The Delhi High Court has ruled that 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.
Justice Sanjeev Sachdeva and Justice Ravinder Dudeja stated that “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.”
The petitioner, proprietor of Polytec Industries engaged in the manufacturing and trading of plastic products, contested the retrospective cancellation of their registration with effect from 01.07.2017.
The petitioner’s appeal, dismissed earlier solely on grounds of limitation, highlighted multiple legal issues. The legal battle revolved around the rejection of the application for cancellation of GST registration on 05.06.2020, a subsequent Show Cause Notice ( SCN )dated 01.09.2020, and the final cancellation order issued on 12.09.2020.
The SCN cited the petitioner’s failure to furnish returns for a continuous period of six months, leading to the proposed cancellation. The petitioner argued that they had shifted their business to Bhiwadi and duly applied for registration cancellation on the grounds of discontinuing business from 01.02.2019. However, the rejection of the cancellation application on 05.06.2020 and the subsequent retrospective cancellation order raised serious concerns.
The High Court noted that the petitioner was not adequately informed about the prospective retrospective cancellation in the Show Cause Notice. It was also highlighted that the order lacked sufficient material to justify the retrospective cancellation and emphasised the importance of considering consequences, especially impacting the input tax credit availed by the taxpayer’s customers.
Under Section 29(2) of the Central Goods and Services Tax Act, 2017, the person in charge can cancel someone’s GST registration. They have the authority to pick any date, even one from the past, if the conditions mentioned in the rule are fulfilled. However, it should not be cancelled in retrospective effect mechanically.
In light of these considerations, the court modified the cancellation order, determining that it shall operate with effect from 01.02.2019, aligning with the date of the petitioner’s business discontinuation. The petitioner was directed to furnish necessary details for a comprehensive assessment by the respondents, who are not precluded from taking lawful steps for tax, penalty, or interest recovery.
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