GST Registration Cancellation Overturned: Compassionate Review Considers Personal Circumstances After Spouse's Death

HC found that retrospective GST registration cancellation was improper. The cancellation from 01.07.2017 was modified to 16.05.2018, considering the petitioner's circumstances after her husband's death. The court emphasized that non-filing of returns does not automatically justify retrospective cancellation. Respondents retain rights to recover outstanding taxes, but the cancellation order was substantially revised.

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Issues:
The issues involved in this case are the retrospective cancellation of GST registration, failure to file returns, lack of reasons provided for cancellation, and the consequences of retrospective cancellation on input tax credit.

Retrospective Cancellation of GST Registration:
The petitioner challenged the retrospective cancellation of GST registration, which was cancelled with effect from 01.07.2017. The petitioner had applied for cancellation on 16.05.2019 due to the death of her husband, who managed the business. The court noted that registration cannot be cancelled with a retrospective date mechanically and must be based on objective criteria. The satisfaction of the proper officer for retrospective cancellation must be justified, and it cannot be solely based on the non-filing of returns.

Failure to File Returns:
The petitioner, engaged in wholesale trading and manufacturing, had not filed returns from April 2019 onwards due to the husband's demise. The court emphasized that the non-filing of returns for a period does not automatically warrant retrospective cancellation of registration. The petitioner expressed disinterest in continuing the business, leading to the application for cancellation.

Lack of Reasons Provided for Cancellation:
The court observed that the show cause notice and the impugned order lacked specific details and reasons for the retrospective cancellation of registration. The order mentioned the absence of a reply to the show cause notice as the reason for cancellation but contained contradictions in stating that no reply was submitted while referring to a reply dated 22.09.2020. The court found this lack of clarity unsustainable.

Consequences of Retrospective Cancellation on Input Tax Credit:
The court highlighted that cancelling a taxpayer's registration retrospectively could impact the input tax credit availed by the taxpayer's customers. While the court did not delve into this aspect deeply, it noted that such consequences must be considered when deciding on retrospective cancellation. The court modified the impugned order to cancel the registration from 16.05.2018, aligning with the date of the cancellation application, as the petitioner no longer intended to continue the business.

Conclusion:
The court disposed of the petition, modifying the cancellation date of the GST registration and directing the petitioner to comply with the provisions of Section 29 of the Central Goods and Services Tax Act, 2017. The respondents were not precluded from taking lawful steps for the recovery of any outstanding tax, penalty, or interest related to the firm.

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