2025 (3) TMI 1019 - HC - GST

Principles of natural justice - Cancellation of GST registration with retrospective effect from 23 October 2020 - whether the SCN and the subsequent order provided adequate reasons for such retrospective cancellation and whether the petitioner was given sufficient notice and opportunity to respond to the proposed action? - HELD THAT - Section 29 of the Central Goods and Services Tax Act 2017 Act confers upon the respondents to cancel registration from a retrospective date in Riddhi Siddhi Enterprises vs. Commissioner of Goods and Services Tax (CGST) South Delhi Anr. 2024 (10) TMI 278 - DELHI HIGH COURT held that 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. 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. Thus it becomes apparent 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. Conclusion - Retrospective cancellation of GST registration requires a reasoned order and prior notice to the affected party. The mere existence of the power to cancel registration retrospectively does not justify its use without clear and objective reasons. 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. 25 October 2021.

1. ISSUES PRESENTED and CONSIDERED

The primary issue considered by the Court was the validity of the retrospective cancellation of the petitioner's Goods and Services Tax (GST) registration. Specifically, the Court examined whether the order for cancellation, which was effective from a date prior to the issuance of the Show Cause Notice (SCN), was legally sustainable under the provisions of the Central Goods and Services Tax Act, 2017 (the Act). Additionally, the Court considered whether the SCN and the subsequent order provided adequate reasons for such retrospective cancellation and whether the petitioner was given sufficient notice and opportunity to respond to the proposed action.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents:

The legal framework governing the cancellation of GST registration is outlined in Section 29 of the Central Goods and Services Tax Act, 2017. This section allows the proper officer to cancel the registration of a person from such date, including any retrospective date, as deemed fit if the circumstances set out in the sub-section are satisfied. The Court referred to previous judgments, including Riddhi Siddhi Enterprises vs. Commissioner of Goods and Services Tax and Ramesh Chander vs. Assistant Commissioner of Goods and Services Tax, to emphasize the necessity of providing reasons for retrospective cancellation and ensuring that such power is not exercised mechanically.

Court's interpretation and reasoning:

The Court interpreted Section 29 as requiring a reasoned order for the cancellation of GST registration, especially when such cancellation is to be applied retrospectively. The Court emphasized that the power to cancel registration retrospectively should not be exercised routinely and must be accompanied by clear reasons demonstrating due application of mind. The absence of such reasons invalidates the order of cancellation.

Key evidence and findings:

The Court found that the SCN issued to the petitioner did not specify any intent to cancel the registration retrospectively. Furthermore, the order of cancellation failed to provide any reasons for choosing a retrospective date for cancellation. The Court noted that such omissions rendered the SCN and the cancellation order deficient and legally unsustainable.

Application of law to facts:

Applying the principles from Section 29 and relevant precedents, the Court found that the retrospective cancellation of the petitioner's GST registration was not justified. The lack of reasons in the SCN and the cancellation order, coupled with the failure to notify the petitioner of the retrospective intent, led the Court to conclude that the cancellation was invalid.

Treatment of competing arguments:

The Court considered the respondents' argument that the power to cancel registration retrospectively exists under the Act. However, it rejected the notion that such power could be exercised without providing adequate reasons and notice. The Court underscored that the exercise of such power must be objective and not merely based on the existence of non-compliance like failure to file returns.

Conclusions:

The Court concluded that the retrospective cancellation of the petitioner's GST registration was invalid due to the lack of reasons and notice in the SCN. The Court held that the petitioner was entitled to succeed on this ground alone.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning:

The Court reiterated that "the power to cancel retrospectively can neither be robotic nor routinely applied unless circumstances so warrant." It emphasized the necessity for orders under Section 29(2) to reflect the reasons for retrospective cancellation, given the serious consequences of such actions.

Core principles established:

The Court established that retrospective cancellation of GST registration requires a reasoned order and prior notice to the affected party. The mere existence of the power to cancel registration retrospectively does not justify its use without clear and objective reasons.

Final determinations on each issue:

The Court allowed the writ petition, modifying the impugned order to ensure that the cancellation of the petitioner's GST registration would take effect from the date of the SCN, i.e., 25 October 2021, rather than the retrospective date of 23 October 2020. The stipulation of the retrospective date in the impugned order was quashed.

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