2024 (9) TMI 442 - HC - GST

Cancellation of petitioner s Goods and Services Tax (GST) registration with retrospective effect - SCN does not indicate any reason for cancelling the petitioner s GST registration with retrospective effect - Violation of principles of natural justice - HELD THAT - The impugned SCN did not propose any adverse action of cancelling the petitioner s GST registration ab initio, that is, from the date when it was granted. There is no cavil that in terms of Section 29(2) of the CGST Act/DGST Act, the proper officer may cancel the tax payer s registration if any of the grounds as set out in the said provision are satisfied. This also includes the power of the proper officer to cancel the GST registration with retrospective effect. However, such an action cannot be arbitrary or whimsical. It must be informed by reasons. The proper officer must have cogent reason to cancel the tax payer s registration with retrospective effect. The impugned cancellation order was passed not only in violation of the principles of natural justice, but is also not informed by reasons. Thus, the impugned cancellation order is liable to be set aside - it is considered apposite to direct that the impugned cancellation order will not be operative from 01.07.2017, but with effect from 08.02.2021 being the date on which the petitioner had applied for cancellation of its GST registration. Petition disposed off.

Summary

Issues:
Impugning GST registration cancellation order with retrospective effect and show cause notice validity.

Analysis:
The petitioner challenged the cancellation of its Goods and Services Tax (GST) registration with retrospective effect from 01.07.2017. The cancellation order was issued based on the petitioner's failure to furnish returns for a continuous period of six months. The respondent issued a show cause notice directing the petitioner to justify why its registration should not be cancelled. The High Court noted that while the proper officer has the authority to cancel registration with retrospective effect under Section 29(2) of the CGST Act/DGST Act, such action must be supported by valid reasons and not arbitrary. The court found the cancellation order lacked reasons and violated principles of natural justice, thus setting it aside.

The petitioner had applied for cancellation of its GST registration on 08.02.2021 due to business closure on 30.11.2020. Despite providing documents in response to a show cause notice, the application was rejected. The court acknowledged that the cancellation of registration does not exempt the taxpayer from statutory compliance or liabilities under the law. Therefore, the court directed that the cancellation order would be effective from the date of the petitioner's application for cancellation, i.e., 08.02.2021, instead of the initial retrospective date.

Furthermore, the court clarified that the petitioner would be required to file returns until 08.02.2021, as the application for cancellation was made beyond the stipulated timeframe from the business closure date. The respondents were not precluded from initiating new proceedings for statutory non-compliance or recovery of dues in accordance with the law. The court also instructed the petitioner to provide partner addresses for future correspondence. The petition was disposed of accordingly, with pending applications also being resolved.