2024 (1) TMI 764 - HC - GST

Cancellation of GST registration of petitioner with retrospective effect from 01.07.2017 - HELD THAT - In terms of Section 29(2) of the Central Goods and Services Tax Act, 2017, 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. 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, it is not considered 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. The order of cancellation is modified to the extent that the same shall operate with effect from 25.02.2019, i.e., the date when petitioner first applied for cancellation of registration. It is clarified that respondents are not precluded from taking any steps for recovery of any tax, penalty or interest that may be due from the petitioner in accordance with law - Petition disposed off.

Summary

Issues involved:
The cancellation of GST registration with retrospective effect and the legality of the reasons provided for the cancellation.

Summary:

Issue 1: Cancellation of GST registration with retrospective effect
The petitioner challenged the order cancelling their GST registration with retrospective effect from 01.07.2017. The court observed that the registration had been cancelled without providing specific reasons and that the cancellation with retrospective effect was not justified. The court highlighted that under Section 29(2) of the Central Goods and Services Tax Act, 2017, registration can only be cancelled with retrospective effect if the proper officer deems it necessary based on objective criteria. Merely not filing returns for a period does not automatically warrant retrospective cancellation. The court emphasized that the cancellation with retrospective effect should consider the consequences for the taxpayer's customers who may be denied input tax credit. The petitioner was not given an opportunity to object to the retrospective cancellation, which was deemed unfair.

Issue 2: Legality of reasons for cancellation
The court noted that the petitioner had applied for cancellation of registration on 25.02.2019, and subsequent orders had cancelled the provisional registration without specifying reasons. The court ruled that once the registration was cancelled, there was no obligation for the petitioner to file returns. Therefore, cancelling the registration for failure to file returns was deemed unsustainable. The court modified the order of cancellation to operate from the date of the petitioner's initial application for cancellation, i.e., 25.02.2019. The respondents were allowed to take steps for recovery of any tax, penalty, or interest due from the petitioner in accordance with the law.

Conclusion:
The court disposed of the petition by modifying the cancellation order to be effective from the date of the petitioner's application for cancellation. The court emphasized the need for objective criteria and fairness in cancelling GST registration, especially when considering retrospective effects and potential consequences for the taxpayer's customers.