GST Registration Cancellation Overturned Due to Lack of Substantive Reasoning and Procedural Deficiencies in Tax Authority's Order

HC reviewed GST registration cancellation order challenged by petitioner. The court found the cancellation order deficient in providing clear reasons and justification for retrospective cancellation. HC set aside the cancellation orders, restored petitioner's GST registration, and directed compliance with tax rules. Respondents retained right to pursue lawful tax recovery measures, but must provide substantive grounds for any future cancellation actions.

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Issues involved:
The issues involved in this case are the cancellation of GST registration u/s 29(2) of the Act, retrospective cancellation of registration, lack of reasons provided for cancellation, and the consequences of retrospective cancellation on input tax credit.

Cancellation of GST Registration:
The petitioner challenged the order cancelling their GST registration retrospectively from 28.07.2020. The Show Cause Notice lacked specific reasons for cancellation, mentioning only "Others." The subsequent order did not provide clear reasons for cancellation, stating the petitioner did not attend the Personal Hearing (PH) or respond to the Show Cause Notice (SCN). However, the order was contradictory as it referred to the petitioner's reply to the SCN. The High Court found that the order did not qualify as a valid cancellation as it lacked clarity and specific grounds for cancellation.

Retrospective Cancellation and Lack of Details:
The High Court noted that the orders for cancellation of registration were deficient in providing details and reasons for the retrospective cancellation. The Show Cause Notice and subsequent orders did not specify the basis for the retrospective cancellation, depriving the petitioner of the opportunity to object to it. The Court emphasized that registration cannot be cancelled retrospectively without proper justification based on objective criteria, especially if the taxpayer was compliant during the period in question.

Consequences of Retrospective Cancellation:
The Court considered the consequences of retrospective cancellation, particularly the denial of input tax credit to the taxpayer's customers for supplies made during the cancelled period. While the Court did not delve deeply into this aspect, it highlighted that cancellation with retrospective effect should only be done when such consequences are intended and justified. The Court emphasized that the decision for retrospective cancellation must be based on valid reasons and objective criteria rather than a mere failure to file returns for a period.

Judgment and Restoration of GST Registration:
The High Court set aside the Show Cause Notice and the orders for cancellation dated 13.10.2022 and 11.10.2023, ruling that they lacked sufficient details and reasons. The GST registration of the petitioner was restored, with the directive for the petitioner to fulfill all necessary compliances and file required returns as per the Central Goods and Services Tax Rules, 2017. However, the respondents were not barred from taking lawful steps for recovering any due tax, penalty, or interest, including retrospective cancellation of the GST registration. The petition along with the application was disposed of by the Court.

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