2024 (3) TMI 1130 - HC - GST

Retrospective cancellation of GST registration of the petitioner - SCN does not specify any cogent reason - 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. Neither the show cause notice, nor the order spell out the reasons for retrospective cancellation. 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. 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 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 dated 18.02.2022 and Show Cause Notice dated 04.01.2022 cannot be sustained and are accordingly set aside. The GST registration of the petitioner is restored. The petitioner shall, however, make all necessary compliances and file the requisite returns and information inter alia in terms of Rule 23 of the Central Goods and Services Tax Rules, 2017 - petition disposed off.

Summary

Issues:
The issues involved in this case are the retrospective cancellation of GST registration and the lack of reasons provided for such cancellation.

Retrospective Cancellation of GST Registration:
The petitioner challenged the order dated 18.02.2022, which cancelled the GST registration retrospectively from 26.07.2018. The Show Cause Notice dated 04.01.2022 cited the reason for cancellation as the petitioner's failure to file returns for a continuous period of six months. The petitioner, engaged in the trading business, had initially applied for cancellation of GST registration on 24.11.2020 due to business closure. Despite submitting the application, the order dated 07.06.2021 rejecting the cancellation did not provide any reasons. Subsequently, another Show Cause Notice was issued on 04.01.2022 without specifying a valid reason for cancellation or notifying the retrospective nature of the action. The impugned order of cancellation on 18.02.2022 further lacked explicit reasons and contained contradictory statements regarding the petitioner's reply. The petitioner, now seeking to continue business operations, argued against the retrospective cancellation and expressed willingness to comply with necessary requirements.

Legal Analysis and Decision:
The Court observed that the show cause notice and the impugned order failed to provide substantial details, rendering them unsustainable. Referring to Section 29(2) of the Central Goods and Services Tax Act, 2017, the Court highlighted that the cancellation of GST registration with retrospective effect should be based on objective criteria and not merely due to non-filing of returns. The proper officer must exercise discretion considering the circumstances and consequences of such retrospective cancellation, especially in terms of denying input tax credit to the taxpayer's customers. The Court emphasized that the satisfaction leading to retrospective cancellation cannot be subjective but must be justified by valid reasons. Consequently, the order dated 18.02.2022 and Show Cause Notice dated 04.01.2022 were set aside, and the petitioner's GST registration was restored. However, the petitioner was directed to fulfill all necessary compliances and file required returns as per the rules. The Respondents were also permitted to take lawful steps for tax recovery, including retrospective cancellation if applicable.

This summary provides a detailed overview of the legal judgment, highlighting the issues, factual background, legal analysis, and the ultimate decision rendered by the High Court.