GST Registration Cancellation Overturned: Procedural Defects Invalidate Retrospective Order Under Section 29

HC examined a GST registration cancellation case involving retrospective revocation from 26.07.2018. The court found the cancellation order and show cause notice legally deficient, lacking substantive reasoning. The HC set aside the retrospective cancellation, restored the petitioner's GST registration, and directed compliance with tax filing requirements while permitting respondents to pursue lawful tax recovery measures.

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Issues:
The issues involved in this case are the retrospective cancellation of GST registration and the lack of reasons provided for such cancellation.

Retrospective Cancellation of GST Registration:
The petitioner challenged the order dated 18.02.2022, which cancelled the GST registration retrospectively from 26.07.2018. The Show Cause Notice dated 04.01.2022 cited the reason for cancellation as the petitioner's failure to file returns for a continuous period of six months. The petitioner, engaged in the trading business, had initially applied for cancellation of GST registration on 24.11.2020 due to business closure. Despite submitting the application, the order dated 07.06.2021 rejecting the cancellation did not provide any reasons. Subsequently, another Show Cause Notice was issued on 04.01.2022 without specifying a valid reason for cancellation or notifying the retrospective nature of the action. The impugned order of cancellation on 18.02.2022 further lacked explicit reasons and contained contradictory statements regarding the petitioner's reply. The petitioner, now seeking to continue business operations, argued against the retrospective cancellation and expressed willingness to comply with necessary requirements.

Legal Analysis and Decision:
The Court observed that the show cause notice and the impugned order failed to provide substantial details, rendering them unsustainable. Referring to Section 29(2) of the Central Goods and Services Tax Act, 2017, the Court highlighted that the cancellation of GST registration with retrospective effect should be based on objective criteria and not merely due to non-filing of returns. The proper officer must exercise discretion considering the circumstances and consequences of such retrospective cancellation, especially in terms of denying input tax credit to the taxpayer's customers. The Court emphasized that the satisfaction leading to retrospective cancellation cannot be subjective but must be justified by valid reasons. Consequently, the order dated 18.02.2022 and Show Cause Notice dated 04.01.2022 were set aside, and the petitioner's GST registration was restored. However, the petitioner was directed to fulfill all necessary compliances and file required returns as per the rules. The Respondents were also permitted to take lawful steps for tax recovery, including retrospective cancellation if applicable.

This summary provides a detailed overview of the legal judgment, highlighting the issues, factual background, legal analysis, and the ultimate decision rendered by the High Court.

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