GST Registration Cancellation Modified: Retrospective Order Revised with Balanced Approach for Compliance and Tax Recovery

HC partially allowed the petition challenging retrospective GST registration cancellation. The court modified the cancellation order, directing registration cancellation from Show Cause Notice date instead of retrospective date. The petitioner was instructed to comply with GST Act provisions, while respondents retained rights to pursue tax recovery. The judgment emphasized objective criteria for registration cancellation and considered potential consequences of retrospective cancellations.

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Issues involved: Appeal dismissed on the ground of limitation, retrospective cancellation of GST registration, validity of Show Cause Notice, lack of reasons for cancellation, subjective satisfaction for cancellation, consequences of retrospective cancellation.

Impugned Order and Show Cause Notice:
The petitioner challenged the order dismissing the appeal based on limitation, which was against the retrospective cancellation of GST registration from 01.07.2017. The petitioner also contested a Show Cause Notice lacking specific reasons for cancellation, issued without mentioning the officer's name or appearance details.

Validity of Show Cause Notice:
The Show Cause Notice accused the petitioner of not furnishing returns for six months without specifying cogent reasons. It failed to inform the petitioner about the retrospective cancellation possibility, depriving the petitioner of the chance to object to such a measure.

Lack of Reasons for Cancellation:
The impugned order of 18.08.2022 did not provide clear reasons for cancellation but mentioned the absence of a reply to the Show Cause Notice as the basis. The order was contradictory, referring to a reply dated 05.03.2022 while claiming no response was submitted. The retrospective cancellation from 01.07.2017 lacked justification and clarity.

Subjective Satisfaction for Cancellation:
Section 29(2) of the Act allows cancellation of GST registration retrospectively based on objective criteria, not merely due to non-filing of returns. The cancellation must be justified by the proper officer and cannot be mechanical. The satisfaction for cancellation should be objective and not arbitrary.

Consequences of Retrospective Cancellation:
The cancellation of registration with retrospective effect impacts customers' input tax credit. Such cancellations should only occur when intended consequences are warranted. The judgment highlighted the importance of considering these consequences before deciding on retrospective cancellation.

Modification of Impugned Order:
Considering the petitioner's disinterest in continuing the business, the impugned order was modified to cancel the registration from the date of the Show Cause Notice issuance (03.02.2022). The petitioner was instructed to comply with Section 29 of the Central Goods and Services Tax Act, 2017.

Clarification on Recovery:
The respondents were not restricted from taking steps for tax, penalty, or interest recovery, including retrospective cancellation of GST registration. The judgment disposed of the petition with the specified modifications and clarifications.

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