2024 (2) TMI 944 - HC - GST

Cancellation of GST registration of the petitioner with retrospective effect - failure to file returns for a continuous period of six months - no reason for cancellation stated in SCN - violation of principles of natural justice - HELD THAT - Neither the show cause notice nor the order spell out the reasons for cancellation. In fact, order dated 29.01.2021 does not qualify as an order of cancellation of registration. On one hand, it states that the registration is liable to be cancelled and on the other, in the column at the bottom there are no dues stated to be due against the petitioner and the table shows nil demand. 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. Registration cannot be cancelled with retrospective effect mechanically. It can be cancelled only if the proper officer deems it fit to do so. It is important to note that, according to the respondent, one of the consequences for cancelling a taxpayer 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. The order of cancellation is modified to the extent that the same shall operate with effect from 31.03.2020, i.e., the date on which the petitioner discontinued business - Petition disposed off.

Summary

Issues involved:
Cancellation of GST registration retrospectively and validity of show cause notice.

Cancellation of GST registration retrospectively:
The petitioner challenged the retrospective cancellation of GST registration from 01.07.2017 and the show cause notice dated 13.01.2021. The petitioner, operating as a proprietorship firm engaged in manufacturing, regularly filed GST returns and claimed input tax credit. After closing down the business and vacating the premises, the petitioner applied for cancellation of registration, which was rejected without providing reasons. Subsequently, a show cause notice was issued without indicating the retrospective cancellation. The final cancellation order lacked reasons and was contradictory, mentioning the absence of a reply to the show cause notice despite referencing a reply. The cancellation with retrospective effect lacked justification and failed to specify any dues against the petitioner.

Validity of show cause notice:
The court noted that the petitioner's registration was suspended after the application for cancellation and the show cause notice, rendering the failure to file returns unsustainable as a ground for cancellation. Referring to Section 29(2) of the CGST Act, the court emphasized that registration cannot be cancelled retrospectively without objective criteria and proper justification. The consequences of retrospective cancellation, such as denying input tax credit to the taxpayer's customers, must be considered by the proper officer. The court modified the cancellation order to operate from the date of business discontinuation, i.e., 31.03.2020, allowing recovery of any due tax, penalty, or interest in accordance with the law. Both the petitioner and the department sought cancellation of registration, albeit for different reasons, leading to the modification of the cancellation order.