GST registration cancellation cannot be made retrospective without proper justification in show cause notice under Section 39

Delhi HC quashed retrospective cancellation of GST registration effective from 2017. The petitioner allegedly failed to file returns for six months continuously under Section 39. The court found the show cause notice lacked adequate reasons for retrospective cancellation. The HC held that without proper justification in the notice, retrospective effect could not be sustained. The cancellation order was modified to take effect from the show cause notice date rather than the retrospective date originally imposed.

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Issues Involved:

1. Retrospective cancellation of GST registration.
2. Failure to furnish returns under Section 39 of the Central Goods and Services Tax Act, 2017.
3. Adequacy of reasons provided for cancellation in the Show Cause Notice (SCN) and final order.
4. Compliance with procedural requirements for cancellation of registration.

Issue-wise Detailed Analysis:

1. Retrospective Cancellation of GST Registration:

The primary issue in this case was the retrospective cancellation of the petitioner's GST registration effective from 02 July 2017, despite the petitioner's application for cancellation being submitted on 30 January 2021. The court emphasized that while Section 29 of the Central Goods and Services Tax Act, 2017, confers the power to cancel registration retrospectively, such power should not be exercised mechanically or routinely. The order must reflect the reasons for the retroactive cancellation, demonstrating due application of mind. The court referenced previous judgments, such as Riddhi Siddhi Enterprises and Ramesh Chander, which highlighted the necessity for the order to be reasoned and based on objective criteria. The court found that the impugned order lacked adequate reasoning for the retrospective cancellation, rendering it unsustainable.

2. Failure to Furnish Returns Under Section 39:

The respondents issued a Show Cause Notice on 15 January 2023, alleging that the petitioner failed to furnish returns for a continuous period of six months, as required under Section 39 of the Act. This failure was cited as a basis for the cancellation of the petitioner's GST registration. The petitioner submitted a reply on 15 February 2023, but the final order dated 28 February 2023 indicated that no response had been received from the petitioner. The court noted the inconsistency in the respondents' position and the lack of clarity in the order regarding the petitioner's compliance with return filing requirements.

3. Adequacy of Reasons Provided for Cancellation:

The court scrutinized the adequacy of reasons provided in the SCN and the final order for the cancellation of registration. It was observed that neither the SCN nor the final order clearly articulated the reasons for the retrospective cancellation. The court reiterated the importance of providing clear and cogent reasons, especially when exercising the power to cancel registration with retrospective effect. The absence of such reasons in the impugned order was a significant factor in the court's decision to quash the order.

4. Compliance with Procedural Requirements:

The court examined whether the procedural requirements for cancellation of registration were complied with. The SCN required the petitioner to submit a reply within thirty days and appear for a personal hearing. However, the final order contradicted itself by stating that no reply was received while simultaneously referencing the petitioner's reply dated 15 February 2023. The court highlighted the importance of adherence to procedural requirements and the need for clarity and consistency in the issuance of notices and orders.

Conclusion:

The court concluded that the impugned order dated 28 February 2023, which purported to cancel the petitioner's GST registration with retrospective effect from 02 July 2017, was unsustainable due to the lack of adequate reasons and procedural irregularities. The court allowed the writ petition, quashing the order to the extent that it operated retrospectively. The cancellation of registration was directed to take effect from the date of issuance of the SCN, namely 15 January 2023.

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