GST Registration Cancellation Invalidated Due to Procedural Flaws and Lack of Objective Reasoning in Tax Authority's Order

HC ruled on GST registration cancellation, finding retrospective cancellation improper without objective criteria. The court identified procedural irregularities in the Show Cause Notice, including lack of specific reasons and contradictory statements. The impugned order was modified to cancel registration from the proprietor's demise date, allowing tax recovery while emphasizing proper application of mind by tax authorities.

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Issues involved:
The issues involved in the judgment are retrospective cancellation of GST registration, lack of specific reasons provided in the Show Cause Notice, contradictory statements in the impugned order, non-application of mind by the authority, and the consequences of cancelling registration with retrospective effect.

Retrospective Cancellation of GST Registration:
The petitioner challenged the retrospective cancellation of GST registration u/s 29(2) of the Central Goods and Services Tax Act, 2017. The judgment emphasized that registration cannot be cancelled with a retrospective effect mechanically. The proper officer must base the decision on objective criteria, and satisfaction cannot be subjective. Merely not filing returns does not automatically warrant retrospective cancellation covering the period of compliance.

Lack of Specific Reasons in Show Cause Notice:
The Show Cause Notice issued to the petitioner lacked specific reasons for cancellation, only mentioning returns furnished u/s 39 of the Act. It failed to provide a clear explanation for the continuous period of non-filing of returns. The notice did not specify the officer or place for appearance, causing ambiguity and procedural irregularity.

Contradictory Statements in Impugned Order:
The impugned order dated 14.02.2023 contained contradictory statements regarding the petitioner's reply to the Show Cause Notice. While referencing a reply dated 07/11/2022, the order stated that no reply was submitted. The order also mentioned retrospective cancellation from 01.07.2017, creating confusion and lack of clarity in the decision-making process.

Non-Application of Mind by the Authority:
The judgment highlighted the lack of reasoning in the impugned order for retrospective cancellation. It pointed out the failure to consider the circumstances, especially the demise of the proprietor and the absence of a response due to the petitioner's situation. The authority's decision-making process was deemed flawed and showed a lack of proper evaluation.

Consequences of Cancelling Registration with Retrospective Effect:
The judgment discussed the consequences of cancelling registration with retrospective effect, emphasizing the denial of input tax credit to the taxpayer's customers. It stressed that such cancellations should only occur when intended consequences are warranted. Both the petitioner and the department sought cancellation for different reasons, indicating the importance of considering the implications of retrospective cancellations.

Separate Judgment:
The judgment modified the impugned order to cancel the registration with effect from the date of the proprietor's demise, i.e., 18.11.2021. The petitioner was directed to comply with the necessary requirements as per Section 29 of the Act. The respondents were allowed to take steps for recovery of any due tax, penalty, or interest in accordance with the law, including retrospective cancellation of GST registration.

This summary provides a detailed breakdown of the judgment, addressing each issue involved and highlighting the key legal aspects and decisions made by the court.

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