2024 (3) TMI 963 - HC - GST

GST registration cancellation requires objective criteria and proper officer satisfaction, not mechanical retrospective application affecting customer credits

M/s. Supreme Enterprises Versus Principal Commissioner Of Goods And Service Tax North Delhi

Delhi HC held that retrospective cancellation of GST registration requires objective criteria and proper officer's satisfaction, not mechanical ... Retrospective cancellation of GST registration of petitioner - SCN does not specify any cogent reason - violation of principles of natural justice - HELD THAT:- 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 taxpayer 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 07.07.2023 is modified to the limited extent that registration shall now be treated as cancelled with effect from 26.07.2022 i.e., the date when the Petitioner closed down his business activities. Petitioner shall make the necessary compliances as required by Section 29 of the Central Goods and Services Tax Act, 2017. Petition disposed off. Issues: The issues in this case involve the retrospective cancellation of GST registration, repeated applications for cancellation, lack of reasons provided for cancellation, and the need for objective criteria for such cancellations.Retrospective Cancellation of GST Registration:The petitioner challenged the retrospective cancellation of their GST registration, which was cancelled with effect from 18.01.2022. The petitioner had submitted multiple applications seeking cancellation due to the closure of business, but these were rejected. The impugned order of 20.03.2023 did not provide clear reasons for cancellation, leading to confusion as it stated the registration was liable to be cancelled but showed nil dues against the petitioner.Lack of Reasons for Cancellation:The Show Cause Notice dated 06.03.2023 did not specify a clear reason for cancellation, and subsequent orders failed to provide detailed explanations. The petitioner was not adequately informed about the retrospective cancellation, depriving them of the opportunity to object.Objective Criteria for Cancellation:The court emphasized that the proper officer must have objective criteria for cancelling GST registration with retrospective effect. Mere non-filing of returns does not automatically warrant retrospective cancellation, and satisfaction for cancellation should not be subjective. The consequences of such cancellations on input tax credit for customers must also be considered before retrospective cancellation is deemed necessary.Judgment:The court modified the impugned order, stating that the registration shall be treated as cancelled from the date the petitioner closed down business activities, i.e., 26.07.2022. The petitioner was directed to comply with Section 29 of the Central Goods and Services Tax Act, 2017. The respondents were allowed to take steps for recovery of any outstanding dues in accordance with the law, including retrospective cancellation of GST registration. The petition was disposed of accordingly.