Cancellation of Goods and Services Tax Registrations for non-filing of GST returns within due date has been a haunting issue, causing much undue trouble to both wholesale and retail traders as the availment of Input Tax Credit (ITC) by the trader is no longer possible when a supplier’s GST Registration is cancelled retrospectively.
Recently, in the case of MS SUMIT ENTERPRISES THROUGH ITS PROPRIETOR vs COMMISSIONER OF DELHI GOODS AND SERVICES TAX, the Delhi High Court suspended the retrospective effect of the order Cancellation of Goods and Service Tax ( GST ) registration retrospectively affected the Input Tax Credit ( ITC ) availment of taxpayer’s customers.
In terms of Section 29(2) of the Central Goods and Services Tax Act, 2017, the proper officer has the discretion to cancel the registration from any date, including with retrospective effect; however, the discretion cannot be exercised in an arbitrary manner.
In another recent decision, Pratima Tyagi vs COMMISSIONER OF GST AND ANR 2023 TAXSCAN (HC) 2000, the Delhi High Court observed that the effect of cancellation of GST is from the date of the closure of the business. A Division Bench of Justices Vibhu Bakhru and Amit Mahajan observed that “the impugned order is required to be set aside, however, we do not consider it apposite to do so since the petitioner’s prayer is limited. She prays that her GST registration be cancelled with effect from 11.11.2019 as the petitioner had stopped her business from the said date. In view of the above, we direct that the impugned order cancelling the petitioner’s GST registration would take effect from 11.11.2019 and not from 01.07.2017.”
In accordance with Rule 21 of the CGST Rules, the process for cancelling GST registration under Section 29(2)(c) involves the following steps:
1. The GST authorities will issue a notice (FORM GST REG-31) to the registered person, outlining the grounds for registration cancellation and requesting a response within fifteen days.
2. If the registered person fails to respond within the stipulated time, the GST authorities will issue an order (FORM GST REG-19) within thirty days from the notice’s expiry, officially cancelling the registration.
3. Should the registered person provide a response, the GST authorities will review it and issue an order (FORM GST REG-20) within thirty days, either accepting or rejecting the reply.
4. If the GST authorities accept the reply, they will discontinue the registration cancellation proceedings. If the reply is rejected, an order (FORM GST REG-19) will be issued within thirty days, confirming the registration cancellation.
The cancellation of GST registration can have significant implications for a business, including:
While ordering cancellation of the Goods and Service Tax (GST) registration from February 8, 2021, the Delhi High Court noted that the petitioner was not given the chance by revenue to dispute the cancellation of the GST registration with retroactive effect.
The Delhi High Court directed to decide revocation of cancelled GST Registration as there was discrepancy in input tax credit (ITC) claim due to cancellation of GST registration with retrospective effect.
A Division Bench of Justices Vibhu Bakhru and Amit Mahajan observed that “Discrepancy in the Input Tax Credit claimed by the petitioner was not the ground on which the petitioner’s GST registration was cancelled. The petitioner claims that it is handicapped in responding to the communication dated 04.09.2003, and reconciling the Input Tax Credit Claim for more than three financial years, in absence of full access to its GST Portal. This access is unavailable as the petitioner’s GST registration has been cancelled with retrospective effect.”
The Delhi High Court suspended the retrospective effect of the order Cancellation of Goods and Service Tax ( GST ) registration retrospectively affected the Input Tax Credit ( ITC ) availment of taxpayer’s customers.
While ordering cancellation of the Goods and Service Tax (GST) registration from February 8, 2021, the Delhi High Court noted that the petitioner was not given the chance by revenue to dispute the cancellation of the GST registration with retroactive effect.
The Delhi High Court quashed the order cancelling Goods and Service Tax (GST) registration with retrospective effect. It was noted that a taxpayer’s registration can be cancelled with retrospective effect only where such consequences are intended and are warranted. A division bench of Justice Sanjeev Sachdeva and Justice Ravinder Dudeja observed that a taxpayer’s registration can be cancelled with retrospective effect only where such consequences are intended and warranted. The Court quashed the show cause notice and the impugned orders being bereft of requisite details and reasons.
The Delhi High Court quashed the Retrospective Effect of Cancellation of Goods and Service Tax (GST) registration and directed to effect the cancellation only from the date of the closure of the premises of the assessee.
