2024 (10) TMI 1324 - HC - GST

GST registration cancellation set aside for lack of proper enquiry into temporary business closure

Delhi HC set aside GST registration cancellation with retrospective effect. Petitioner was deemed non-existent when department visit found business ... Cancellation of GST registration of petitioner with retrospective effect - non genuine tax-payers - petitioner was found non-existent - impugned order does not indicate any reason for cancelling the petitioner’s GST registration much less from retrospective effect - violation of principles of natural justice - HELD THAT:- The impugned order is bereft of any reason. It neither specifies the reasons for cancelling the GST registration nor gives any clue as to why it was cancelled w.e.f 02.09.2017. The retrospective cancellation of GST registration has a cascading effect inasmuch as the concerned authorities would also deny the input tax credit to other tax payers who might have received supplies from the petitioner herein. Dealing with an identical issue in the case of Riddhi Siddhi Enterprises vs. Commissioner of Goods and Services Tax (CGST), South Delhi & Anr. [2024 (10) TMI 278 - DELHI HIGH COURT], where it was held that 'It is also necessary to observe that the mere existence of such a power would not in itself be sufficient to sustain its invocation. What we seek to emphasise is that the power to cancel retrospectively can neither be robotic nor routinely applied unless circumstances so warrant. When tested on the aforesaid precepts it becomes ex facie evident that the impugned order of cancellation cannot be sustained.' It is foiund that there has been an abject failure on the part of the concerned authorities to assign even rudimentary reasons for retrospective cancellation. Since the only allegation against the petitioner was that it was non-existent, which was sufficiently addressed by the petitioner in his reply by claiming that the tax payer had to go to Rajasthan due to ill health of his father, and at the relevant time when visit was scheduled by the Department, the tax payer was travelling to Rajasthan and owing to this, the business place of the tax payer was closed and it was presumed that the tax payer is non-existent. The temporary suspension of business activity on account of ill health would not warrant cancellation of taxpayer’s GST registration. The impugned order dated 27.08.2024 is completely silent with regard to even any enquiry having been conducted on the aforesaid aspect. Both the impugned SCNs dated 06.02.2024 and 07.08.2024 as also the impugned orders dated 25.05.2024 and 27.08.2024 are set aside. Respondents are directed to restore the petitioner’s GST registration - Petition disposed off. Issues Involved:1. Validity of the Show Cause Notices (SCNs) and orders for cancellation of GST registration.2. Retrospective cancellation of GST registration.3. Violation of principles of natural justice.4. Grounds for rejecting the application for revocation of cancellation of registration.5. Relationship between pending adjudication of demand and cancellation of registration.Issue-wise Detailed Analysis:1. Validity of the Show Cause Notices (SCNs) and Orders for Cancellation of GST Registration:The petitioner challenged the SCNs dated 06.02.2024 and 07.08.2024, as well as the orders dated 25.05.2024 and 27.08.2024, which led to the cancellation of GST registration. The SCN issued on 06.02.2024 was found to be defective as it did not specify the name of the officer or the place for the petitioner to appear, thus failing to provide a proper opportunity for the petitioner to be heard. The court emphasized that the principles of natural justice require authorities to offer a fair hearing before passing an order, which was not adhered to in this case.2. Retrospective Cancellation of GST Registration:The order dated 25.05.2024 canceled the petitioner's GST registration retrospectively from 02.09.2017. The court noted that Section 29(2) of the CGST Act allows for cancellation from a retrospective date only if the proper officer deems it fit, based on objective criteria. The order lacked any reasoning or justification for the retrospective cancellation, which the court found unacceptable, especially considering the adverse effects on other taxpayers who might have engaged with the petitioner.3. Violation of Principles of Natural Justice:The court highlighted that the petitioner was not given a fair opportunity to be heard, as required by the principles of natural justice and the Master Circular issued by the Ministry of Finance. The circular mandates at least three opportunities for personal hearing, which were not provided in this case. Consequently, the order dated 06.02.2024 was deemed violative of these principles.4. Grounds for Rejecting the Application for Revocation of Cancellation of Registration:The application for revocation of cancellation was rejected based on non-payment of a penalty of Rs. 24,38,232/-, as mentioned in SCN No. 70/2024-25. However, the court found that the rejection order did not address the original allegation of the petitioner being a non-existent entity. The court noted that the temporary suspension of business due to personal health issues was not a valid ground for cancellation, and the rejection order failed to consider this explanation.5. Relationship Between Pending Adjudication of Demand and Cancellation of Registration:The court observed that the proceedings under DRC-01 regarding the demand were independent of the proceedings for cancellation of GST registration. The demand was still pending adjudication, and the recovery of any amount could be pursued irrespective of the registration status. Therefore, the pending demand could not justify the cancellation or rejection of the revocation application.Conclusion:The court set aside both the impugned SCNs and orders, directing the restoration of the petitioner's GST registration. It clarified that the respondents are not barred from pursuing recovery of tax or penalty, or initiating fresh proceedings, provided they adhere to legal procedures and afford the petitioner an opportunity to contest. The petition was disposed of accordingly.