Court modifies date of GST cancellation, as SCN didn't mention retrospective cancellation.

Case Name:

W.P.(C) 2797/2024 - Laxmi Jain vs. Principal Commissioner of Delhi Goods and Services Tax & Anr (High Court of Delhi)

Key Takeaways:

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

Show cause notice and order must provide adequate details and reasons.

Court can modify the cancellation order if it finds issues with the process or reasoning.

Issue:

Whether the order cancelling the petitioner's GST registration retrospectively from July 2017 and the preceding show cause notice were valid and legally sustainable.

Facts:

The petitioner, M/s Laxmi Industries, had a GST registration for trading and manufacturing copper products. After the death of the petitioner's husband who managed the business, the petitioner applied for cancellation of registration on May 16, 2019.

The department rejected the cancellation request on 05.06.2020 without giving any reason.

Then, the department issued a show cause notice on September 12, 2020, proposing to cancel the registration retrospectively from July 1, 2017, for not filing returns for six months.

The petitioner objected to the retrospective cancellation and lack of reasoning in the show cause notice and subsequent order dated September 26, 2020.

Arguments:

Petitioner argued that the show cause notice and order lacked details and reasoning for the retrospective cancellation, denying the petitioner an opportunity to object.

Petitioner contended that registration cannot be cancelled retrospectively without proper justification and consideration of consequences, such as denial of input tax credit to customers.

Department argued that registration can be cancelled retrospectively under Section 29(2) of the CGST Act if the officer deems it fit.

Key Legal Precedents:

The court cited Section 29(2) of the Central Goods and Services Tax Act, 2017, which allows the proper officer to cancel GST registration from a retrospective date if certain circumstances are satisfied.

Judgement:

The court found issues with the lack of reasoning and details in the show cause notice and order for the retrospective cancellation.

It held that registration cannot be cancelled retrospectively mechanically, and the officer must have objective criteria and consider the consequences.

Since the petitioner did not wish to continue the business, the court modified the order to cancel the registration from May 16, 2018, the date the petitioner applied for cancellation.

However, the court clarified that the department can still recover any tax, penalty, or interest due from the petitioner as per law.

FAQs:

Q1: What was the main issue in this case?

A1: The main issue was the validity of the order cancelling the petitioner's GST registration retrospectively from July 2017 and the preceding show cause notice.

Q2: Why did the court find issues with the show cause notice and order?

A2: The court found that the show cause notice and order lacked adequate details and reasoning for the retrospective cancellation, denying the petitioner an opportunity to object.

Q3: What legal principle did the court rely on?

A3: The court relied on Section 29(2) of the Central Goods and Services Tax Act, 2017, which allows cancellation of registration from a retrospective date if certain circumstances are satisfied, but not mechanically without proper justification.

Q4: What was the court's final decision?

A4: The court modified the order to cancel the petitioner's GST registration from May 16, 2018, the date the petitioner applied for cancellation, instead of the retrospective date of July 1, 2017.

Q5: Can the department still recover any tax, penalty, or interest from the petitioner?

A5: Yes, the court clarified that the department is not precluded from taking steps to recover any tax, penalty, or interest due from the petitioner as per law.

1. Petitioner impugns order of cancellation of registration dated 26.09.2020 whereby the GST registration of the Petitioner has been cancelled retrospectively with effect from 01.07.2017. Petitioner also impugns Show Cause Notice dated 12.09.2020.

2. Vide Show Cause Notice dated 12.09.2020, 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”

3. Petitioner was working in the name of M/s Laxmi industries and was engaged in the wholesale business of trading and manufacturing of copper and possessed GST registration. Petitioner submitted an application seeking Cancellation of Registration Certificate on 16.05.2019.

4. Pursuant to the said application, notice was issued by the respondent on 17.03.2020 seeking additional information and documents relating to application for cancellation of registration stating “Cancellation Details - Date from which registration is to be cancelled - Date from Registration to be cancelled is Incorrect. Enter correct date. 2 Cancellation Details - Others (Please specify) - Please submit documents to verify ITC in the department in the Ward 82 ITO Delhi”.

5. The application of the petitioner seeking cancellation was rejected vide order dated 05.06.2020, however, in the said order no reason was mentioned it merely stated “Whereas the undersigned is of the opinion that your provisional registration is liable to be cancelled for following reason(s).” However, thereafter nothing is stated and space is blank.

6. Thereafter, Show Cause Notice dated 12.09.2020 was issued to the Petitioner seeking to cancel its registration. However, 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. Further, the impugned order dated 26.09.2020 passed on the Show Cause Notice dated 12.09.2020 does not give any reasons for cancellation. It, however, states that the registration is liable to be cancelled for the following reason “whereas no reply to the show cause notice has been submitted” .However, the said order in itself is contradictory. The order states “reference to your reply dated 22.09.2020 in response to the notice to show cause dated 12.09.2020” and the reason stated for the cancellation is “whereas no reply to notice 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.

8. As per the petitioner, said business was managed by the husband of the Petitioner, who expired on 25.02.2019 due to serious ailments. Due to the death of her husband, petitioner could not continue business and applied for cancellation of GST registration and was unable to file returns from April 2019 onwards.

9. Learned counsel for the petitioner submits that the petitioner is no longer interested in continuing the business and the business has been discontinued.

10. The show cause notice and the impugned order are also bereft of any details accordingly the same cannot be sustained. Further, neither the show cause notice, nor the order spell out the reasons for retrospective cancellation.

11. 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.

12. 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 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.

13. It may be further noted that both the Petitioners and the department want cancellation of the GST registration of the Petitioner, though for a different reason.

14. In view of the fact that Petitioner does not seek to carry on business or continue the registration, the impugned order dated 26.09.2020 is modified to the limited extent that registration shall now be treated as cancelled with effect from 16.05.2018 i.e., the date when the application of cancellation of GST registration was submitted. Petitioner shall comply with the requirements of Section 29 of the Central Goods and Services Tax Act, 2017.

15. It is clarified that Respondents are also 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.

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

SANJEEV SACHDEVA, J

RAVINDER DUDEJA, J

FEBRUARY 26, 2024