2024 (3) TMI 53 - HC - GST

Cancellation of GST registration of the Petitioner with retrospective effect - SCN does not put the petitioner to notice that the registration is liable to be cancelled retrospectively - no opportunity to even object to the retrospective cancellation of the registration - violation of principles of natural justice - HELD THAT - The show cause notice and the impugned order are bereft of any details accordingly. 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. 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. 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 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. In view of the fact that Petitioner does not seek to carry on business or continue the registration, the impugned order dated 26.09.2020 is modified to the limited extent that registration shall now be treated as cancelled with effect from 16.05.2018 i.e., the date when the application of cancellation of GST registration was submitted. Petitioner shall comply with the requirements of Section 29 of the Central Goods and Services Tax Act, 2017 - petition disposed off.

Summary

Issues:
The issues involved in this case are the retrospective cancellation of GST registration, failure to file returns, lack of reasons provided for cancellation, and the consequences of retrospective cancellation on input tax credit.

Retrospective Cancellation of GST Registration:
The petitioner challenged the retrospective cancellation of GST registration, which was cancelled with effect from 01.07.2017. The petitioner had applied for cancellation on 16.05.2019 due to the death of her husband, who managed the business. The court noted that registration cannot be cancelled with a retrospective date mechanically and must be based on objective criteria. The satisfaction of the proper officer for retrospective cancellation must be justified, and it cannot be solely based on the non-filing of returns.

Failure to File Returns:
The petitioner, engaged in wholesale trading and manufacturing, had not filed returns from April 2019 onwards due to the husband's demise. The court emphasized that the non-filing of returns for a period does not automatically warrant retrospective cancellation of registration. The petitioner expressed disinterest in continuing the business, leading to the application for cancellation.

Lack of Reasons Provided for Cancellation:
The court observed that the show cause notice and the impugned order lacked specific details and reasons for the retrospective cancellation of registration. The order mentioned the absence of a reply to the show cause notice as the reason for cancellation but contained contradictions in stating that no reply was submitted while referring to a reply dated 22.09.2020. The court found this lack of clarity unsustainable.

Consequences of Retrospective Cancellation on Input Tax Credit:
The court highlighted that cancelling a taxpayer's registration retrospectively could impact the input tax credit availed by the taxpayer's customers. While the court did not delve into this aspect deeply, it noted that such consequences must be considered when deciding on retrospective cancellation. The court modified the impugned order to cancel the registration from 16.05.2018, aligning with the date of the cancellation application, as the petitioner no longer intended to continue the business.

Conclusion:
The court disposed of the petition, modifying the cancellation date of the GST registration and directing the petitioner to comply with the provisions of Section 29 of the Central Goods and Services Tax Act, 2017. The respondents were not precluded from taking lawful steps for the recovery of any outstanding tax, penalty, or interest related to the firm.