2024 (9) TMI 436 - HC - GST

GST Registration Wrongly Cancelled: Principles of Natural Justice Violated, Restoration Ordered Under Proper Hearing Mechanism

M/s. Bansal Exim Versus Commissioner of DGST, Delhi And Ors.

HC found the GST registration cancellation with retrospective effect unlawful. The cancellation violated natural justice principles as the petitioner was ... Rejection of petitioner’s application for revocation of cancellation order - to furnish the returns for a continuous period of six months - SCN did not propose the cancellation of the petitioner’s GST registration with retrospective effect - principles of natural justice - HELD THAT:- It is material to note that the impugned SCN did not propose the cancellation of the petitioner’s GST registration with retrospective effect. Thus, the petitioner had no opportunity to contest such cancellation. The impugned cancellation order also does not set out any reasons for cancelling of the petitioner’s GST registration ab initio, that is, from the date of grant of such registration. Section 29 (2) of the CGST Act/the DGST Act expressly empowers the proper officer to cancel the GST registration including with retrospective effect if any of the conditions as set out in the said provision are satisfied. However, it is settled law that such an exercise is to be informed by reasons and the tax payer’s registration cannot be cancelled retrospectively whimsically or arbitrarily. It is required to be based on some cogent reasons. In the present case, the impugned cancellation order does not reflect any such reasons. The cancellation of the petitioner’s GST registration with retrospective effect is in violation of the principles of natural justice as no such adverse action was contemplated in the impugned SCN. It is considered apposite to direct the respondents to restore the petitioner’s GST registration for a period of thirty days to enable the petitioner to file its returns. In the event, the petitioner does so, the proper officer may consider whether any other action is necessary - petition disposed off. Issues:Challenge to cancellation of GST registration with retrospective effect; Failure to file returns leading to cancellation; Violation of principles of natural justice in cancellation process.Analysis:The petitioner challenged the cancellation of their GST registration with retrospective effect due to failure to file returns for a continuous period. The impugned SCN was issued, directing the petitioner to show cause, but the petitioner did not respond. The registration was cancelled with retrospective effect, and the petitioner's application for revocation was rejected as it was filed beyond the stipulated period. The court noted that cancellation with retrospective effect must be based on cogent reasons and informed by principles of natural justice. The cancellation order lacked reasons, violating natural justice principles.The court referred to Section 29(2) of the CGST Act/DGST Act, which allows cancellation with retrospective effect based on specified conditions. However, it emphasized that such cancellations must be reasoned and not arbitrary. The court found the retrospective cancellation in this case to be in violation of natural justice principles as the petitioner had no opportunity to contest it. The court cited precedents where courts granted opportunities to remedy the cause of cancellation, emphasizing the severe consequences of GST registration cancellation on a taxpayer's business operations.In light of the circumstances, the court directed the respondents to restore the petitioner's GST registration for thirty days to allow the filing of returns. If necessary, the proper officer could issue a fresh show cause notice and decide after a personal hearing. The order did not prevent further action for statutory violations. The petition was disposed of accordingly, and pending applications were also resolved.