GST registration cancelled from July 1, 2020 for non-filing of six months' returns; no retrospective cancellation allowed under Section 29

HC directed cancellation of the GST registration of the proprietary concern effective 1 July 2020, finding the sole ground was non-filing of returns for six continuous months and noting the proprietor's death proven by a death certificate. The court held that retrospective cancellation beyond 1 July 2020 could not be imposed because the show-cause notice did not specify retrospective effect. The petition was disposed accordingly.

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ISSUES PRESENTED AND CONSIDERED

1. Whether cancellation of a GST registration with retrospective effect is permissible where returns were filed up to a later date and the Show Cause Notice did not propose retrospective cancellation.

2. Whether an order cancelling GST registration with retrospective effect without affording a hearing or stating reasons for retrospective effect is legally sustainable (principles of natural justice and requirement of reasons).

3. Whether the death of a sole proprietor and consequent cessation of business affects the appropriate effective date of cancellation.

4. Whether a technical objection that the petition was filed by a deceased person is tenable where the memo of parties has been amended to substitute the proper party.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Legality of retrospective cancellation when returns were filed and SCN did not seek retrospective effect

Legal framework: Section 29(2) of the Central Goods and Services Tax Act, 2017 confers power on the proper officer to cancel registration "from such date including any retrospective date". The power is exercisable where circumstances set out in the statute are satisfied.

Precedent treatment: The Court referred to and relied upon several High Court decisions holding that retrospective cancellation cannot be mechanically applied and that the SCN and order must indicate and justify retrospective effect (decisions summarized in the judgment were followed and reiterated).

Interpretation and reasoning: The Court emphasised that the mere existence of power to cancel with retrospective effect does not justify its routine application. Retrospective cancellation is a serious step with deleterious consequences (e.g., denial of input tax credit to customers) and therefore requires objective satisfaction and articulation of reasons. Where returns were filed up to a later date (i.e., registration was in compliance until that later date) and the SCN did not propose retrospective cancellation, cancelling with retrospective effect that predates the last filed return is improper.

Ratio vs. Obiter: Ratio - The cancellation order cannot give retrospective effect to a period during which the taxpayer filed returns and was compliant unless the show cause notice and order specifically and objectively justify retrospective cancellation. Obiter - Observations on the consequential effects (such as input tax credit denial) are explanatory but support the ratio.

Conclusions: Retrospective cancellation in such circumstances is not permissible. The appropriate effective date is the date from which business ceased or from the date identified in the SCN (if properly proposed), not a date preceding the last return filed without any justification.

Issue 2 - Requirement of reasons and hearing before retrospective cancellation (natural justice)

Legal framework: Principles of natural justice require that a show cause notice afford adequate particulars of the case and that the affected party be given a meaningful opportunity of hearing; administrative orders must state reasons, particularly when imposing retroactive consequences.

Precedent treatment: The Court followed authorities holding that (i) SCNs must put a taxpayer on notice if retrospective cancellation is contemplated and (ii) cancellation orders must reflect reasons for retrospective effect and demonstrate application of mind (these precedents were applied, not overruled or distinguished).

Interpretation and reasoning: The impugned SCN failed to indicate that retrospective cancellation was being sought; the cancellation order was passed ex parte and did not assign reasons for retrospective effect. The Court treated this as a violation of natural justice and statutory scheme because the taxpayer had no opportunity to contest or respond to a ground (retrospective cancellation) that was not in the SCN.

Ratio vs. Obiter: Ratio - An order effecting retrospective cancellation must be preceded by an SCN that expressly puts the party to notice of the proposed retrospective date and must record reasons for retrospective cancellation; absent this, the order is vitiated for want of natural justice and failure to apply mind. Obiter - Emphasis on the non-robotic exercise of power is explanatory but supports the binding principle.

Conclusions: The impugned retrospective cancellation could not be sustained because the SCN did not propose retrospective effect and no hearing or reasons were given; therefore the cancellation must be limited to an appropriate non-retrospective date.

Issue 3 - Effect of death of sole proprietor and cessation of business on effective date of cancellation

Legal framework: Administrative cancellation of registration must take account of factual circumstances such as cessation of business; Section 29(2) allows effective dates to be fixed but requires objective satisfaction and reasoned exercise of power.

Precedent treatment: The Court applied principles from earlier decisions showing that where a taxpayer ceased business and had filed returns until the cessation date, cancellation should be made effective from the date of cessation (or the date proposed in SCN) rather than an earlier retrospective date.

Interpretation and reasoning: The sole proprietor died on a date after which no business was conducted; returns were filed until the date of cessation. Given that the only ground relied upon by the authority was non-filing for a period (contradicted by filed returns up to cessation), and given the absence of any notice of retrospective cancellation, the Court fixed the date of cancellation as the date following the last filed return / date of discontinuance of business.

Ratio vs. Obiter: Ratio - Where business is proved to have ceased and returns were filed up to that cessation, cancellation may be made effective from the cessation date rather than retrospectively; failure to do so without reasons is unsustainable. Obiter - Discussion of pandemic context and practical difficulties in notice service are explanatory.

Conclusions: The registration was ordered cancelled prospectively from the date following the last filed return/cessation of business (01 July 2020 in the facts), not retrospectively to a date when returns were timely filed.

Issue 4 - Technical objection that petition was filed by a deceased person

Legal framework: Procedural rules permit substitution and amendment of parties to cure defects in representation; petitions may be maintained by a proper party after amendment.

Precedent treatment: The Court rejected the technical plea and relied on the amended memo of parties which impleaded the proper petitioner in place of the deceased original filer.

Interpretation and reasoning: Since the memo of parties was amended and the wife was impleaded as the proper party, the objection that the petition was filed by a deceased person was held to be untenable at that stage.

Ratio vs. Obiter: Ratio - A procedural defect of initial filing by a deceased person can be cured by timely amendment and substitution of parties; such technical objections should not defeat substantive adjudication when substitution has occurred. Obiter - None significant.

Conclusions: The technical objection failed; the petition proceeded on merits after amendment of parties.

Final Conclusion and Disposition

The Court held that the retrospective cancellation could not be sustained where returns were filed up to the cessation date and the SCN did not propose retrospective cancellation; natural justice required notice and reasons for any retrospective effect. Applying settled precedent and the statutory scheme (Section 29(2)), the Court directed that cancellation be effective prospectively from the date business ceased (01 July 2020 in the facts) and disposed of the petition accordingly.

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