2024 (4) TMI 1128 - HC - GST

GST Registration Cancellation Overturned: Procedural Flaws Invalidate Retrospective Order, Mandate Fair Hearing and Due Process

Swati Gupta Versus Commissioner Of Delhi Goods And Services Tax & Anr.

The HC found the retrospective GST registration cancellation invalid due to procedural deficiencies. The Show Cause Notice lacked specific reasons and ... Retrospective cancellation of GST registration - SCN does not give any reasons for cancellation - Violation of principles of natural justice - HELD THAT:- 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. Merely, because a taxpayer has not filed the returns for some period does not mean that the taxpayer’s registration is required to be cancelled with retrospective date also covering the period when the returns were filed and the taxpayer was compliant. 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. It is clear that both the petitioner and the respondent want the GST registration to be cancelled, though for different reasons. In view of the above that the Petitioner does not seek to carry on business or continue the registration, the impugned order dated 28.10.2021 is modified to the limited extent that registration shall now be treated as cancelled with effect from 20.06.2020 i.e., the date when petitioner filed an application seeking cancellation of GST registration - petition disposed off. Issues Involved:The issues involved in this case are the retrospective cancellation of GST registration, the validity of the Show Cause Notice, and the lack of reasons provided for the cancellation.Retrospective Cancellation of GST Registration:The petitioner sought cancellation of their GST registration due to the closure of their business. The application for cancellation was initially rejected without specific reasons provided. Subsequently, a Show Cause Notice was issued stating that the registration would be cancelled retrospectively from a date in 2017. The court noted that the reasons for retrospective cancellation were not adequately explained, and the petitioner was not given an opportunity to object to this retrospective action. The court emphasized that registration cannot be cancelled with a retrospective effect mechanically and must be based on objective criteria.Validity of Show Cause Notice:The Show Cause Notice issued to the petitioner lacked specific reasons for the cancellation and did not mention the retrospective nature of the action. It required the petitioner to appear without specifying the date and time for a personal hearing. The court highlighted that such lack of details in the notice rendered it deficient and unfair to the petitioner, as it did not provide a proper opportunity to respond or object to the proposed cancellation.Lack of Reasons for Cancellation:Both the Show Cause Notice and the subsequent order for cancellation did not provide clear reasons for the retrospective action. The order mentioned that no reply was submitted to the Show Cause Notice, but it was contradictory as it referred to a reply dated after the notice was issued. Additionally, the order did not specify any dues against the petitioner, indicating a lack of clarity in the decision-making process. The court emphasized that the absence of detailed reasons for cancellation made the order unsustainable.Conclusion:Considering that the petitioner no longer intended to continue the business and had already applied for cancellation, the court modified the order to reflect the cancellation with effect from the date of the application. 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 outstanding dues in accordance with the law, including retrospective cancellation after providing proper notice and a personal hearing to the petitioner.