CANCELLATION OF GST REGISTRATION - SOME ISSUES

[Mr. M. GOVINDARAJAN]

Introduction

The registration granted under GST can be cancelled for specified reasons.  The cancellation can be done either by the department on its own motion or the registered person can apply to the department for cancellation of the registration.  In case the revocation of registration there is a provision for revocation of the same.  On cancellation of the registration the tax payer has to file Form GSTR 10.  The cancellation of registration by the department may be due to various reasons.  In this article some of the reasons for cancellation are discussed with reference to decided case laws.

Error committed by Accountant

In E. DHARMARAJ VERSUS THE ASSISTANT COMMISSIONER OF STATE TAX, AMBATTUR CIRCLE, CHENNAI - 2023 (11) TMI 875 - MADRAS HIGH COURT, the assessee’s accountant without the instructions of the assessee filed NIL returns for GSTR - 1 and GSTR-3B continuously instead of showing actual outward supplies.  The GST Authority cancelled the registration of the petitioner.  The petitioner accepted the cancellation and filed Form GSTR - 10.  No invoice shall be raised after filing Form GSTR 10.  The GST registration was revoked and the assessee was not aware of that.  The assessee raised invoices to the tune of Rs 25.03 lakhs.  The said payment was kept on hold by the client for want of GSTIN.  The High Court held that the petitioner had only made genuine transactions and error had been committed by the Accountant who had filed GSTR 10 return after knowing the cancellation of the registration.  The High Court set aside the impugned cancellation order and restored the GSTIN.

Show cause notice after cancellation

In M/S. SAMAYSHRISTI ENTERPRISES VERSUS SUPERINTENDENT, RANGE - 31, GST DIVISION, NEW DELHI - 2023 (11) TMI 550 - DELHI HIGH COURT, the petitioner’s GST registration was cancelled with effect from 20.03.2021, i.e., the date of registration.  The petitioner filed appeal before the First Appellate Authority against such order.  The petitioner’s appeal was allowed and the registration was restored.  Subsequently the Department issued show cause notice to the petitioner canceling the registration.  The petitioner filed the present writ petition before the High Court.  The High Court held that once the petitioner’s GST Registration was restored, which was cancelled on an allegation that it was obtained by fraud, misstatement or suppression of facts, it was not open to the Department to again cancel petitioner’s GST registration for same reason unless it is premised on the ground that had occurred after the petitioner’s GST registration was cancelled.  The High Court allowed the petition setting aside the impugned order.  The High Court further directed the department to restore the GST registration of the petitioner.

Non furnishing of returns

In BALAJEE PLASTOMERS PRIVATE LIMITED VERSUS COMMISSIONER OF DELHI GST & ANR. - 2023 (11) TMI 551 - DELHI HIGH COURT, the Department issued show cause notice to the petitioner with the proposal to cancel the registration of the petitioner on the ground that the petitioner did not furnish return for a period of 6 months. The show cause notice did not propose cancellation of GST registration with retrospective effect.   The High Court observed that the show cause notice did not set out the date for personal hearing although the petitioner was asked to appear for the personal hearing.  The show case notice did not set out any reason for cancellation of the registration of the petitioner except that the petitioner did not file any reply to the show cause notice.  The impugned order also did not set out any reason for cancelling the petitioner’s registration except stating that the petitioner did not file reply to the show cause notice.  The High Court held that the non furnishing of return could not be a ground for cancellation of registration ab initio from the date it was granted.  If the petitioner filed its returns during relevant period when it was functioning, there would be no reason to cancel GST returns had not been filed subsequently.  The High Court directed that the cancellation of the petitioner’s GST registration shall effect from 28.11.2019 (from which returns are not filed) and not from 01.07.2017 when GST was introduced.

Input tax fraud

In INFINITY INFOMATIC PRIVATE LIMITED VERSUS THE COMMISSIONER OF DELHI GOODS AND SERVICE TAX AND ANR. - 2023 (10) TMI 480 - DELHI HIGH COURT, the Department issued show cause notices to the petitioner proposing cancellation of assessee’s GST registration on the ground that the assessee had issued invoices without supplying goods or services leading to wrongful availment of input tax credit or tax refunds.  The High Court observed that no particulars as to offending invoices were mentioned.  The show cause notice also did not mention quantum of wrongful availment of input tax credit or any refund claimed on the said account.  The assessee did not file reply to the show cause notice.  Therefore the Department cancelled the GST registration of the petitioner effective from 01.07.2017.  The High Court held that since the assessee closed its business from March 2021 the impugned order cancelling the registration would take effect from April 2021 for the reason that the show cause notice did not mention that the assessee’s registration would be cancelled with retrospective effect and thus the assessee did not have any opportunity to object the same.  The High Court also directed the department that in the event, the department proposed to take any action for cancellation of registration with retrospective effect, it would be open for the Department to do so.  The Department would require issuing a proper show cause notice and taking an appropriate action affording the petitioner a reasonable opportunity to be heard.

