Show cause notices and cancellation orders must specify the provisions violated, provide proper justification.

Case Name:

M/S SHREYA INTERNATIONAL vs. PRINCIPAL COMMISSIONER, DEPARTMENT OF TRADE AND TAXES & ANR. (High Court of Delhi)

Key Takeaways:

• Tax authorities cannot cancel GST registration retrospectively without providing clear reasons and an opportunity for the taxpayer to object.
• Show cause notices and cancellation orders must specify the provisions violated and provide proper justification for the proposed action.
• The court upheld the principles of natural justice and due process in GST registration cancellations.

Issue:

Can the tax authorities cancel a taxpayer's GST registration retrospectively without providing clear reasons, specifying the provisions violated, and allowing the taxpayer to object to the retrospective cancellation?

Facts:

The petitioner possessed a GST registration.

On October 19, 2021, the tax authorities issued a show cause notice to the petitioner for "non-compliance of any specified provisions in the GST Act or the Rules made thereunder as may be prescribed."

The show cause notice did not specify which provisions were violated or mention the possibility of retrospective cancellation.

On November 4, 2021, the tax authorities issued an order canceling the petitioner's GST registration retrospectively from July 10, 2017, citing "Response not received" as the reason.

The petitioner challenged the show cause notice and the retrospective cancellation order.

Arguments:

Petitioner argued that the show cause notice and cancellation order did not provide clear reasons, specify the provisions violated, or allow the petitioner to object to the retrospective cancellation, violating principles of natural justice.

The tax authorities contended that the retrospective cancellation was justified due to the petitioner's non-compliance with the GST Act or Rules.

Related Section:

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

Judgement:

The court found issues with the show cause notice and the cancellation order, citing a lack of proper reasoning, failure to specify the provisions violated, and the absence of an opportunity for the petitioner to object to the retrospective cancellation. The court set aside the show cause notice and the cancellation order, restoring the petitioner's GST registration. The court held that:

1. Registration cannot be canceled retrospectively without providing clear reasons and an opportunity for the taxpayer to object.

2. The show cause notice and cancellation order did not specify the provisions violated or provide proper justification for the proposed action and the retrospective cancellation.

3. The tax authorities must follow due process and principles of natural justice in GST registration cancellations.

The court allowed the tax authorities to take further action in accordance with the law, including the possibility of retrospective cancellation, subject to proper procedures, such as issuing a proper show cause notice and providing an opportunity for the petitioner to be heard.

The court also clarified that the tax authorities are not precluded from taking steps to recover any outstanding taxes, penalties, or interest from the petitioner in accordance with the law.

FAQs:

Q1: What is the significance of the court's decision? A1: The court upheld the principles of natural justice and due process by requiring tax authorities to provide clear reasons, specify the provisions violated, and allow taxpayers to object to retrospective cancellations of GST registrations.

Q2: Can the tax authorities still cancel the petitioner's GST registration retrospectively?

A2: Yes, the court allowed the tax authorities to take further action in accordance with the law, including the possibility of retrospective cancellation, subject to proper procedures, such as issuing a proper show cause notice and providing an opportunity for the petitioner to be heard.

Q3: What should taxpayers do if they receive a show cause notice or cancellation order without clear reasons or an opportunity to object?

A3: Based on this case, taxpayers should object to the show cause notice or cancellation order if it does not provide clear reasons, specify the provisions violated, or allow the taxpayer to object to the proposed action, including retrospective cancellation.

Q4: What is the legal basis for the court's decision?

A4: The court relied on Section 29(2) of the Central Goods and Services Tax Act, 2017, which governs the cancellation of GST registrations, and the principles of natural justice and due process.

1. Petitioner impugns order dated 04.11.2021, whereby the GST registration of the petitioner was cancelled retrospectively from 10.07.2017 and also impugns Show Cause Notice dated . Vide Show Cause Notice dated 19.10.2021 called upon to show cause as to why the registration be not cancelled for the following reasons:-

“non compliance of any specified provisions in the GST Act or the Rules made thereunder as may be prescribed non compliance of any specified provisions in the GST Act or the Rules made thereunder as may be prescribed”.

2. Subsequently, the impugned order of cancellation dated Subsequently, the impugned order of cancellation dated 04.11.2021 was passed citing the following reason:-

Response not received”

3. We may note that though the Show Cause Notice states that “non compliance of any specified provisions in the GST Act or the Rules made thereunder as may be prescribed , however, it fail mention which specific provisions have not been complied with.

4. The impugned order also seeks to cancel the registration with effect from 10.07.2017. There is no material on record to show as to why the registration is sought to be Cancelled retrospectively.

5. 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.

6. Therefore, both the show cause notices and the impugned order are bereft of any reasoning and particulars and are accordingly not sustainable.

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 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’ 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. In view of the above, the Show Cause Notice as well as the Impugned order are set aside and the registration is restored. petitioner shall file the requisite returns upto date.

10. It would be, however, open to the respondent to take further action in accordance with law inter alia, cancellation of registration with retrospective effect. However, the same would be in accordance with law and pursuant to a proper Show Cause Notice and an opportunity of hearing being given to the petitioner.

11. Respondent are also not precluded form taking any steps for recovery of any tax penalty or interest that may be due form the petitioner in accordance with law.

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

Sanjeev Sachdeva,J

Ravinder Dudeja,J

January 18 24