2024 (3) TMI 332 - HC - GST

GST Registration Cancellation Overturned: Procedural Flaws Invalidate Retrospective Order Under Rule 21

M/s. Optimum Viking Satcom India Pvt. Ltd. Versus Principal Commissioner & Ors.

The HC found the retrospective GST registration cancellation invalid due to procedural deficiencies. The Show Cause Notice lacked specific details, and ... Cancellation of GST registration of 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 Show Cause Notice and the impugned order are bereft of any details and accordingly the same cannot be sustained. Further, neither the Show Cause Notice, nor the order spell out the reasons for retrospective cancellation. In terms of Section 29(2) of the Act, 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 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 10.06.2022 is modified to the limited extent that registration shall now be treated as cancelled with effect from 30.11.2021 i.e., the period upto which the Petitioner has filed its GST returns. Petitioner shall comply with the requirements of Section 29 of the Central Goods and Services Tax Act, 2017. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether a Show Cause Notice for cancellation of GST registration adequately informs the taxpayer when it fails to specify particulars of tax collected but not deposited and fails to notify the possibility of retrospective cancellation. 2. Whether an order cancelling GST registration qualifies as a valid cancellation order when it contains internal contradictions, omits reasons for retrospective cancellation, and records nil demand despite asserting cancellation. 3. Whether retrospective cancellation of GST registration under Section 29(2) can be mechanically applied or must be founded on objective satisfaction and criteria, and the limits on retrospective cancellation where returns were duly filed for part of the period. 4. Whether the court may modify an impugned retrospective cancellation to a specific effective date (i.e., the last date of filed returns) where the taxpayer does not intend to continue business while preserving the department's right to recover dues. ISSUE-WISE DETAILED ANALYSIS Issue 1: Adequacy of Show Cause Notice-lack of particulars and failure to notify retrospective cancellation Legal framework: A Show Cause Notice initiating cancellation proceedings must inform the registrant of the grounds and particulars on which cancellation is sought, including material facts such as amounts collected but not deposited, and reasonably put the registrant on notice of the consequences sought (including retrospective cancellation) so as to enable effective reply and opportunity of hearing. Precedent treatment: The judgment follows the principle that procedural fairness requires sufficient particulars in administrative notices; no contrary precedent is invoked or overruled in the text. Interpretation and reasoning: The Show Cause Notice merely recited the statutory ground ('collects any amount as representing the tax but fails to pay the same... beyond a period of three months') without furnishing details of the alleged tax collected and not deposited or informing the registrant that retrospective cancellation was being contemplated. This omission deprived the registrant of the ability to meaningfully reply or to contest retrospective effect. Ratio vs. Obiter: Ratio - A Show Cause Notice lacking particulars of alleged tax misappropriation and failing to warn of retrospective cancellation is procedurally defective and cannot support a valid cancellation order. Conclusion: The Show Cause Notice was deficient for want of material particulars and failure to put the registrant on notice of retrospective cancellation; it could not sustain the impugned cancellation. Issue 2: Validity of the cancellation order-contradictions, absence of reasons for retrospective effect, and nil demand Legal framework: An order cancelling registration must record reasons, be consistent in its findings, and address the consequences claimed; where retrospective cancellation is imposed, the order must explicate the basis for selecting a retrospective effective date. Precedent treatment: The Court treats consistency, reasons and disclosure of dues as essential elements of a valid administrative order cancelling registration; no precedent is explicitly cited as followed or distinguished. Interpretation and reasoning: The impugned order inconsistently asserted that no reply was submitted while also referring to a reply; it did not assign reasons for retrospective cancellation; and it displayed nil demand in the table. These contradictions and omissions render the order legally unsatisfactory and non-qualifying as an operative cancellation order. Ratio vs. Obiter: Ratio - An order riddled with internal contradictions and lacking reasons for retrospective cancellation and for assessment of dues cannot stand as a valid cancellation order under the statutory scheme. Conclusion: The cancellation order is defective and unsustainable to the extent it purports retrospective effect without articulated reasons and while recording nil demand amid contradictory findings. Issue 3: Scope and limits of retrospective cancellation under Section 29(2) Legal framework: Section 29(2) permits cancellation of GST registration from such date, including retrospectively, as the proper officer may deem fit where prescribed circumstances are satisfied. The exercise of this power requires that the officer form satisfaction on objective grounds and not mechanistically impose retrospective cancellation. Precedent treatment: The judgment affirms that retrospective cancellation is not to be applied mechanically; no instance of overruling or distinguishing prior binding authority is specified in the text. Interpretation and reasoning: Retrospective cancellation must be based on objective criteria and demonstrable satisfaction. Non-filing of returns for a period does not ipso facto justify cancelling registration retrospectively to periods when returns were properly filed and compliance existed. The Court observes that retrospective cancellation may have significant consequences (e.g., denial of input tax credit to recipients) and thus should be used only where warranted by intended and justified consequences. Ratio vs. Obiter: Ratio - Proper officer's satisfaction for retrospective cancellation must be founded on objective criteria; retrospective effect cannot be applied simply because of non-filing for certain periods and cannot retroactively encompass periods of demonstrated compliance without rationale. Conclusion: Retrospective cancellation under Section 29(2) requires objective satisfaction and reasoned articulation; mechanical or blanket retrospective cancellation is impermissible, especially where part-period compliance exists. Issue 4: Judicial modification of effective date of cancellation and preservation of recovery rights Legal framework: Courts have authority to temper administrative orders to effectuate fairness and legal propriety, including fixing an appropriate effective date for cancellation, while leaving statutory recovery remedies available to the revenue. Precedent treatment: The judgment exercises remedial modification without purporting to set a broad precedent beyond the facts; no precedent is cited as followed or distinguished. Interpretation and reasoning: Both parties desired cancellation for differing reasons and the petitioner no longer intended to carry on business. Given the defective notice and order and the petitioner's cessation of activity after filing returns up to a specific date, the Court found it appropriate to modify the impugned order to treat cancellation as effective from the last date of filed returns (30.11.2021), thereby avoiding unjust retrospective consequence for an earlier compliant period. At the same time the Court preserved the respondents' statutory rights to pursue recovery of tax, interest or penalty as lawfully available, including steps that may involve retrospective cancellation if properly justified and reasoned under law. Ratio vs. Obiter: Ratio - Where a defective administrative cancellation is impugned and the registrant no longer conducts business, the court may limit cancellation's effective date to the last date of filed returns to protect periods of compliance, while leaving open revenue's rights to recovery under law. Conclusion: The impugned cancellation is modified so registration is treated as cancelled from the date up to which returns were filed; recovery proceedings are not precluded and retrospective cancellation remains available to the revenue if subsequently and properly justified.