GST Registration Cancellation Overturned: Procedural Fairness Prevails, Taxpayer Rights Protected Under Section 29(2)(e)

HC examined a GST registration cancellation case involving retrospective cancellation under Section 29(2)(e). The court found the cancellation order lacking substantive justification and procedural fairness. HC set aside the retrospective cancellation, restored the petitioner's GST registration, and directed compliance with tax regulations while allowing respondents to pursue lawful tax recovery measures.

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Issues Involved:
The issues involved in this case are the retrospective cancellation of GST registration u/s 29(2)(e) based on fraud, wilful misstatement, or suppression of facts, lack of detailed reasons in the Show Cause Notice and impugned order, and the legality of cancelling registration with retrospective effect.

Retrospective Cancellation of GST Registration u/s 29(2)(e):
The petitioner challenged the retrospective cancellation of their GST registration dated 17.07.2023 with effect from 07.07.2017, based on a Show Cause Notice issued on 27.06.2023 citing Section 29(2)(e) for obtaining registration through fraud, wilful misstatement, or suppression of facts. The petitioner argued that the cancellation lacked detailed reasons and the order did not provide justification for the retrospective effect. The court noted that cancellation with retrospective effect should not be mechanical and must be based on objective criteria rather than mere non-filing of returns. The court highlighted that consequences like denial of input tax credit to customers should be considered before cancelling registration retrospectively.

Lack of Detailed Reasons in Show Cause Notice and Impugned Order:
The petitioner also contended that the Show Cause Notice and the subsequent order lacked specific details regarding the reasons for retrospective cancellation. The court observed that the Notice did not inform the petitioner about the possibility of retrospective cancellation, depriving them of the chance to object. The court emphasized that proper justification and notice should be provided before cancelling registration, especially with retrospective effect.

Legality of Cancelling Registration with Retrospective Effect:
The court clarified that under Section 29(2) of the Central Goods and Services Tax Act, 2017, the proper officer has the authority to cancel GST registration from a retrospective date if certain conditions are met. However, this decision should not be arbitrary and must be based on objective criteria, not just non-compliance with filing returns. The court set aside the order of retrospective cancellation dated 17.07.2023, restoring the petitioner's GST registration. The petitioner was directed to fulfill all necessary compliances and file required returns as per the rules.

Disposition:
The court disposed of the petition by setting aside the order of retrospective cancellation, restoring the petitioner's GST registration. The respondents were allowed to take lawful steps for the recovery of any due tax, penalty, or interest related to the firm, including retrospective cancellation of GST registration if necessary.

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