2024 (2) TMI 1210 - HC - GST

GST Registration Cancellation Overturned Due to Procedural Flaws, Petitioner's Rights Upheld and Reinstated with Proper Tax Compliance

M/s. Shree Balaji Industries Versus Commissioner of DGST And Anr.

HC found procedural irregularities in GST registration cancellation. The retrospective cancellation without clear reasons or opportunity to respond was ... Cancellation of GST registration of the petitioner with retrospective effect - notice does not specify any cogent reason - violation of principles of natural justice - HELD THAT:- The Show Cause Notice did 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. Show Cause Notice dated 31.08.2021 records that wrongful Input Tax Credit [ITC] was availed from M/S Jagdamba Enterprises, however, as per the petitioner, he did not have any dealing with M/S Jagdamba Enterprises and no ITC has been availed qua the said entity - Further, it may be noticed that the show cause notice directed the petitioner to appear for personal hearing on an appointed date and time whereas no date and time was mentioned in the said show cause notice. The show cause notice and the impugned order are also bereft of any details accordingly the same cannot be sustained. 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. Such satisfaction cannot be subjective but must be based on some objective criteria - 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. Further, there is no reasoning in the said show cause notice and in the impugned order as to why the cancellation has been done retrospectively. The impugned show cause notice dated 31.08.2021, order of cancellation dated 27.12.2021 are accordingly set aside. The GST registration of the petitioner is restored. Petitioner shall comply with Rule 23 of the Central Goods and Service Tax Rules, 2017 - petition allowed. Issues involved:The cancellation of GST registration retrospectively without specifying reasons and providing opportunity to respond.Judgment Details:Cancellation of GST Registration:The petitioner challenged the retrospective cancellation of their GST registration, which was ordered without providing specific reasons or opportunity to respond. The impugned show cause notice lacked clarity, merely mentioning a letter regarding wrongful Input Tax Credit (ITC) without detailing the alleged discrepancies. The subsequent order of cancellation failed to provide adequate reasoning, leading to confusion as it referenced a reply from the petitioner while claiming no response was received. The cancellation was dated back to 2017, raising concerns about procedural fairness and due process.Procedural Deficiencies:The Court noted several procedural irregularities in the case. The show cause notice did not inform the petitioner about the retrospective cancellation possibility, depriving them of the chance to contest this aspect. Moreover, the notice inaccurately scheduled a personal hearing without specifying the date and time, further complicating the petitioner's ability to respond effectively. The lack of detailed information in both the notice and the cancellation order rendered them unsustainable in the eyes of the law.Legal Framework and Objective Criteria:The judgment emphasized the importance of adhering to Section 29(2) of the Central Goods and Services Tax Act, 2017, which allows for registration cancellation under specific circumstances. It highlighted that such cancellations should not be mechanical but based on objective criteria, ensuring fairness and transparency. Mere non-filing of returns should not warrant retrospective cancellation, especially if the taxpayer was otherwise compliant during the period in question.Restoration of Registration:Ultimately, the Court allowed the petition, setting aside the show cause notice and cancellation order. The petitioner's GST registration was reinstated, with a directive to comply with relevant tax rules. While the respondents were granted the liberty to pursue lawful actions for tax recovery, the judgment underscored the necessity of providing clear reasons and following due process in matters of registration cancellation.Conclusion:In conclusion, the judgment highlighted the significance of procedural fairness, objective criteria, and detailed reasoning in decisions related to GST registration cancellations. By overturning the retrospective cancellation and restoring the petitioner's registration, the Court affirmed the importance of upholding legal principles and safeguarding taxpayers' rights in such matters.