In a recent case of Delhi High Court, it was held that the cancellation of Goods and Services Tax ( GST ) registration with retrospective effect was unreasonable as the impugned order failed to inform specific reasons for cancellation.
The petitioner, Varun Kumar, the legal heir of Naresh Kumar. Naresh Kumar was carrying on business under the sole proprietorship of Dickson Sales. The petitioner’s father was registered with Goods and Services Tax ( GST ) authorities and was assigned with a Goods and Services Tax Identification Number ( GSTIN ) on 05.04.2018.
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The petitioner stated that after the expiry of his father on 07.08.2020 no regular returns were filed from thereon, as none of the legal heirs carried on the business. A Show Cause Notice ( SCN ) was issued on 09.11.2020. It was issued in the name of the petitioner’s father to show cause why the GST registration should not be canceled. SCN wasn’t responded to due the expiry of the petitioner’s father.
The petitioner’s counsel submitted that since none of the legal heirs had examined the GST portal therefore they were unaware of SCN. As no response was recorded the GST registration was canceled with retrospective effect from 05.04.2018.
The petitioner aggrieved from persons whom the petitioner’s father had supplied goods approaching him on account of Input Tax Credit (ITC) being denied to them. Due to the retrospective cancellation of registration.
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The SCN, pursuant to which the impugned order was passed, did not specifically set out any grounds for cancellation of the GST registration with retrospective effect.The impugned order also does not set out any specific reason for the cancellation.
Pursuant to the SCN, impugned order was passed which proposed the cancellation of GST registration of the taxpayer on the ground of non filing of returns for a continuous period of 6 months.
Though Section 29(2) of the Central Goods and Services Tax Act, 2017( CGST Act ) empowers proper officers to cancel the taxpayer’s GST registration with retrospective effect as he deems fit. However, the cancellation of registration with retrospective effect is required to be informed by reason, such an action cant be made arbitrarily.
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The Division Bench of Justice Vibhu Bakhru and Sachin Datta observed that in this case the cancellation of taxpayer’s GST registration for the period during which the GST returns were filed, can’t be warranted.
Considering the facts of the case, the impugned order would be operative from the date on which the petitioner’s father expired, that is from 07.08.2020 and not from 05.04.2018. Thus the impugned order was modified.
However this doesn’t preclude the respondent authorities from initiating any proceedings for recovery of tax due for the period prior to the demise of the petitioner’s father, in accordance with law, the high court stated.
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