2024 (2) TMI 136 - HC - GST

Cancellation of GST registration of the Petitioner with retrospective effect - SCN and the Impugned Order do not put the Petitioner to notice that the registration is liable to be cancelled retrospectively - HELD THAT - In terms of Section 29(2) of the Central Goods and Services Tax Act, 2017, the proper officer may cancel the GST registration of a person from such date including any retrospective date, as he may deem fit if the circumstances set out in the said sub-section are satisfied. Registration cannot be cancelled with retrospective effect mechanically. It can be cancelled only if the proper officer deems it fit to do so. Such satisfaction cannot be subjective but must be based on some objective criteria. Merely, because a taxpayer has not filed the returns for some period does not mean that the taxpayer s registration is required to be cancelled with retrospective date also covering the period when the returns were filed and the taxpayer was compliant. 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, it is not considered 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. The order of cancellation is modified to the extent that the same shall operate with effect from 03.02.2023 i.e., date when the GST registration was suspended by show cause notice dated 03.02.2023. Petitioner shall furnish all the requisite returns updated to the date of cancellation of registration. Petition disposed off.

Summary

Issues Involved:
The issues involved in this case are the retrospective cancellation of GST registration and the validity of the show cause notice.

Retrospective Cancellation of GST Registration:
The petitioner challenged the order dated 26.07.2023, which cancelled the GST registration retrospectively from 02.07.2017. The impugned order cited Section 29(2)(c) of the Central Goods and Services Tax Act, 2017 as the reason for cancellation, stating that the petitioner failed to furnish returns for the prescribed periods. The petitioner argued that the show cause notice and the impugned order did not inform them about the retrospective cancellation, depriving them of the opportunity to object. The court emphasized that registration cannot be cancelled with retrospective effect mechanically, requiring the proper officer to base their decision on objective criteria. The court also noted that the consequences of retrospective cancellation, such as denial of input tax credit to customers, must be considered. Consequently, the court modified the cancellation order to operate from 03.02.2023, the date of suspension mentioned in the show cause notice, and directed the petitioner to submit all requisite returns up to the cancellation date.

Validity of Show Cause Notice:
The show cause notice dated 03.02.2023 called upon the petitioner to explain why their registration should not be cancelled due to the failure to furnish returns for a continuous period of six months. Although the notice lacked specific reasons, it required the petitioner to appear before the issuing authority. The petitioner, citing financial hardship and mental depression, was unable to respond to the notice promptly. Subsequently, the petitioner ceased business operations and applied for GST registration cancellation. The court acknowledged the petitioner's circumstances but emphasized that the proper officer must exercise discretion judiciously when cancelling registrations, especially with retrospective effect. The court disposed of the petition, allowing the cancellation to take effect from the date of suspension and permitting the authorities to pursue tax recovery in accordance with the law.