GST Registration Cancellation Overturned: Retrospective Order Modified, Taxpayer Rights Preserved Under Fair Procedural Review

HC found the retrospective GST registration cancellation from 01.07.2017 improper. The court modified the cancellation date to 04.09.2021, aligning with the Show Cause Notice. The respondents retained rights to recover any outstanding taxes or penalties. The decision balanced procedural fairness with the department's regulatory powers while acknowledging the petitioner's intent to discontinue business operations.

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Issues:
The issues involved in this case are the retrospective cancellation of GST registration and the lack of reasons provided for such cancellation.

Retrospective Cancellation of GST Registration:
The petitioner filed an appeal against the retrospective cancellation of their GST registration, which was cancelled with effect from 01.07.2017. The petitioner was engaged in the business of Sanitary ware Products & Accessories and possessed GST registration. The Show Cause Notice dated 04.09.2021 did not inform the petitioner about the retrospective cancellation, depriving them of the opportunity to object. The impugned order dated 15.12.2021 did not provide reasons for cancellation but mentioned that no reply to the show cause notice had been submitted. The order was contradictory as it referred to a reply dated 15.12.2021, yet stated that no reply had been submitted. The order also lacked clarity on the reasons for retrospective cancellation, with no dues mentioned against the petitioner. The petitioner's registration was cancelled from 01.07.2017, a retrospective date, without proper justification.

Legal Criteria for Cancellation:
Section 29(2) of the Act allows the proper officer to cancel GST registration from a retrospective date if certain circumstances are satisfied. However, registration cannot be cancelled with a retrospective effect mechanically. The cancellation must be based on objective criteria, not merely due to a taxpayer's failure to file returns for a period. The cancellation with retrospective effect can have consequences, such as denying input tax credit to the taxpayer's customers. The cancellation should only occur with retrospective effect if such consequences are intended and justified. Both the petitioner and the department sought cancellation of the GST registration, albeit for different reasons.

Judgment and Modification:
Considering that the petitioner no longer wished to continue the business and the registration had been discontinued, the impugned order was modified. The registration was now treated as cancelled with effect from 04.09.2021, the date of the Show Cause Notice. The respondents were not precluded from taking steps for the recovery of any tax, penalty, or interest due in accordance with the law. The petition was disposed of accordingly, with the modification to the cancellation date.

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