“Registration can be cancelled with Retrospective Effect only where such consequences are Intended and are Warranted”: Delhi HC restores GST Registration [Read Order]

A Division Bench of the Delhi High Court has restored the Goods and Services Tax ( GST ) registration of the petitioner cancelled retrospectively, stating that “Registration can be cancelled with Retrospective Effect only where such consequences are Intended and are Warranted.”

Petitioner impugned the order whereby GST registration of the petitioner has been cancelled retrospectively with effect from 02.07.2017 and Show Cause Notice along with order dated whereby the Show Cause Notice dated 23.09.2023, proposing a demand of Rs.3,83,22,698.00 against the Petitioner has been disposed of and a demand including penalty has been raised against the Petitioner under Section 73 of the Central Goods & Services Tax Act, 2017.

Petitioner is a partnership firm and is engaged in the business of manufacturing of plastic chairs, refining of gold, manufacturing and  supply of Gold Bars and possessing GST registration. 

A Show Cause Notice was issued to the petitioner seeking to cancel its registration for the following reason: “Non-compliance of any specified provisions in the GST Act or the Rules made thereunder as may be prescribed”.

Show Cause Notice was issued to the petitioner on 31.01.2023. rThough the notice does not specify any cogent reason, it merely states  “Non-compliance of any specified provisions in the GST Act, or Rules  made thereunder as may be prescribed”.

Further, the said 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.

Thereafter, the impugned order dated 09.02.2023 passed on the Show Cause Notice does not give any reasons for cancellation. It states that the registration is liable to be cancelled for the following reason “Whereas no reply to notice to show cause has been submitted”.

However, the said order in itself is contradictory. The order states “reference to your reply dated 09/02/2023 in response to the notice to show cause dated 31/01/2023” and the reason stated for cancellation is “Whereas no reply to notice to show cause has been submitted”. The order further states that the effective date of cancellation of registration is 02.07.2017 i.e., a retrospective date, the petitioner submitted.

There is no material on record to show as to why the registration is sought to be cancelled retrospectively.

On one hand, it states 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.

Pursuant to the order, the petitioner submitted an application for condonation of delayed reply to order for cancellation of registration along with an application for revocation of order for cancellation of Registration.

The application was also rejected. It was noted that the Show Cause Notice and the impugned order were bereft of any details.

“Accordingly, the same cannot be sustained. Neither the Show Cause Notice, nor the order spell out the reasons for retrospective cancellation”, the bench held.

“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 retrospective date also covering the period when the returns were filed and the taxpayer was compliant”, the bench added.

According to the respondent, one of the consequences for cancelling a tax payer’s registration with retrospective effect is that the taxpayer’s customers are denied the input tax credit availed in respect of the supplies made by the taxpayer during such period.

Thus, a taxpayer's registration can be cancelled with retrospective effect only where such consequences are intended and are warranted.

“It may further be noticed that registration of the petitioner was cancelled retrospectively and even as per the respondent, once the registration is cancelled retrospectively with effect from 02.07.2017, petitioner would not have been able to access the online portal and as such would not have received the Show Cause Notice on 23.09.2023 which led to the passing of the impugned order dated 14.12.2023”, the Delhi High Court Division Bench noted.

It was thus observed that the order rejecting the revocation of cancellation of GST registration and the impugned order could not be sustained and is accordingly set aside. The GST registration of the petitioner is restored, subject to the petitioner filing the returns.

The impugned order was thereby set aside and the Division Bench of Justice Sanjeev Sachdeva and Justice Ravinder Dudeja also directed that, the Proper Officer shall re-adjudicate the Show Cause Notice in accordance with law after giving an opportunity of personal hearing to the petitioner.

To Read the full text of the Order CLICK HERE

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