2024 (3) TMI 323 - HC - GST

Judicial Review Overturns Retrospective GST Registration Cancellation, Mandates Procedural Fairness and Reasoned Decision-Making

M/s. MK Traders Through its Proprietor Ajay Kumar Versus Sales Tax Officer Class II AVATO

HC found procedural irregularities in retrospective GST registration cancellation. The court modified the cancellation order, directing registration be ... Cancellation of GST registration of the Petitioner with retrospective effect - petitioner had no opportunity to even object to the retrospective cancellation of the registration - violation of principles of natural justice - HELD THAT:- The GST registration of the Petitioner was cancelled by order dated 25.08.2021, however, the said order does not give any reasons for cancellation of the registration. It merely states that the registration is liable to be cancelled for the following reason “whereas no reply to notice to show cause has been submitted”. Neither the show cause notice nor the order spell out the reasons for cancellation. In fact, order dated 29.01.2021 does not qualify as an order of cancellation of registration. On one hand, it states that the registration is liable to be cancelled and on the other, in the column at the bottom there are no dues stated to be due against the petitioner and the table shows nil demand. 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 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. In view of the fact that Petitioner does not seek to carry on business or continue the registration, the impugned order dated 25.08.2021 is modified to the limited extent that registration shall now be treated as cancelled with effect from 29.08.2019 i.e., the date when the Petitioner had submitted the application for cancellation of GST registration - Petitioner shall comply with the requirements of Section 29 of the Act and furnish the requisite details to the Department - petition disposed off. Issues involved:The issues involved in the judgment are the retrospective cancellation of GST registration, lack of reasons provided for cancellation, procedural irregularities in the show cause notice, and the proper officer's authority to cancel registration with retrospective effect.Retrospective Cancellation of GST Registration:The petitioner challenged the retrospective cancellation of their GST registration, which was cancelled with effect from 07.07.2017. The order cancelling the registration did not provide reasons for the cancellation, leading to confusion. The petitioner was not given an opportunity to object to the retrospective cancellation, as the show cause notice did not mention this possibility. The order itself was contradictory, referring to a reply dated 09.07.2021, yet stating that no reply had been submitted. The lack of material on record to justify the retrospective cancellation raised concerns about the validity of the decision.Procedural Irregularities and Lack of Reasons:The petitioner had applied for cancellation of GST registration on 28.09.2019, and subsequent show cause notices were issued without providing an opportunity for personal hearing. The order cancelling the registration did not specify any reasons for the cancellation, and a previous order mentioned that the registration was liable to be cancelled but showed no dues against the petitioner. The absence of clear reasons and procedural irregularities cast doubt on the validity of the cancellation decision.Proper Officer's Authority to Cancel Registration Retrospectively:The judgment highlighted Section 29(2) of the Central Goods and Services Tax Act, 2017, which allows the proper officer to cancel GST registration retrospectively under specific circumstances. It emphasized that such cancellations should not be done mechanically and must be based on objective criteria. The satisfaction of the proper officer should not be subjective, and the consequences of retrospective cancellation, such as denying input tax credit to customers, must be considered. The judgment modified the cancellation to be effective from the date the petitioner submitted the application for cancellation, taking into account the petitioner's decision to cease business activities.Conclusion:The judgment modified the order to treat the GST registration as cancelled from the date of the petitioner's application for cancellation. The petitioner was directed to comply with Section 29 of the Act and provide necessary details to the department. The respondents were not precluded from taking steps for tax recovery, and the order did not affect proceedings initiated under Section 73 of the Act. The petition was disposed of with these terms.