2024 (2) TMI 1363 - HC - GST

GST Registration Cancellation Overturned: Procedural Fairness Prevails, Order Modified to Protect Taxpayer Rights and Ensure Proper Notice

HC addressed a GST registration cancellation dispute, finding the retrospective cancellation from 01.07.2017 improper. The court modified the cancellation ... Cancellation of GST registration of the petitioner with retrospective effect - SCN does not give any reasons for cancellation of the registration - HELD THAT:- 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. 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 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 26.11.2020, i.e., the date of the application for cancellation of registration - Petition disposed off. Issues involved:The issues involved in the judgment are the cancellation of GST registration of the petitioner with retrospective effect, the lack of reasons provided for cancellation, and the retrospective nature of the cancellation without proper notice to the petitioner.Cancellation of GST Registration:The petitioner sought a direction to cancel their GST registration with effect from 26.11.2020, and challenged the retrospective cancellation of registration from 01.07.2017 through an order dated 24.06.2021. The petitioner had applied for cancellation of the registration certificate on the grounds of discontinuation of business from 01.07.2020. However, the application was rejected on the basis that the dealer had not submitted the required documents and replies. Subsequently, a show cause notice was issued to the petitioner for not filing returns for a continuous period of six months, leading to the retrospective cancellation of registration.Lack of Reasons for Cancellation:The impugned order dated 24.06.2021 did not provide specific reasons for the cancellation of registration. While referencing a reply from the petitioner dated 16.04.2021, the order stated that no reply to the show cause notice had been submitted. The lack of reasons for retrospective cancellation from 01.07.2017 raised concerns, as there was no material on record to justify the retrospective nature of the cancellation. Additionally, the petitioner was not informed beforehand that the registration could be cancelled retrospectively, depriving them of the opportunity to object.Retrospective Cancellation without Proper Notice:The judgment highlighted that the order dated 24.06.2021 did not qualify as a valid cancellation order. It was emphasized that registration cannot be cancelled with retrospective effect mechanically, and the proper officer must base such a decision on objective criteria rather than subjective judgment. The consequences of retrospective cancellation, such as denial of input tax credit to the taxpayer's customers, should also be considered before making such a decision. Ultimately, the order of cancellation was modified to operate from the date of the application for cancellation, i.e., 26.11.2020, to ensure procedural fairness.Conclusion:In conclusion, the judgment modified the order of cancellation to be effective from the date of the application for cancellation, emphasizing compliance with the Central Goods and Services Act, 2007. It was clarified that the respondents could still take steps for the recovery of any outstanding tax, penalty, or interest from the petitioner in accordance with the law. The petition was disposed of accordingly, providing clarity on the retrospective cancellation of GST registration and the importance of procedural fairness in such matters.