cause Notice that does not put the taxpayer on notice of prospective retrospective cancellation satisfies principles of fair notice and natural justice when the impugned order ultimately cancels registration with retrospective effect. 4. What standards govern the exercise of the proper officer's power under Section 29(2) to cancel registration with retrospective effect (subjective satisfaction vs. objective criteria), and whether collateral consequences (e.g., denial of input tax credit to third parties) must be considered. 5. Whether, in the circumstances where the taxpayer has filed returns up to a date and seeks closure thereafter, the appropriate operative date for cancellation ought to be the last date of filed returns rather than an earlier retrospective date. ISSUE-WISE DETAILED ANALYSIS Issue 1: Registry recording of additional documents (procedural question) Legal framework: Rules governing filing of documents in court/Registry and the Court's case-management discretion to take documents on record. Precedent Treatment: No precedent cited or applied in the judgment. Interpretation and reasoning: The Court accepted that where the petitioner merely seeks to place additional documents on record (without seeking an independent relief that requires listing), the Registry need not list a separate application; the documents may be produced and taken on record. Ratio vs. Obiter: Ratio (procedural holding) - such applications to place documents on record can be accepted by the Court without formal listing when the nature of relief is limited to taking documents on record. Conclusions: The application and accompanying documents produced in Court were taken on record; listing was unnecessary in the circumstances. Issue 2: Validity of retrospective cancellation under Section 29(2) for non-filing of returns Legal framework: Section 29(2) of the Central Goods and Services Tax Act, 2017 empowers the proper officer to cancel GST registration 'from such date including any retrospective date' as he may deem fit if circumstances set out in the sub-section are satisfied. Precedent Treatment: No earlier authorities were cited or followed; the Court reasoned directly from statutory text and principles of administrative law. Interpretation and reasoning: The Court held that the power to cancel retrospectively is not a mechanical power to be exercised merely because returns were not filed for a continuous period. The officer's 'deeming' must be based on objective criteria and articulated satisfaction; the power cannot be exercised on mere subjective grounds. Non-filing for a period does not ipso facto justify cancelling registration retrospectively to cover periods when the taxpayer was compliant and had filed returns. Ratio vs. Obiter: Ratio - the proper officer must form an objective, articulated satisfaction before cancelling registration with retrospective effect; retrospective cancellation cannot be automatic or purely subjective where the taxpayer had complied for earlier periods. Conclusions: Cancellation with retrospective effect on the sole ground of non-filing for a later continuous period was impermissible where there was no objective material to justify retrospective operation covering compliant periods; such retrospective cancellation must be justified on objective grounds. Issue 3: Requirement of fair notice in Show Cause Notice where retrospective cancellation is envisaged Legal framework: Principles of natural justice and fair notice in administrative adjudication - a Show Cause Notice must disclose the case to be met, including the nature and extent of proposed action. Precedent Treatment: No specific authorities cited; Court applied general principles of fair notice. Interpretation and reasoning: The Show Cause Notice in the case called upon the taxpayer to show cause why registration be not cancelled for non-filing, but did not inform the taxpayer that cancellation, if ordered, might be with retrospective effect. Absence of such notice deprived the taxpayer of the opportunity to object to retrospective cancellation, and therefore the procedure was defective. Ratio vs. Obiter: Ratio - where retrospective cancellation is a possible outcome, the Show Cause Notice must disclose that retrospective effect is contemplated so that the taxpayer has an opportunity to respond to that specific consequence. Conclusions: The impugned order was procedurally infirm because the taxpayer was not put on notice that retrospective cancellation was being contemplated; opportunity to object to retrospective effect was thereby denied. Issue 4: Consideration of collateral consequences (e.g., denial of input tax credit to recipients) when ordering retrospective cancellation Legal framework: Administrative decision-making must consider relevant consequences; statutory text permits retrospective cancellation but does not prescribe that consequences to third parties be ignored. Precedent Treatment: Not addressed by prior authorities in the judgment. Interpretation and reasoning: The Court observed that cancellation with retrospective effect can have serious consequences for recipients of supplies (denial of input tax credit). While the Court did not adjudicate the full legal correctness of the respondent's contention on this consequence, it held that such consequences are relevant and ought to be considered by the proper officer when deciding to cancel registration retrospectively. The officer should be satisfied objectively that such consequences are warranted. Ratio vs. Obiter: Largely obiter in part - the commentary about consequential effects on third parties is noted as a relevant consideration but was not finally adjudicated beyond holding that the officer must take such consequences into account when forming satisfaction. Conclusions: Proper officers are required to consider collateral consequences (including potential denial of input tax credit to recipients) as part of the objective satisfaction process before ordering retrospective cancellation; failure to do so renders the decision vulnerable. Issue 5: Appropriate operative date for cancellation where returns are filed until a specified date and the taxpayer seeks closure thereafter Legal framework: Section 29(2) permitting cancellation from such date as deemed fit; administrative discretion subject to objective satisfaction and principles addressed above. Precedent Treatment: No precedents were applied; Court exercised case-specific corrective relief. Interpretation and reasoning: Given that the petitioner had filed returns up to 30.09.2020 and thereafter ceased business and sought closure, and because there was no material to justify retrospective cancellation back to 01.07.2017 nor prior notice of retrospective effect, the Court found it appropriate to limit the cancellation's operative date to the last date for which returns were filed. This modification vindicates the principle that retrospective cancellation should not erase periods of compliance unless objectively justified and properly put to notice. Ratio vs. Obiter: Ratio - where retrospective cancellation is unjustified procedurally or on the merits, the Court may limit the effective date of cancellation to the last date of compliance (here, date up to which returns were filed). Conclusions: The order of cancellation was modified to operate from the date up to which returns were filed (30.09.2020). The respondent remains free to take other lawful actions, including recovery of tax, penalty or interest, in accordance with law.