A division bench comprising Justice Vibhu Bakhru and Justice Tushar Rao Gedela directed that the cancellation of the petitioner’s GST registration shall take effect from 31.03.2022. However, this would not preclude the concerned authorities from instituting any proceeding if it is found that the petitioner has violated any provisions of the Statute or is liable to pay any tax, interest or liability.
The Delhi High court set aside the cancellation of the petitioner’s GST registration and instructed the GST department to amend the registration cancellation order to nullify the arbitrary exercise of retrospective cancellation.
The Division Bench of Justice Amit Mahajan and Justice Vibhu Bakhru thus instructed the GST department to amend the cancellation order bearing retrospective cancellation of GST registration.
In a major ruling a Single Bench of the Calcutta High Court ruled that the cancellation of Goods and Service Tax (GST) Registration with retrospective effect cannot be a ground to deny Input Tax Credit (ITC) from the supplier to the purchaser.
The Court of Justice Krishna Rao observed that “Admittedly at the time of transaction, the name of the supplier as registered taxable person was already available with the Government record and the petitioner has paid the amount of purchased articles as well as tax on the same through bank and not in cash.”
The Delhi High Court set aside the order cancelling the Goods and Service Tax (GST) Registration without stating any reasons.
The division bench comprising Justice Vibhu Bakhru and Justice Amit Mahajan set aside the order dated 10.06.2022 rejecting the petitioner’s application and remanded the matter to the concerned officer to consider afresh.
A Division Bench of the Calcutta High Court (HC) ruled that Input Tax Credit (ITC) cannot be Denied due to Cancellation of GST Registration with retrospective effect.
The Counsel for the respondents/writ petitioners submitted that the reason why the other writ petitions have been segregated and kept pending is on account of the factual situation of those cases and those writ petitions which were disposed of by the impugned order.
The Delhi High Court ordered to cancel of the GST registration only prospectively as the department failed to mention the retrospective effect of cancellation of GST registration in the Show Cause Notice (SCN).
The Constitution and judicial precedents in India demand lawmakers to abide by the principles of intelligible differentia and rational nexus for the purposes of legislation.
The legal dispute in The State of West Bengal v. Anwar Ali Sarkar revolved around questioning the constitutional soundness of the West Bengal Special Courts Act, 1950. This legislation granted the state government the authority to designate specific cases, offenses, or categories of cases/offenses for expeditious trials in special courts.
The Supreme Court ruled that the act contravened Article 14 of the Constitution, which ensures equality before the law and equal protection of the laws. The court argued that the act conferred arbitrary and unguided discretion upon the state government, enabling it to discriminate among individuals accused of the same or similar offenses without a reasonable basis or classification.
The provision to cancel registrations of suppliers, with retrospective effect does not qualify as a valid one, as it violates the twin conditions.
Intelligible differentia and rational nexus are legal principles related to equality and non-discrimination.
Intelligible differentia refers to the need for a clear and rational distinction between different groups or categories of people. It means a difference capable of being understood. Here, the intelligible differentia is satisfied as there is a clear legal distinction between
Rational nexus refers to the connection between the basis of classification and the object intended to be achieved.
Here, the cancellation of registration, with retrospective effect, is at best in line with the first condition, but in violation of the second as the cancellation of registration will only make the trader/gst taxpayer unable to avail the benefits of GST such as input tax credit and will not be able to file further returns.
If the object intended to be achieved is to refrain the stakeholders from filing returns belatedly, then the retrospective cancellation of the registration will only render them from filing any further returns. This itself defeats the purpose or the legislative intent of the act, and courts have time and again held that the registrations, if any, are to be cancelled with retrospective effect only when there are specific reasons for the same such as fraudulent issue of bills.
In M/s. Gargo Traders vs The Joint Commissioner, the Delhi High Court had held that, the cancellation of Goods and Service Tax (GST) Registration with retrospective effect cannot be a ground to deny Input Tax Credit (ITC) from the supplier to the purchaser.
Update: In the January 12, 2024 decision of the Delhi High Court in RAJNI GUPTA PROPRIETOR OF GUPTA SALES CORPORATION Vs PRINCIPAL COMMISSIONER STATE GST AND ANR, has clarified again that “a taxpayer’s registration can be cancelled with retrospective effect only where such consequences are intended and are warranted.”
Thus, being violative of the provisions of the parent act, being the Goods and Services Tax Act, and hindering the ability of the citizen taxpayers to avail input tax credit, a conditional right, even after satisfaction of all conditions, for the mere cancellation of the GST registration of the supplier, which the trader or retail dealer is not at fault for, is arguably unconstitutional and ultra vires.
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