GST Registration cannot be Cancelled without mentioning reason: Delhi HC restores GST Registration [Read Order]

The Delhi High Court restored the Goods and Service Tax ( GST ) registration of the petitioner. The registration GST cannot be cancelled without mentioning the reason.

Em Power Engineering Private Limited, the Petitioner challenged the order, whereby the GST registration of the petitioner has been cancelled retrospectively with effect from 01.07.2017.  Petitioner also impugned the Show Cause Notice, the Show Cause Notice petitioner was called upon to show cause as to why the registration be not cancelled for the following reasons, “Any Taxpayer other than composition taxpayer has not filed returns for a continuous period of six months”.

The Petitioner is a Private Limited Company and has been engaged in business since 2014. Said company had been registered under the Delhi Value Added Tax ( DVAT ) Act and after that possessed Goods Service Tax ( GST ) registration. 

Show cause notice was issued to the petitioner seeking cancellation of GST registration. The notice does not specify any cogent reason, and merely states “not filed returns for a continuous period of six months.”

Further, the impugned order passed on the show cause notice does not give any reason for cancellation. It, however, stated that the registration is liable to be cancelled for the following reason “whereas no reply to the show cause notice has been submitted.” Said order in itself is contradictory.

The order stated “a reference to your reply dated 19.03.2021 in response to the notice to show cause dated 11.02.2021” and the reason stated for the cancellation is “whereas no reply to notice show cause has been submitted & whereas on the day fixed for hearing you did not appear”. The order further stated that the effective date of cancellation of registration is 01.07.2017 i.e., a retrospective date. 

Neither the show cause notice nor the order spells out the reasons for retrospective cancellation. An order does not qualify as an order of cancellation of registration. On one hand, it stated that the registration is liable to be cancelled and on the other, in the column at the bottom there are no dues stated to be due against the petitioner and the table shows nil demand.

Counsel for the petitioner submitted that the respondents had earlier issued a show cause notice for cancellation, however since the returns were filed in September 2019 the registration was not cancelled. He further submitted that another show cause dated 11.02.2021 was issued by which the registration was sought to be cancelled. 

He further submitted that the petitioner had duly provided details of filing of returns till January 2020, however, the petitioner company was unaware of the fact that the accountant of the company had filed returns only till September 2019. 

He further submitted that the petitioner company suffered major setbacks, due to which the entire management of the petitioner company was in a state of turmoil, and during March 2020 i.e., during the COVID-19 pandemic period petitioner was not able to make compliance in respect to GST returns. 

Counsel submitted that since the Login credentials were not available with the petitioner company they were unable to access and login to the said GST portal. 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 a retrospective date also covering the period when the returns were filed, and the taxpayer was compliant. 

A division bench comprising Justice Sanjeev Sachdeva and Justice Ravinder Dudeja considers it apposite to examine this aspect 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.  

The Court set aside the impugned show cause notice and order of cancellation. The GST registration of the petitioner is restored. The petitioner shall comply with Rule 23 of Central Goods and Service Tax Rules, 2017. Petitioner shall file all requisite returns and pay the tax, if any, within 30 days from today.

To Read the full text of the Order CLICK HERE

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EM POWER ENGINEERING PRIVATE LIMITED vs CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS & ORS. , 2024 TAXSCAN (HC) 440 , Nishant Mittal, Laksh Yadav , Sonu Bhatnagar, Nishtha Mittal, Apurva Singh