GST Registration Cancellation Cannot Be Retroactive: Order Modified to Ensure Procedural Fairness and Tax Recovery

HC ruled on GST registration cancellation, finding retrospective cancellation impermissible. The court modified the cancellation order to operate from the date of application, ensuring procedural fairness. The decision emphasized that registration cannot be mechanically cancelled retroactively and must adhere to objective criteria, while preserving the respondents' right to recover any outstanding taxes or penalties through legal mechanisms.

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Issues involved:
The cancellation of GST registration retrospectively and the validity of the show cause notice issued to the petitioner.

Cancellation of GST Registration:
The petitioner sought cancellation of their GST registration, but the application was rejected due to incomplete details. Subsequently, a show cause notice was issued, leading to the retrospective cancellation of registration. The order of cancellation was challenged on the grounds that it did not comply with the provisions of Rule 26(3) of the Central Goods and Services Tax Act, 2017, and the petitioner was not given notice of the retrospective cancellation. The court held that registration cannot be cancelled with retrospective effect mechanically and must be based on objective criteria. The order of cancellation was modified to operate from the date of the application for cancellation, i.e., 11.03.2022.

Validity of Show Cause Notice:
The petitioner argued that the show cause notice did not specify the retrospective cancellation of registration, depriving them of the opportunity to object. The court emphasized that the proper officer must consider the consequences of retrospective cancellation, such as denying input tax credit to the taxpayer's customers. The court modified the order to ensure that the cancellation operates from the date of the application for cancellation, allowing the petitioner to comply with the requirements of the Central Goods and Services Act, 2007. The respondents were not precluded from taking steps for recovery of any due tax, penalty, or interest in accordance with the law.

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