2024 (1) TMI 574 - HC - GST

Cancellation of GST registration of petitioner - SCN does not contain any reason for the proposed cancellation - HELD THAT - It is important to note that, according to the respondent, one of the consequences for cancelling a tax payer s registration with retrospective effect is that the taxpayer s customers are denied the input tax credit availed in respect of the supplies made by the tax payer during such period. Although, we do not consider it apposite to examine this aspect but assuming that the respondent s contention in this regard is correct, it would follow that the proper officer is also required to consider this aspect while passing any order for cancellation of GST registration with retrospective effect. Thus, a taxpayer s registration can be cancelled with retrospective effect only where such consequences are intended and are warranted. Further, the Show Cause Notice also does not put the petitioner to notice that the registration is liable to be cancelled retrospectively. Accordingly, petitioner had no opportunity to even object to the retrospective cancellation of the registration. The impugned show cause notice dated 03.08.2023 and the order of cancellation dated 15.09.2023 are set aside. The GST registration of the petitioner is restored to its original number. Petitioner shall file the requisite returns in accordance with law.

Summary

Issues involved:
The issues involved in this case are the validity of the show cause notice requiring the petitioner to justify why their GST registration should not be cancelled, the cancellation of the petitioner's GST registration, and the lack of reasoning provided in both the show cause notice and the order of cancellation.

Validity of Show Cause Notice:
The show cause notice dated 03.08.2023 lacked specific reasons for the proposed cancellation of the GST registration. It only cited "Non compliance of any specified provisions in the GST Act or the Rules made thereunder." The notice did not provide any details regarding the alleged non-compliance or the specific provisions that were violated. Additionally, the notice did not mention the name or designation of the issuing authority, making it vague and lacking necessary information.

Cancellation of GST Registration:
The order dated 15.09.2023 cancelling the petitioner's GST registration also lacked proper reasoning. It simply referred to the show cause notice without providing any additional explanation for the cancellation or the effective date of 04.02.2023. The court highlighted that under Section 29(2) of the Central Goods and Services Tax Act, 2017, registration cannot be cancelled with retrospective effect mechanically. The proper officer must have objective criteria and cannot cancel registration without a cogent reason, especially covering a period when the taxpayer was compliant.

Retrospective Cancellation and Due Process:
The court emphasized that cancelling a taxpayer's registration with retrospective effect has consequences, such as denying input tax credit to the taxpayer's customers for supplies made during that period. The proper officer must consider these consequences before making a decision on retrospective cancellation. The show cause notice did not inform the petitioner about the possibility of retrospective cancellation, depriving them of the opportunity to object. The court set aside the show cause notice and the order of cancellation, restoring the petitioner's GST registration to its original number.

Further Actions and Recovery:
While the court allowed the respondent to take further action in accordance with the law, including cancellation with retrospective effect, it emphasized that this must be done through a proper show cause notice and after giving the petitioner an opportunity to be heard. The respondent was also not prevented from taking steps to recover any tax, penalty, or interest due from the petitioner in accordance with the law.

This judgment by the Delhi High Court, delivered by Hon'ble Mr. Justice Sanjeev Sachdeva and Hon'ble Mr. Justice Ravinder Dudeja, highlights the importance of providing detailed reasons in show cause notices and orders of cancellation regarding GST registration. It underscores the need for procedural fairness, objective criteria, and adherence to the law in such matters.