2024 (10) TMI 1307 - HC - GST

Retrospective cancellation of GST registration - adequate reasons provided for cancellation or not - violation of principles of natural justice - HELD THAT - The decision rendered recently in Riddhi Siddhi Enterprises vs. Commissioner of Goods and Services Tax (CGST), South Delhi Anr. 2024 (10) TMI 278 - DELHI HIGH COURT is perused, where, while construing the provisions of Section 29 (2) and the power of the respondent to cancel with retrospective effect, it is held ' in light of an abject failure on the part of the authority to assign even rudimentary reasons for a retroactive cancellation, we find ourselves unable to sustain the order impugned.' It is additionally found that even the original show cause notice had not placed the respondent on notice of an intention to cancel the registration with retrospective effect. The impugned order of 27 September 2022 is quashed to the extent that it purports to take effect from 12 November 2019. The cancellation shall consequently come into effect from 09 September 2022 i.e. the date when the show cause notice had been issued - petition allowed.

Summary

Issues Involved:

1. Legality of the retrospective cancellation of GST registration.
2. Adequacy of reasons provided for cancellation.
3. Compliance with procedural requirements in issuing a show cause notice.

Issue-wise Detailed Analysis:

1. Legality of the Retrospective Cancellation of GST Registration:

The primary issue revolves around the legality of canceling the petitioner's GST registration with retrospective effect. The petitioner contested the cancellation order dated 27 September 2022, which took effect retroactively from 12 November 2019. The court scrutinized the provisions of Section 29(2) of the Central Goods and Services Tax Act, 2017, which permits cancellation from a retrospective date if circumstances warrant and reasons are duly assigned. The judgment referenced the court's previous decision in *Riddhi Siddhi Enterprises vs. Commissioner of Goods and Services Tax (CGST), South Delhi & Anr.*, emphasizing that retrospective cancellation must be reasoned and cannot be applied mechanically. The court concluded that the impugned order lacked the necessary reasoning to justify a retroactive effect, rendering it unsustainable.

2. Adequacy of Reasons Provided for Cancellation:

The court examined whether the reasons for cancellation were adequately articulated in the show cause notice and the final order. The petitioner argued that the cancellation order lacked specific reasons for its retrospective application. The judgment highlighted the necessity for the order under Section 29(2) to reflect the reasons that influenced the decision to cancel registration retroactively. The court found that neither the show cause notice nor the cancellation order provided sufficient reasons, thus failing to meet the statutory requirements. The absence of clear reasoning was deemed a fundamental flaw, leading to the quashing of the retrospective aspect of the cancellation.

3. Compliance with Procedural Requirements in Issuing a Show Cause Notice:

The procedural adequacy of the show cause notice was another critical issue. The petitioner contended that the notice did not specify the intention to cancel the registration with retrospective effect, depriving them of the opportunity to contest this aspect. The judgment noted that the original show cause notice failed to notify the petitioner of any intention for retrospective cancellation, which is a procedural lapse. The court underscored that procedural compliance is essential, and any deviation could vitiate the proceedings. Consequently, the court found the final order of cancellation procedurally deficient and unsustainable.

Conclusion:

The writ petition was allowed, and the impugned order dated 27 September 2022 was quashed to the extent that it purported to take effect from 12 November 2019. The court ordered that the cancellation should instead come into effect from 09 September 2022, the date when the show cause notice was issued. This decision was made without prejudice to the respondent's right to initiate other lawful proceedings. The judgment reinforces the necessity for clear, reasoned, and procedurally compliant orders, particularly when exercising powers with significant consequences such as retrospective cancellation of GST registration.