2025 (2) TMI 463 - HC - GST

Cancellation of GST registration with retrospective effect from 13 February 2024 - SCN embodied no intent or disclosure of the respondents contemplating cancellation from a retrospective date - principles of natural justice - HELD THAT - Absence of reasons in the original SCN in support of a proposed retrospective cancellation as well as a failure to place the petitioner on prior notice of such an intent clearly invalidates the impugned action. The writ petition is entitled to succeed on this short ground alone - the writ petition is allowed by modifying the impugned order and providing that the cancellation of the petitioner s GST registration shall come into effect from the date of the SCN i.e. 07 November 2024.

ISSUES PRESENTED and CONSIDERED

The primary issue considered was whether the retrospective cancellation of the petitioner's Goods and Services Tax (GST) registration was valid under the Central Goods and Services Tax Act, 2017. Specifically, the court examined whether the cancellation order complied with the statutory requirements, including the necessity for a reasoned order and prior notice to the petitioner regarding retrospective cancellation.

ISSUE-WISE DETAILED ANALYSIS

1. Legal Framework and Precedents

Section 29 of the Central Goods and Services Tax Act, 2017, provides the framework for the cancellation of GST registration. It allows for cancellation from a retrospective date, but such an action must be justified with clear reasons and due process. The court referenced prior judgments, including Riddhi Siddhi Enterprises vs. Commissioner of Goods and Services Tax and Ramesh Chander vs. Assistant Commissioner of Goods and Services Tax, which established that retrospective cancellation requires a reasoned order and cannot be applied mechanically.

2. Court's Interpretation and Reasoning

The court emphasized that the power to cancel GST registration retrospectively must be exercised with caution and must be accompanied by a reasoned order. The absence of reasons in the Show Cause Notice (SCN) and the cancellation order, as well as the lack of prior notice to the petitioner about the intent to cancel retrospectively, rendered the cancellation invalid. The court highlighted that the retrospective cancellation has significant consequences, such as denying input tax credit to the taxpayer's customers, which necessitates a careful and justified approach.

3. Key Evidence and Findings

The court noted that the SCN dated 7 November 2024 did not disclose any intent to cancel the registration from a retrospective date. Furthermore, the cancellation order did not provide any reasons for the retrospective effect, failing to demonstrate due application of mind. The court found that both the SCN and the cancellation order lacked clarity and were vitiated by the absence of reason.

4. Application of Law to Facts

The court applied the principles established in previous judgments to the facts of the case. It found that the impugned order lacked the necessary reasoning and failed to provide the petitioner with prior notice of the retrospective cancellation, thus violating the statutory requirements under Section 29 of the Act.

5. Treatment of Competing Arguments

The court considered the respondent's argument that the taxpayer's non-compliance with filing returns justified the cancellation. However, it rejected this argument, emphasizing that non-compliance alone does not warrant retrospective cancellation without a reasoned order and prior notice. The court also acknowledged the potential impact on the taxpayer's customers and the need for the proper officer to consider such consequences when deciding on retrospective cancellation.

6. Conclusions

The court concluded that the retrospective cancellation of the petitioner's GST registration was invalid due to the absence of reasons and prior notice in the SCN and cancellation order. It held that the writ petition should succeed on this ground alone.

SIGNIFICANT HOLDINGS

1. Core Principles Established

The court reaffirmed the principle that retrospective cancellation of GST registration requires a reasoned order and prior notice to the taxpayer. The mere existence of the power to cancel retrospectively does not justify its mechanical application.

2. Final Determinations on Each Issue

The court allowed the writ petition, modifying the impugned order to state that the cancellation of the petitioner's GST registration would take effect from the date of the SCN, 7 November 2024, instead of the retrospective date of 13 February 2024. The stipulation for cancellation from the retrospective date was quashed.

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