The Delhi High Court modified the order cancelling Goods and Service Tax ( GST ) Registration retrospectively without a valid reason. The court observed that a taxpayer’s registration can be cancelled with retrospective effect only where such consequences are intended and warranted.
The Petitioner, Prem Enterprises filed the appeal impugning order of cancellation of registration dated 08.07.2021 whereby the GST registration of the Petitioner was cancelled retrospectively with effect from 10.07.2017 Petitioner also impugns order dated 05.11.2020 and 28.06.2021, whereby the application for cancellation of GST registration was rejected. Petitioner also impugns Show Cause Notice.
Petitioner is a Partnership Firm in the business of Manufacturing and trading Sanitary Goods and was registered under the Goods and Services Tax Act, of 2017. GST registration of the petitioner was cancelled by order dated 08.07.2021 retrospectively with effect from 10.07.2017.
The Petitioner claimed to have shut the business of w.e.f 30.06.2020 and applied for cancellation of GST registration. The Petitioner was called upon by the respondents to furnish certain details by notice, However, as per the Petitioner, a letter dated 16.09.2020 did not require the Petitioner to furnish any details and as such, no details could be furnished.
The Application for cancellation was rejected. Thereafter, the petitioner once again applied for cancellation, in response to which, a notice was received, requiring the petitioner to furnish further details. However, the same was not provided and as such, the application was once again rejected. Petitioner, thereafter, filed an appeal before the Appellate Authority, which appeal has also been dismissed by order.
It may be noticed that the show cause notice dated 29.06.2021 issued to the petitioner does not specify any cogent reason, there is an observation in the notice stating “failure to furnish returns for a continuous period of six months”.
Further, the impugned order of cancellation stated that the registration is liable to be cancelled for the following reason “whereas no reply to notice to show cause has been submitted”. It seeks to cancel the registration with retrospective effect from 10.07.2017. There is no material on record to show why the registration is sought to be cancelled retrospectively.
The Show Cause Notice also does not put the petitioner to notice that the registration is liable to be cancelled retrospectively. Accordingly, the petitioner had no opportunity to even object to the retrospective cancellation of the registration.
In terms of Section 29(2) of the Central Goods and Services Tax Act, 2017, 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 a retrospective date also covering the period when the returns were filed and the taxpayer was compliant.
A division bench of Justice Sanjeev Sachdeva and Justice Ravinder Dudeja observed that the taxpayer’s registration can be cancelled with retrospective effect only where such consequences are intended and warranted. The Court modified the order of cancellation to the extent that the same shall operate with effect from 30.06.2020, i.e., the date on which the petitioner discontinued the business.
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