2024 (3) TMI 333 - HC - GST

Cancellation of GST registration of the petitioner with retrospective effect - SCN does not put the petitioner to notice that the registration is liable to be cancelled retrospectively - Violation of principles of natural justice - HELD THAT - The impugned Show Cause Notice and the impugned order are also bereft of any details and accordingly the same cannot be sustained. Neither the impugned Show Cause Notice, nor the impugned order spell out the reasons for retrospective cancellation. In terms of Section 29(2) of the Act, 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. It is important to note that, according to the respondent, one of the consequences for cancelling a taxpayer 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 taxpayer during such period. Although, it is not considered apposite to examine this aspect but assuming that the respondent s contention in 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. In view of the fact that Petitioner does not seek to carry on business or continue the registration, the impugned order dated 08.08.2023 is modified to the limited extent that registration shall now be treated as cancelled with effect from 29.10.2021 i.e., the date when the Show Cause Notice was issued. Petitioner shall make the necessary compliances as required by Section 29 of the Central Goods and Services Tax Act, 2017. Petition disposed off.

Summary

Issues involved:
The issues involved in the judgment are retrospective cancellation of GST registration, lack of reasons provided for cancellation, and the consequences of retrospective cancellation on input tax credit for customers.

Retrospective Cancellation of GST Registration:
The petitioner challenged the order cancelling their GST registration retrospectively from 03.07.2017, along with a Show Cause Notice issued on 29.10.2021. The petitioner, a proprietorship firm dealing in paper products, argued that they were not given the opportunity to object to the retrospective cancellation as the notice did not mention it. The impugned order also lacked reasons for the cancellation, merely citing non-filing of returns as the basis.

Lack of Reasons for Cancellation:
The court noted that both the Show Cause Notice and the impugned order failed to provide detailed reasons for the retrospective cancellation of the GST registration. It was emphasized that registration cannot be cancelled with retrospective effect mechanically, and the proper officer must have objective criteria for such a decision. Mere non-filing of returns does not automatically warrant retrospective cancellation covering compliant periods.

Consequences of Retrospective Cancellation:
The judgment highlighted the importance of considering the consequences of retrospective cancellation, particularly the denial of input tax credit for customers. While both the petitioner and the department sought cancellation for different reasons, it was noted that such a decision should only be made if the consequences are intended and justified.

Disposition of the Petition:
Considering that the petitioner no longer wished to continue their business activities, the impugned order was modified. The GST registration was now treated as cancelled from the date of the Show Cause Notice, 29.10.2021. The petitioner was directed to comply with the necessary requirements under Section 29 of the Central Goods and Services Tax Act, 2017. The respondents were allowed to take steps for recovery of any due tax, penalty, or interest, including retrospective cancellation, in accordance with the law.