2024 (3) TMI 1091 - HC - GST

Retrospective cancellation of GST registration of the petitioner - petitioner had 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 the same cannot be sustained and neither the Show Cause Notice, nor the order spell out the reasons for retrospective cancellation. 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 taxpayer during such period. Although, it is not considered apposite to examine this aspect but assuming that the respondent s contention is 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. It is clear that both the petitioner and the respondent want the GST registration to be cancelled, though for different reasons - In view of the fact that Petitioner does not seek to carry on business or continue the registration, the impugned order dated 01.12.2020 is modified to the limited extent that registration shall now be treated as cancelled with effect from 19.11.2020 i.e., the date when the Show Cause Notice was issued. Petitioner shall make the necessary compliances as required by Section 29 of the Central Goods and Services Tax Act, 2017. Petition disposed off.

Summary

Issues involved:
The issues in this case involve the retrospective cancellation of GST registration of the petitioner, the validity of the Show Cause Notice, lack of reasons provided for cancellation, and the proper application of Section 29(2) of the Act regarding cancellation with retrospective effect.

Retrospective Cancellation of GST Registration:
The petitioner challenged the order dated 01.12.2020, which cancelled the GST registration retrospectively from 01.07.2017. The Show Cause Notice lacked specificity in reasons for cancellation and did not inform the petitioner of the retrospective nature of the cancellation. The impugned order also lacked clear reasons for cancellation and presented contradictions, such as referring to a reply that was allegedly not submitted. The court noted that the order did not qualify as a proper cancellation order, as it did not provide adequate details or dues against the petitioner. The lack of reasons and retrospective cancellation without justification rendered the order unsustainable.

Validity of Show Cause Notice:
The Show Cause Notice issued to the petitioner on 19.11.2020 was found to be deficient in specifying cogent reasons for cancellation. It merely mentioned non-filing of returns for a continuous period without providing further details. The notice failed to notify the petitioner of the potential retrospective cancellation, depriving the petitioner of the opportunity to object to such a decision. The court emphasized that proper communication and reasons are essential in such notices to ensure procedural fairness.

Application of Section 29(2) of the Act:
The court analyzed Section 29(2) of the Act, which allows the proper officer to cancel GST registration from a retrospective date based on specific circumstances. It was highlighted that registration cannot be cancelled mechanically with retrospective effect and must be justified by objective criteria. The satisfaction of the proper officer for retrospective cancellation should not be subjective but grounded in valid reasons. Merely non-filing of returns does not automatically warrant retrospective cancellation, especially if the taxpayer was compliant during the period in question.

Decision and Modification of Order:
Considering that the petitioner had ceased business activities and was no longer interested in continuing, the court modified the impugned order. The registration was now treated as cancelled from 19.11.2020, aligning with the date of the Show Cause Notice issuance. The petitioner was directed to fulfill necessary compliances as per Section 29 of the Central Goods and Services Tax Act, 2017. However, the respondents were not barred from taking steps for recovery of any outstanding tax, penalty, or interest, including retrospective cancellation of GST registration, in accordance with the law.

This judgment clarifies the importance of providing clear reasons for cancellation, ensuring procedural fairness in Show Cause Notices, and applying legal provisions judiciously when cancelling GST registration with retrospective effect.