2024 (8) TMI 451 - HC - GST

Cancellation of GST registration of petitioner with retrospective effect - failure to furnish the returns for a continuous period of six months - HELD THAT - In terms of Section 29 (2) of the CGST Act, the Proper Officer is empowered to cancel the taxpayer s registration, including from a retrospective date, as he deems fit, for the reasons as set out in the said Section. However, it is trite that cancellation from retrospective date cannot be whimsical or arbitrary. The Proper Officer s decision to cancel the registration with retrospective date must be informed by reason. The failure to file the returns for a continuous period of six months, absent anything additional, does not present any reason for cancellation of the taxpayer s GST registration even during the period for which returns were duly filed. In the present case, the decision for cancellation of the petitioner s GST registration with retrospective date, cannot be sustained, essentially for two reasons. First, that the impugned SCN did not propose any such action and therefore, retrospective cancellation of the petitioner s GST registration is in violation of the principles of natural justice. And, second, that the decision to cancel the petitioner s GST registration with retrospective effect is not informed by reason. It is considered apposite to direct the impugned order would be operative with effect from the date of the impugned SCN, that is, with effect from 13.11.2023. The impugned order is modified to the aforesaid extent - petition disposed off.

Summary

Issues:
Impugning Show Cause Notice for GST registration cancellation and retrospective cancellation of GST registration.

Analysis:
The petitioner challenged a Show Cause Notice (SCN) dated 13.11.2023 and an order dated 05.02.2024 for the retrospective cancellation of their GST registration from 01.07.2017. The SCN was issued due to the petitioner's failure to file returns for six months. The petitioner's registration was suspended from 13.11.2023. The petitioner did not respond to the SCN, leading to the cancellation of their registration. The impugned order cited "Others Rule 22 (1)/sub-rule (2A) of rule 21A" as the reason for cancellation.

The petitioner argued that the reasons in the impugned order were unclear and inapplicable. They contended that Rule 22(1) of the Central Goods and Services Tax Rules, 2017 (Rules) did not justify cancellation. Additionally, the reference to Rule 21A(2A) about discrepancies in returns was irrelevant as the SCN did not mention any such discrepancies. The petitioner stated they had filed a return in October 2019 but had ceased transactions since then.

The Court noted that cancellation with retrospective effect must be justified and not arbitrary. The decision to cancel retroactively lacked proper reasoning and violated principles of natural justice as the SCN did not propose retrospective action. Therefore, the Court modified the order, making it effective from the date of the SCN, i.e., 13.11.2023. The respondent was allowed to take lawful actions for any statutory violations by the petitioner. The petition was disposed of accordingly, and all pending applications were also resolved.