Goods & Services Tax (GST) in IndiaGST Registration cannot be cancelled Retrospectively on Mechanical Grounds

The Hon’ble Delhi High Court, in the case of Ravi Parkash Goel, Proprietor of M/s. Gopish Pharma v. Sales Tax Officer Class II/Avato, [W.P. (C) 5264/2024 & CM APPL. 21559/2024], decided on 20.05.2024, held that the GST registration cannot be cancelled with retrospective effect mechanically.

FACTS

Ravi Prakash Goel (hereinafter referred to as “the Petitioner”) is an assessee registered under the Central Goods and Services Tax Act, 2017 (herein referred to as the “CGST Act”) and seeking cancellation of GST registration for the closure of his business.

However, the GST Department rejected the application of the Petitioner without giving any substantial reasons for the same.

The GST Department issued Show Cause Notice (hereinafter referred to as “SCN”) dated  30.05.2022,  to the Petitioner without providing any substantial and cogent reasons and merely stated as below;

“Issues any invoice or bill without supply of goods and/or services in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilization of input tax credit or refund of tax.

Subsequently, the order date 30.11.2022 (hereinafter referred to as “impugned order”) was passed on the ground that the registration of the Petitioner is liable to be cancelled as the Petitioner had failed to file a reply to the SCN. Being aggrieved by the impugned order and the illegal and arbitrary actions of the department, the Petitioner has approached this Hon’ble Court.

ISSUES BEFORE THE HON’BLE DELHI HIGH COURT

1. Whether  GST Registration can be cancelled with a retrospective effect mechanically?
2. Whether GST Registration can be cancelled on non-filing of return for the same period?

CONTENTIONS OF THE PARTIES

The Petitioner contended that, all the GST Returns had been filed by him timely till his business was functional without any delay, i.e. till March 2022.

The Petitioner further contended both the SCN as well as the impugned order was bereft of any details. Also neither the SCN nor the impugned order provided any details for the retrospective cancellation of the GST Registration of the Petitioner and hence the same could not be sustained.  The Petitioner submitted that the Petitioner was also deprived of the opportunity for personal hearing and hence the impugned order was passed ex-parte without considering the submission of the Petitioner.

The Respondent on the contrary alleged that the reason for cancelling the registration with retrospective effect is that the customer’s of the Petitioner are denied the ITC availed in respect of the supply made by the Petitioner during such period.

FINDINGS

The Hon’ble Delhi High Court examined sub-Section (2) of  Section 29  of the CGST Act, 2017 wherein the cancellation of GST Registration including the retrospective cancellation of the GST registration is allowed by the proper officer if he deems fit that the circumstances as enumerated in the provision are satisfied.

The Hon’ble Court held that such registration cannot be mechanically cancelled, and only a proper officer can take that action when he deems fit. The nature of such satisfaction cannot be subjective and mere non-filing of returns by a taxpayer for a specific duration would not make his registration liable to be cancelled from a retrospective date.

The Court observed that retrospective cancellation of registration can be done only if the said result such as denial of ITC  to customers is intended and warranted.

AMLEGALS REMARKS

In this case, both parties want the registration to be cancelled, the Court held that the order dated 30.11.2022 is modified and the registration shall be cancelled from 25.04.2022, i.e. when the application for cancellation of registration was submitted by the Petitioner.

One of the notable aspects of this case is that the department cancelled the GST Registration retrospectively and failed to intimate the Petitioner about the cancellation of registration. Hence the petitioner was deprived of his right and due to that the Petitioner was not able to contend the allegation made under the show cause notice.

In addition to this, the Hon’ble Court has rightly addressed the issue of the retrospective cancellation of GST registration wherein the Hon’ble Court very specifically noted that retrospective cancellation of the GST Registrations needs to be seen in a holistic approach in light of satisfaction of all the factors and parameters as set out in Sub-Section (2) of Section 29 of CGST Act 2017. When on one hand, the Petitioner himself wanted to get his registration cancelled, we also cannot overlook the fact that an arbitrary or subjective take on such cancellation cannot be taken. Rejecting the application without proper reasons, notice or hearing and then cancelling the registration retrospectively would hamper the interests of the registered taxpayers and must only be allowed when the due procedure and process of law has been followed under the CGST Act.

– Team AMLEGALS assisted by Ms. Akansha Yadav (Intern)