“Registration cannot be canceled with retrospective effect mechanically. It can be canceled only if the proper officer deems it fit to do so. Such satisfaction cannot be subjective but must be based on some objective criteria. – Observed Justices Sanjeev Sachdeva and Ravinder Dudeja.
In a significant ruling, the Delhi High Court directed the Goods and Services Tax ( GST ) Department to cancel the GST registration with effect from the date of issuance of the Show Cause Notice ( SCN ) and not retrospectively w.ef. 1st July 2017.
The Petitioner, Delhi Polymers, was engaged in the business of Sanitary ware Products & Accessories i.e., Baths, Shower, Washbasins, Seats and Cover etc. and possessed GST registration, filed an appeal challenging the order of registration cancellation dated 15.12.2021, whereby the GST registration was retrospectively cancelled from 01.07.2017. The Petitioner also contested the SCN dated 04.09.2021.
The Show Cause Notice issued to the Petitioner on 04.09.2021 sought to cancel its registration. However, it failed to notify the Petitioner of the possibility of retrospective cancellation, depriving them of the opportunity to object to it.
Mr. Arif Ahmadkhan, Mr. Manoj Aswathy, Mr. Luv Mahajan and Mr. Afroz Ahmad Khan, representing for the Petitioner submitted that the said order reflected that the GST registration of petitioner stands canceled from 01.07.2017 despite the submission of returns thereafter. They also mentioned that the Petitioner is no longer interested in maintaining the business, which has since been discontinued. According to Section 29(2) of the Central GST Act, 2017, the registration may be cancelled retrospectively by the proper officer under certain circumstances. However, this decision must be based on objective criteria and not solely on the grounds of non-filing of returns.
The Delhi High Court osberved that “Merely, because a taxpayer has not filed the returns for some period does not mean that the taxpayer’s registration was required to be canceled with a retrospective date also covering the period when the returns were filed and the taxpayer was compliant.”
On Contrary, Mr. Rajeev Aggarwal, representing the respondent sideargued that one of the consequences for canceling 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.
The bench mentioned that while it may not be suitable to delve into this matter, assuming that the respondent’s argument is necessary to consider when making any decision regarding the retroactive cancellation of GST registration. Therefore, the cancellation of a taxpayer’s registration with retrospective effect should only occur if such consequences are deliberate and justified.
Both the Petitioner and the department seek registration cancellation, albeit for different reasons. Considering the Petitioner’s disinterest in business continuation, the High Court modified the order to cancel the registration from 04.09.2021, the date of the Show Cause Notice. However, the Respondents retain the right to pursue recovery of any outstanding tax, penalty, or interest as per the law.
Consequently, the appeal was disposed accordingly.
It was clarified that Respondents are also not precluded from taking any steps for recovery of any tax, penalty or interest that may be due in respect of the subject firm in accordance with law. Consequently, Petition was accordingly disposed of.
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