Court modifies GST cancellation order, limits retrospective effect to last return filing date.

Case Name:

W.P.(C) 1262/2024 - KOXAN INDIA vs. ASSTT. COMMISSIONER OF GST & ANR.(High Court of Delhi)

Key Takeaways:

1. Tax authorities cannot cancel GST registration with retrospective effect without providing valid reasons and objective criteria.

2. Show cause notices must inform the taxpayer about the proposed retrospective cancellation to allow them to object.

3. The court can modify the cancellation order's effective date if both parties agree to the cancellation but disagree on the retrospective period.

4. Tax authorities can still recover dues and take further action against the taxpayer after the modified cancellation order.

Issue:

Can the tax authorities cancel a taxpayer's GST registration retrospectively without providing valid reasons and an opportunity to object, and if so, what should be the effective date of cancellation?

Facts:

The petitioner's GST registration was cancelled retrospectively from 01.07.2017 vide an order dated 24.03.2021.

The show cause notice dated 17.02.2021 cited non-filing of returns for six months but did not mention retrospective cancellation.

The petitioner had filed GST returns till 30.09.2020 and did not wish to continue the business.

The cancellation order stated no reply was received to the show cause notice as the reason for retrospective cancellation.

Arguments:

Petitioner argued that the show cause notice and cancellation order lacked reasons for retrospective cancellation and did not allow objections.

Tax authorities likely argued that retrospective cancellation was warranted due to the petitioner's non-compliance or other violations.

Key Legal Precedents:

Section 29(2) of the Central Goods and Services Tax Act, 2017 (verbatim)

Judgement:

The court found the show cause notice and cancellation order lacking in reasons for retrospective cancellation and not providing an opportunity for the petitioner to object. However, since both parties wanted the registration cancelled, the court modified the cancellation order to take effect from 30.09.2020, which was the last date the petitioner had filed GST returns. The tax authorities were allowed to take further action and recover any due tax, penalty, or interest from the petitioner in accordance with the law.

FAQs:

Q1: What was the main issue in this case?

A1: The main issue was whether the tax authorities could cancel the petitioner's GST registration retrospectively without providing valid reasons and an opportunity to object, and if so, what should be the effective date of cancellation.

Q2: Why did the court modify the cancellation order?

A2: The court modified the order because the show cause notice and cancellation order lacked reasons for retrospective cancellation and did not allow the petitioner to object. However, since both parties wanted the registration cancelled, the court set the effective date as the last date the petitioner had filed GST returns.

Q3: What was the modified effective date of cancellation?

A3: The court modified the cancellation order to take effect from 30.09.2020, which was the last date the petitioner had filed GST returns.

Q4: Can the tax authorities still recover any due tax, penalty, or interest from the petitioner?

A4: Yes, the court clarified that the tax authorities are not precluded from taking any steps to recover any due tax, penalty, or interest from the petitioner in accordance with the law.

Q5: What legal provision was cited in this case?

A5: The key legal provision cited was Section 29(2) of the Central Goods and Services Tax Act, 2017.

1. Learned counsel for the petitioner submits that an application has been filed in the Registry placing on record the correct documents. However, the application is not on record. Copy of the application along with the documents are produced. The same is taken on record.

2. Since the petitioner merely seeks to place on record additional documents, the Registry need not list the application. The documents are taken into consideration.

3. Petitioner impugns order dated 24.03.2021, whereby GST registration of the petitioner has been cancelled retrospectively with effect from 01.07.2017. Petitioner also impugns Show Cause Notice dated 17.02.2021 wherein petitioner was called upon to show cause as to why the registration be not cancelled for the following reason: -

“Any Taxpayer other than composition taxpayer has not filed returns for a continuous period of six months”.

4. Learned Counsel for petitioner submits that petitioner has filed the GST returns for the period ending 30.09.2020 and thereafter petitioner has not carried out any business and is not interested in conducting any business and wishes to close the business.

5. The impugned order of cancellation dated 24.03.2021 states that the registration is liable to be cancelled for the following reason “Whereas no reply to notice to show cause has been submitted”. It seeks to cancel the registration with retrospective effect from 01.07.2017. There is no material on record to show as to why the registration is sought to be cancelled retrospectively.

6. Further, the 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.

7. In terms of Section 29(2) of the Central Goods and Services Tax Act, 2017, 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. The 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.

8. 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 in this regard is correct, it would follow that the proper officer is also 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.

9. It is clear that both the petitioner and the respondent want the GST registration to be cancelled, though for different reasons.

10. In view of the above facts and circumstances, the order of cancellation is modified to the extent that the same shall operate with effect from 30.09.2020, i.e., the period upto which the Petitioner has filed its GST returns.

11. It would be, however, open to the respondent to take further action in accordance with law. Respondents are also not precluded from taking any steps for recovery of any tax, penalty or interest that may be due from the petitioner in accordance with law.

12. The petition is accordingly disposed of in the above terms.

SANJEEV SACHDEVA, J RAVINDER DUDEJA, J

FEBRUARY 12, 2024