Case Law Details
Rajni Gupta Vs Principal Commissioner State GST and Anr (Delhi High Court)
Introduction: The Delhi High Court has addressed a critical issue in the case of Rajni Gupta vs. Principal Commissioner State GST, challenging the retrospective cancellation of GST registration. The court’s verdict, dated 12.09.2020, emphasized that GST registration cannot be annulled retrospectively merely for non-filing of GSTR for some period. This article delves into the details of the case, examining the court’s reasoning and the implications of this significant judgment.
Detailed Analysis: The petitioner, Rajni Gupta, contested the order dated 12.09.2020, which retroactively canceled the GST registration from 01.07.2017. Rajni Gupta, engaged in the manufacturing paint business, ceased operations on 31.01.2019, and promptly applied for registration cancellation on 25.02.2019. The court noted that the provisional registration was canceled on 21.09.2019 and 19.03.2020, well before the impugned order.
The impugned order, dated 12.09.2020, relied on the non-filing of returns for a continuous six-month period as grounds for cancellation. However, the court observed that once the registration stood canceled, there was no obligation for the petitioner to file returns. The court emphasized Section 29(2) of the Central Goods and Services Tax Act, stating that retrospective cancellation should not be a mechanical process but based on objective criteria.
The court pointed out that canceling registration with retrospective effect has consequences for the taxpayer’s customers, affecting their input tax credit. It highlighted that such consequences should be considered and justified by the proper officer before taking such an action. Additionally, the court noted that the show cause notice did not inform the petitioner about the retrospective cancellation, denying an opportunity to object.
In modifying the order, the court ruled that the cancellation would operate from 25.02.2019, aligning with the date of the petitioner’s initial application for cancellation. The judgment clarified that the respondents could still pursue recovery steps for any due tax, penalty, or interest in accordance with the law.
Conclusion: The Delhi High Court’s decision in the Rajni Gupta case sets a precedent against the retrospective cancellation of GST registration solely for non-filing of returns. The court’s emphasis on objective criteria, considerations of consequences, and procedural fairness aligns with the principles of justice and due process. This ruling provides clarity on the limitations of retroactive cancellation, offering relief to taxpayers and reinforcing the importance of a reasoned and lawful approach in matters related to GST registration.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Petitioner impugns order dated 12.09.2020, whereby the GST registration of the petitioner had been cancelled with retrospective effect from 01.07.2017.
2. Issue notice. Notice is accepted by learned counsel appearing for the respondents.
3. With the consent of parties, petition is taken up for final disposal.
4. As per the petitioner, petitioner was carrying on the business of manufacturing paint and was also registered under the Goods and Services Tax Act, 2017. Petitioner stopped the manufacturing business on 31.01.2019 and submitted an application on 25.02.2019, seeking cancellation of registration. Pursuant to the said application, notice was given to the petitioner on 12.09.2019, calling for certain details, which as per the petitioner were already part of the application seeking cancellation. Thereafter, an order was passed on 21.09.2019, for cancelling the provisional registration of the petitioner. Perusal of the order shows that the same does not state any reason, however, merely refers to the application filed by the petitioner seeking cancellation.
5. Post the order dated 21.09.2019, another notice was issued to the petitioner on 09.03.2020, calling for additional information, which once again as per the petitioner was furnished. Thereafter, another order of 19.03.2020 was passed stating that the provisional registration was liable to be cancelled for the following reason(s).
6. However, the letter once again had not specified any reason. The subject show cause notice was issued to the petitioner on 01.09.2020 on the ground that returns had not been filed for a continuous period of six months.
7. Thereafter, the impugned order dated 12.09.2020 has been passed for cancelling the registration of the petitioner with effect from 01.07.2017.
8. Records clearly demonstrates that petitioner had submitted an application seeking cancellation of the GST registration on 25.02.2019 and thereafter, vide orders dated 21.09.2019 and 19.03.2020, the provisional registration of the petitioner had been cancelled. Once the registration stood cancelled, there was no cause for the petitioner to file any returns. Accordingly, the cancellation of the registration on the ground that petitioner has failed to file returns is not sustainable. Further, we note that the cancellation of registration has been done with retrospective effect.
9. 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.
10. 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.
11. Further, the show cause notice dated 01.09.2020 does not put the petitioner to notice that the registration was liable to be cancelled retrospectively. Accordingly, the petitioner had no opportunity to even object to the retrospective cancellation of the registration.
12. 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 25.02.2019, i.e., the date when petitioner first applied for cancellation of registration. It is clarified that respondents are 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.
13. The petition is accordingly disposed of in the above terms.
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