Court modifies GST cancellation order, allows cancellation from show cause notice date.

Case Name:

W.P.(C) 3533/2024 & CM APPL. 14392/2024 - Manish Anand (Prop. M/S Everyday) vs. Avato Ward-45 State Goods and Services Tax & Ors.(High Court of Delhi)

Key Takeaways:

1. GST registration cannot be cancelled retrospectively without proper justification and consideration of consequences.

2. Show cause notices and cancellation orders must provide cogent reasons and details.

3. The court balanced the interests of both parties by modifying the cancellation date while allowing further proceedings for recovery of dues.

Issue:

Whether the retrospective cancellation of the petitioner's GST registration by the respondent authorities through the order dated 15.12.2022 was valid and justified.

Facts:

The petitioner's GST registration was cancelled retrospectively from 01.07.2017 through an order dated 15.12.2022, pursuant to a show cause notice dated 02.12.2021. The show cause notice cited the petitioner's failure to furnish returns for six months but did not mention retrospective cancellation. The cancellation order contradicted itself by referring to the petitioner's reply while also stating no reply was submitted. The order lacked reasons for retrospective cancellation and showed nil demand against the petitioner. The petitioner intended to discontinue business and shift activities abroad.

Arguments:

1. Petitioner's Argument: The show cause notice and cancellation order lacked details and reasons for retrospective cancellation, and the petitioner was not given an opportunity to object.

2. Respondent's Argument: Not explicitly mentioned in the provided details.

Key Legal Precedents:

The court cited Section 29(2) of the Central Goods and Services Tax Act, 2017, which allows cancellation of GST registration, including retrospectively, if certain circumstances are satisfied. However, the court emphasized that retrospective cancellation cannot be done mechanically and must be based on objective criteria, considering the consequences for the taxpayer's customers regarding input tax credit claims.

Judgement:

The court modified the cancellation order dated 15.12.2022, allowing the petitioner's GST registration to be cancelled from 02.12.2021, the date of the show cause notice. The petitioner was directed to make necessary compliances under Section 29 of the Central Goods and Services Tax Act, 2017. The court clarified that the authorities were not precluded from taking steps for recovery of any tax, penalty, or interest due from the petitioner, including retrospective cancellation of the GST registration, in accordance with the law.

FAQs:

Q1: What was the main issue in this case?

A1: The main issue was the validity of the retrospective cancellation of the petitioner's GST registration through the order dated 15.12.2022, allegedly due to failure to furnish returns.

Q2: Why did the court modify the cancellation order?

A2: The court modified the order because the show cause notice and cancellation order lacked details and reasons for retrospective cancellation, and the petitioner was not given an opportunity to object.

Q3: Can the authorities still take action against the petitioner for recovery of dues?

A3: Yes, the court clarified that the authorities were not precluded from taking steps for recovery of any tax, penalty, or interest due from the petitioner, including retrospective cancellation of the GST registration, in accordance with the law.

Q4: What legal principle did the court emphasize regarding retrospective cancellation of GST registration?

A4: The court emphasized that retrospective cancellation cannot be done mechanically and must be based on objective criteria, considering the consequences for the taxpayer's customers regarding input tax credit claims.

Q5: What was the final outcome of the case?

A5: The court disposed of the petition by modifying the cancellation order to take effect from the date of the show cause notice (02.12.2021), while allowing the authorities to initiate proceedings for recovery of dues and retrospective cancellation, if warranted, in accordance with the law.

1. Petitioner impugns order dated 15.12.2022, whereby the GST registration of the petitioner has been cancelled retrospectively with effect from 01.07.2017. Petitioner also impugns Show Cause Notice dated 02.12.2021.

2. Vide Show Cause Notice dated 02.12.2021, petitioner was called upon to show cause as to why the registration be not cancelled for the following reason: -

“returns furnished by you under section 39 of the Central Goods and Services Tax Act,2017”

3. The Show Cause Notice was issued to the petitioner on 02.12.2021. Though the notice does not specify any cogent reason, there is an observation in the notice stating “failure to furnish returns for a continuous period of six months”. 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.

4. Further, the impugned order dated 15.12.2022 passed on the Show Cause Notice does not give reasons of cancellation. It states that the registration is liable to be cancelled for the following reason “whereas no reply notice to show cause has been submitted”. However, the said order in itself is contradictory. The order states “reference to your reply dated 02/01/2022 in response to the notice to show cause dated 02/12/2021” and the reason stated for cancellation is “Whereas no reply to notice to show cause has been submitted”. The order further states that effective date of cancellation of registration is 01.07.2017 i.e., a retrospective date. There is no material on record to show as to why the registration is sought to be cancelled retrospectively.

5. In fact, in our view, order dated 15.12.2022 does not qualify as an order of cancellation of registration. 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.

6. Learned counsel for petitioner submits that petitioner is no longer interested in continuing the business and has closed down his business activities as he has shifted his business activities abroad.

7. We notice that the Show Cause Notice and the impugned order are bereft of any details accordingly the same cannot be sustained and neither the Show Cause Notice, nor the order spell out the reasons for retrospective cancellation.

8. 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.

9. It is important to note that, 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 tax payer during such period. Although, we do not consider it apposite to examine this aspect but 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.

10. It may be further noted that both the Petitioner and the department want cancellation of the GST registration of the Petitioner, though for different reasons.

11. In view of the fact that Petitioner does not seek to carry on business or continue the registration, the impugned order dated 15.12.2022 is modified to the limited extent that registration shall now be treated as cancelled with effect from 02.12.2021 i.e., the date when the Show Cause Notice was issued. Petitioner shall make the necessary compliances as required by Section 29 of the Central Goods and Services Tax Act, 2017.

12. It is clarified that Respondents are not precluded from taking any steps for recovery of any tax, penalty or interest that may be due in respect of the subject firm in accordance with law including retrospective cancellation of the GST registration.

13. Petition is accordingly disposed of in the above terms.

SANJEEV SACHDEVA, J RAVINDER DUDEJA, J

MARCH 07, 2024