Cross examination of witness

In M/S. STEEL INDIA VERSUS THE STATE TAX OFFICER, STATE OF KERALA - 2023 (10) TMI 932 - KERALA HIGH COURT, the Department issued a show cause notice to the petitioner for cancellation of its registration on the ground that it was not conducting business from its declared place of business.  The petitioner filed reply to the show cause notice stating that the business premises were temporarily closed.  However the Department cancelled the registration.  The petitioner contended before the High Court that the petitioner was denied opportunity to cross examine landlord whose statement was relied upon by the Department.  This is in violation of principles of Natural Justice.  The High Court observed that the petitioner did not file any document for change of its business place nor he supported his claim that he was running business from given address by producing any documentary or oral evidence.  The High Court held that the petitioner was not entitled to cross examination as enquiry conducted by the Department was not a trial but was just a summary proceeding.  There was no infraction of principles of Natural Justice in this case.  The action taken by the Department was not arbitrary as reasonable opportunity was given.  The High Court directed that the petitioner may file appeal against cancellation of registration.

Fraud

In MR. SANAL P VERSUS UNION OF INDIA & ANR. - 2023 (10) TMI 415 - DELHI HIGH COURT, the Department issued a show cause notice to the petitioner proposing for the cancellation of its GST registration.  The main allegation in the show cause notice is that the registration was obtained by means of fraud, willful misstatement or suppression of facts.  The assessee filed reply to the show cause notice.  The petitioner contended that investigation was conducted against the petitioner long back.  No adverse order was passed on the result of investigation.  The cancellation has been done on the letter received from Anti Evasion branch and for reasons that No objection certificate was received from the said branch.  The High Court found that no such allegation was found in the show cause notice.  The show cause notice also did not contain the reason for cancellation i.e., letter of anti evasion branch.  The High Court held that the Authority must apply its own mind and act on dictate of other authority.  The order of cancellation is based on reasons which do not form part of show cause notice.  The cancellation of registration was void as it violated the principles of Natural justice.

In MAKERSBURRY INDIA PVT. LTD. VERSUS STATE OF MAHARASHTRA, THE DEPUTY COMMISSIONER OF STATE TAX, APPELLATE AUTHORITY, MUMBAI, THE STATE TAX OFFICER NODAL – 5, MUMBAI - 2023 (10) TMI 792 - BOMBAY HIGH COURT, the High Court observed that in the present case the show cause notice was issued by the Department to the petitioner.  The show cause notice was a vague one issued without setting out any reasons or grounds to show that the registration was obtained by means of fraud, willful misstatement or suppression of facts.  The order of cancelling registration was inherently defective.  The order did not contain on any documents presented by the assessee.  The Appellate Authority also considered the documents submitted by the petitioner.  The High Court set aside the impugned order.

Private dispute

In M/S. ARVIND BROTHERS THR. PARTNER KISHORE AMRUTLAL HARSORA VERSUS THE ADDL. / JOINT COMMISSIONER & ORS. - 2023 (10) TMI 476 - BOMBAY HIGH COURT, the petitioner has a private dispute with the respondent no. 3 which was in respect of petitioner’s premises let out to the said respondent.  The petitioner filed  a civil suit against him but the respondent filed an application for rejection of plaint.  In the meanwhile the petitioner approached GST authorities for cancellation of GST registration of respondent No. 3 on the ground that it had no legal right to occupy petitioner’s premises and use it for GST registration.  The High Court held that the writ petition involved disputed questions of fact regarding rights between the petitioner and respondent No. 3.  Such disputes could not be resolved in a writ petition.  The High Court directed the petitioner to make a detailed representation to the concerned authorities regarding issues in question. The proper officer shall dispose the representation within four weeks from the date of representation from the petitioner.

Two registrations in same premises

In SAKTHI STEEL INDUSTRIES INDIA PVT. LTD. VERSUS THE APPELLATE ADDITIONAL COMMISSIONER, THE ASST COMMISSIONER (ST) , THE UNION OF INDIA - 2023 (10) TMI 1292 - ANDHRA PRADESH HIGH COURT, the petitioner obtained GST registration in Andhra Pradesh to maintain proper supply chain and operational efficiency.  The Department issued a show cause notice to the petitioner on the ground that the registration was obtained by means of fraud willful statement or suppression of facts.  The Department alleged that the parent company and assessee company were doing business in the same premises which was not permissible and the registered business was not genuine.   The Department cancelled the registration of the petitioner.  The petitioner filed the present writ petition before the High Court.  The High Court observed that the show cause notice issued by the Department was value and dubious and did not provide sufficient details regarding alleged fraud, willful misstatement or suppression of facts.  Therefore the show cause notice has violated the principles of Natural Justice.  The High Court further observed that the GST Authorities had not verified records to know whether the petitioner was involved in issuing and obtaining fake invoices and doing the fake business to avoid tax.  Mere fact that the tax payers and its parent company had obtained registrations in the same premises was not sufficient to conclude that the tax payer has obtained registration by committing fraud or willful mis-statement or suppression of facts.  The High Court set aside the impugned order and directed the Department to restore registration.

Conclusion

On perusal of the above case laws it can be inferred that the show cause notices are issued and adjudicated without following due procedure of law and violating the principles of Natural Justice and further the show cause notices do not contain the substance of allegations,  It is hoped that in future the Department will adopt mandated approach to law.