2024 (10) TMI 278 - HC - GST

Cancellation of GST registration of petitioner with retrospective effect - power to cancel a registration under the Central Goods and Services Tax Act, 2017 - compliance with procedural requirements under Section 29 of the CGST Act. HELD THAT - As is manifest from a reading of Section 29, clauses (a) to (e) of Section 29(2) constitute independent limbs on the basis of which a registration may warrant cancellation. While the provision does enable the respondents to cancel that registration with retrospective effect, the mere existence or conferral of that power would not justify a revocation of registration. The order under Section 29 (2) must itself reflect the reasons which may have weighed upon the respondents to cancel registration with retrospective effect. Given the deleterious consequences which would ensue and accompany a retroactive cancellation makes it all the more vital that the order be reasoned and demonstrative of due application of mind. It is also necessary to observe that the mere existence of such a power would not in itself be sufficient to sustain its invocation. It is emphasised that the power to cancel retrospectively can neither be robotic nor routinely applied unless circumstances so warrant. When tested on the aforesaid precepts it becomes ex facie evident that the impugned order of cancellation cannot be sustained. While dealing with the right of the respondents to cancel GST registration with retrospective effect and the manner in which such power should be exercised in accordance with the statutory scheme was an issue which was noticed in Ramesh Chander vs Assistant Commissioner of Goods and Services Tax, Dwarka Division, CGST Delhi Anr. 2024 (1) TMI 1014 - DELHI HIGH COURT . The Court in Ramesh Chander taking note of the contours of Section 29 had held that ' It is important to note that, according to the respondent, one of the consequences for cancelling a tax payer 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, we do not consider it 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.' Thus, in light of an abject failure on the part of the authority to assign even rudimentary reasons for a retroactive cancellation, the order impugned cannot be sustained - impugned order is hereby quashed - petition allowed.

Summary

Issues Involved:
1. Retrospective cancellation of GST registration.
2. Compliance with procedural requirements under Section 29 of the CGST Act.
3. Adequacy of reasons provided for cancellation.
4. Consequences of retrospective cancellation on taxpayers and their customers.

Detailed Analysis:

1. Retrospective Cancellation of GST Registration:
The petitioner challenged the retrospective cancellation of its GST registration, effective from 28 September 2017, as per the order dated 25 July 2023. The court scrutinized the statutory provisions under Section 29 of the CGST Act, which permits the cancellation of registration with retrospective effect under specific circumstances, such as fraud, wilful misstatement, or suppression of facts. However, the court emphasized that the mere existence of such power does not justify its arbitrary application. The order must demonstrate a reasoned decision-making process, reflecting due application of mind, especially given the significant consequences of retroactive cancellation.

2. Compliance with Procedural Requirements under Section 29 of the CGST Act:
The court examined whether the procedural requirements under Section 29 were adhered to. It was noted that the Show Cause Notice (SCN) issued on 10 July 2023 did not adequately specify the reasons for the proposed cancellation, nor did it provide the petitioner with a fair opportunity to respond. The court highlighted that the SCN must clearly outline the grounds for cancellation and provide the taxpayer an opportunity to be heard, as mandated by the proviso to Section 29(2).

3. Adequacy of Reasons Provided for Cancellation:
The judgment underscored the necessity for the order of cancellation to be reasoned and not merely a mechanical exercise of power. The court referred to previous judgments, such as Ramesh Chander vs Assistant Commissioner of Goods and Services Tax, which established that retrospective cancellation requires objective criteria and cannot be based solely on non-compliance with return filing. The lack of specific and cogent reasons in the cancellation order rendered it unsustainable.

4. Consequences of Retrospective Cancellation on Taxpayers and Their Customers:
The court also considered the broader implications of retrospective cancellation, particularly the denial of input tax credit to the taxpayer's customers for the period during which the registration is deemed cancelled. The judgment emphasized that such consequences must be intended and warranted, requiring careful consideration by the proper officer before invoking retrospective cancellation.

Conclusion:
In light of the authority's failure to provide adequate reasons for the retroactive cancellation, the court quashed the impugned order dated 25 July 2023. The decision was made without prejudice to the respondents' right to initiate fresh proceedings in accordance with the law. The judgment reinforces the principle that the exercise of statutory powers must be accompanied by transparency, fairness, and adherence to procedural safeguards.