In a recent decision, the Delhi High Court held that the denial of input tax credit (ITC) to customers is consequence of retrospective cancellation of GST registration.
The Petitioner impugned the order whereby the appeal of the Petitioner has been dismissed solely on the ground that the same is barred by limitation. Petitioner also impugns order dated 04.05.2023 whereby the GST registration of the petitioner was cancelled retrospectively with effect from 01.07.2017 and also impugned the Show Cause Notice dated 18.08.2021.
Said Show Cause Notice dated 18.08.2021 was issued to the petitioner seeking to cancel its registration. Though the notice does not specify any cogent reason, it merely states “Any Taxpayer other than composition taxpayer has not filed returns for a continuous period of six months”. The Show Cause Notice required the petitioner to appear before the undersigned i.e., authority issuing the notice. However, the said notice does not bear the date and time whereby the Petitioner was required to appear for personal hearing.
The counsel for Petitioner submitted that Petitioner is no longer continuing business and the business activities of the Petitioner have been closed down and that the petitioner has filed all returns till August 2021.
In terms of Section 29(2) of the GST 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.
A Division Bench of Sanjeev Sachdeva and Ravinder Dudeja observed that “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 tax payer during such period. Although, we do not consider it apposite to examine this aspect but assuming that the respondent’s contention is 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.”
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