The Delhi High Court, while disposing of the writ petition, clarified the cancellation of Goods and Services Tax ( GST ) registration cannot be implemented retrospectively solely on the grounds of the taxpayer not filing the GST Returns ( GSTR ) for a certain period.
The petitioner, engaged in manufacturing paint, had ceased operations on 31.01.2019 and applied for registration cancellation on 25.02.2019. The petitioner has contested the order dated 12.09.2020, wherein the GST registration was retrospectively cancelled from 01.07.2017. Despite the application and subsequent cancellation orders dated 21.09.2019 and 19.03.2020, the petitioner received a show cause notice on 01.09.2020 citing non-filing of returns for six months.
The impugned order of 12.09.2020 cancelled the petitioner’s registration retrospectively, prompting legal scrutiny. The court observed that once the registration was cancelled, the obligation to file returns ceased, making the retrospective cancellation on this ground untenable.
The Section 29(2) of the Central Goods and Services Tax Act, 2017 allows retrospective cancellation based on specific circumstances, but it emphasises that the decision must be objective and not merely due to non-filing of returns.
The court highlighted the potential consequences of retrospective cancellation, affecting the input tax credit of the taxpayer’s customers. While refraining from delving into this aspect, the court suggested that the proper officer must consider such consequences before retrospectively cancelling GST registration. Importantly, the show cause notice on 01.09.2020 did not alert the petitioner to the possibility of retrospective cancellation, denying them the opportunity to object.
Considering the above circumstances, the bench of Justice Sanjeev Sachdeva and Justice Ravinder Dudeja modified the cancellation order, specifying that it shall take effect from 25.02.2019—the date of the petitioner’s initial application for registration cancellation. The ruling also clarified that authorities are not precluded from pursuing recovery of taxes, penalties, or interest in accordance with the law.
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