2024 (1) TMI 436 - HC - GST

Rejection of application filed by the petitioner seeking cancellation of GST registration - application rejected on the ground that petitioner had failed to furnish stock position, value of raw material as well as the value of capital goods - HELD THAT - In terms of Section 29 sub-section 5 of the Central Goods Services Tax Act, 2017, every person whose registration is cancelled is liable to pay an amount equivalent to the credit of input tax in respect of inputs held in stocks and inputs contained in semi-finished or finished goods held in stock or capital goods of plant and machinery on the day immediately preceding the date of such cancellation or the output tax payable on such goods, whichever is higher. 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. The 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. A taxpayer s registration can be cancelled with retrospective effect only where such consequences are intended and are warranted. Clearly, the order is erroneous to the extent that the same could not have been passed retrospectively. The registration was suspended with effect from 02.09.2021. Accordingly, the order is modified to the extent that cancellation shall take effect from 02.09.2021. Petition disposed off.

Summary

Issues:
The issues involved in this case are the rejection of the application for cancellation of GST registration and the subsequent cancellation of registration with retrospective effect.

Rejection of Application for Cancellation of GST Registration:
The petitioner sought cancellation of registration due to business closure during the COVID period. However, the application was rejected as the petitioner failed to provide details regarding stock position, value of raw material, and capital goods. The rejection was based on the authority's need for information to determine liability under Section 29(5) of the Central Goods Services Tax Act, 2017.

Cancellation of Registration with Retrospective Effect:
The registration was cancelled with retrospective effect, which was challenged by the petitioner. The court noted that cancellation with retrospective effect should be based on objective criteria and not merely due to non-filing of returns. Cancelling registration with retrospective effect affects customers' input tax credit, so the proper officer must consider this consequence. The court modified the order to make the cancellation effective from the date of suspension, i.e., 02.09.2021.

The judgment emphasizes the importance of providing necessary details to the authority when seeking cancellation of GST registration. It also clarifies that retrospective cancellation should be based on objective criteria and consideration of consequences for customers' input tax credit. The court modified the order to ensure fairness and specified that all rights and contentions of the parties are reserved, without commenting on the merits of stock position or tax payments.