GST Registration Cancellation Overturned: Procedural Flaws Require Revised Order with Proper Notice and Reasoning

The HC examined a GST registration cancellation case involving retrospective cancellation from 01.07.2017. The court found procedural irregularities in the cancellation order, particularly the lack of clear reasoning and insufficient notice. The HC modified the cancellation order, directing cancellation from the Show Cause Notice date (07.01.2020) instead of the retrospective date, and allowed tax authorities to pursue recovery through proper legal procedures while ensuring the taxpayer's right to be heard.

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

Retrospective Cancellation of GST Registration:
The petitioner challenged the retrospective cancellation of their GST registration, which was cancelled with effect from 01.07.2017 through an order dated 21.02.2020. The cancellation was based on a Show Cause Notice dated 07.01.2020, which cited non-filing of returns for a continuous period of six months as the reason. The petitioner, a proprietor of a firm, had previously faced a similar situation where the registration was cancelled but later restored upon application for revocation.

Lack of Reasons for Cancellation:
The petitioner argued that the Show Cause Notice and the subsequent order did not provide sufficient reasons for the retrospective cancellation. The Show Cause Notice merely mentioned non-filing of returns without specifying further details. The impugned order contradicted itself by referring to a reply dated 16/01/2020, while stating that no reply had been submitted. The lack of clarity in the reasons for cancellation raised concerns about the procedural fairness of the decision.

Proper Procedure for Cancellation of Registration:
The Court emphasized that the proper officer can cancel GST registration retrospectively only if certain criteria are satisfied, and the decision must be based on objective criteria. Mere non-filing of returns should not automatically lead to retrospective cancellation, especially if the taxpayer was compliant during the period in question. The consequences of retrospective cancellation, such as denial of input tax credit to customers, must be considered before making such a decision.

Judgment:
The Court modified the impugned order to treat the registration as cancelled from the date of the Show Cause Notice, i.e., 07.01.2020, instead of the retrospective date of 01.07.2017. The petitioner was directed to comply with the necessary requirements under Section 29 of the Central Goods and Services Tax Act, 2017. The respondents were allowed to take steps for recovery of any dues in accordance with the law, including retrospective cancellation after providing a proper Show Cause Notice and an opportunity for hearing. The petition was disposed of accordingly.

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