2024 (4) TMI 213 - HC - GST

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 ... Retrospective cancellation of GST registration of petitioner - notice does not specify any cogent reason - principles of natural justice - HELD THAT:- The SCN and the impugned orders are bereft of any details and accordingly the same cannot be sustained. Neither the Show Cause Notice, nor the orders spell out the reasons for retrospective cancellation - SCN also does not put the petitioner to notice that the registration is liable to be cancelled retrospectively. Accordingly, the petitioner had no opportunity to even object to the retrospective cancellation of the registration. 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 is 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. The SCN dated 29.09.2022 and impugned orders dated 13.10.2022 and 11.10.2023 cannot be sustained and are accordingly set aside - GST registration of the petitioner is restored - Application disposed off. 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.