2024 (7) TMI 531 - HC - GST

Cancellation of GST registration with retrospective effect - non-filing of returns for a continuous period of six months - no reason given for cancellation - violation of principles of natural justice - HELD THAT - Since the reasons for which the petitioner s GST registration is cancelled viz. non filing of returns for a period of six months, is not disputed, the decision to cancel the petitioner s registration cannot be faulted. In the present case, the impugned SCN does not set out any reason proposing to cancel the petitioner s GST registration with retrospective effect. The impugned order also does not indicate any reason as to why the proper officer has decided to cancel the petitioner s GST registration from the date on which the CGST Act came into force. It is material to note that the only ground on which petitioner s GST registration was proposed to be cancelled was that it has not filed its return for more than six months - there are no reason which would warrant cancellation of the petitioner s GST registration even for the period it had furnished its returns. Clearly, non-filing of returns for a period of six months or more cannot, absent any other consideration warranting cancellation of registration to cover the period during which the taxpayer had duly complied with the provisions of the CGST Act, cannot constitute a reason to cancel the same with retrospective period to cover the period for which GST returns were duly filed. It is considered apposite to confine the operation of the impugned order to cancellation of the petitioner s GST registration albeit from the date of the impugned order - application disposed off.

Summary

Issues involved:
1. Cancellation of GST registration with retrospective effect.
2. Proper exercise of power to cancel registration with retrospective effect.
3. Adverse ramifications of retrospective cancellation on taxpayers and purchasers.

Detailed Analysis:
1. The petitioner sought to set aside a Show Cause Notice (SCN) and an order issued by respondent authorities regarding the cancellation of their GST registration due to non-filing of returns for six months. The petitioner did not respond to the SCN, leading to the cancellation of their registration. The petitioner was not contesting the cancellation itself but was concerned about the retrospective effect from 01.07.2017, especially since no tax liability was determined for that period.

2. The authorities relied on Section 29(2) of the Central Goods and Services Tax Act, 2017, which allows for cancellation of registration for various reasons, including non-filing of returns for six months. However, the judges emphasized that the power to cancel registration with retrospective effect must be exercised judiciously and not arbitrarily. The impugned order lacked a rational basis for the retrospective cancellation, as no specific reasons were provided for such action.

3. The judges highlighted the adverse consequences of retrospective cancellation on both the taxpayer and those transacting with them, potentially affecting Input Tax Credit (ITC) for purchasers. While the legal implications of depriving bona fide purchasers of ITC were not fully explored in this case, the judges stressed the importance of considering such ramifications before retroactively cancelling a taxpayer's registration. They directed that the cancellation of the petitioner's GST registration should only be effective from the date of the impugned order, limiting the retrospective impact.

4. The judgment concluded by preserving the rights of all parties involved, allowing for future proceedings if necessary, and clarifying that the petitioner could request cancellation of their registration from the date they ceased business activities. The decision aimed to balance the interests of the taxpayer, the authorities, and other parties affected by the cancellation of GST registration, emphasizing the need for a fair and reasoned approach in such matters.