Introduction: In a recent case, Aryan Timber Store v. Sale Tax Officer [Writ Petition (Civil) No. 628 of 2024 dated January 18, 2024], the Delhi High Court addressed the issue of retroactive cancellation of GST registration due to unfiled returns. This article delves into the facts, analysis, and conclusion of the case, shedding light on the court’s interpretation of relevant provisions.
The Hon’ble Delhi High Court held that the GST Registration of an Assessee cannot cancelled with retrospective effect mechanically merely because the returns were not filed. It can be cancelled only if the proper officer deems fit to do so on some objective criteria. Hence, the order of cancellation was modified to extent that the same shall operate with effect from date when the Assessee first applied for cancellation.
Facts:
Aryan Timber Store (“the Petitioner”) discontinued their business from March 31, 2019, and applied for cancellation of the GST registration on May 06, 2019. The Revenue Department (“the Respondent”) issued a Show Cause Notice dated July 15, 2021 (“the Impugned SCN”), on the ground that the Petitioner had not filed returns for a continuous period of six months. The Respondent cancelled the GST registration retrospectively w.e.f. July 1, 2017. There was no material on record as to why the registration was cancelled retrospectively. The Impugned SCN did not put the Petitioner to notice that the GST registration is liable to be cancelled retrospectively. Accordingly, the Petitioner had no opportunity to even object to the retrospective cancellation of the registration. As a result, the Petitioner’s GST Registration was cancelled with retrospective effect from July 1, 2017 vide order dated July 9, 2022 (“the Impugned Order”).
Hence, aggrieved by the Impugned SCN and the Impugned Order, the present writ petition was filed by the Petitioner.
Issue:
Whether the GST registration of the Petitioner be cancelled retrospectively?
Held:
The Delhi High Court Writ Petition No. 628 of 2024 held as under:
- Observed that, in terms of Section 29(2) of the Central Goods and Services Tax Act, 2017 (“the CGST 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. 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.
- Opined that, according to the Respondent, one of the consequences for cancelling a taxpayer’s registration with retrospective effect is that the taxpayer’s customers are denied the input tax credit (“ITC”) availed in respect of the supplies made by the taxpayer during such period. Although, the court does 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.
- Held that, the GST Registration will be considered cancelled w.e.f. May, 06, 2019 i.e. the date of when the Petitioner applied for cancellation of the GST registration. Further, the 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. Hence, the Petition was disposed of.
Our Comment:
- Similar was the case before the Hon’ble Delhi High Court in the matter of Sant Ram v. Delhi State GST and Ors. [W.P No. 15846 of 2023 dated December 11, 2023] where the court allowed the writ petition and set aside the order of GST Registration cancellation thereby holding that, it is important for the Proper Officer to independently arrive at the satisfaction set out in sub-section (1) or (2) of Section 29 the CGST Act for the purpose of GST Registration cancellation. The court also relied on the judgment of Union of India & Ors. v. Bharat Forge Ltd. & Anr. [(1970) 1 SCC 795] and Kritika Agarwal v. Union of India & Ors., [W.P. (C) 9424/2023 dated July 18, 2023] further noted that, the Proper Officer has to act independently and cannot act mechanically on the instructions of another authority.
Conclusion: The Delhi High Court’s ruling underscores the importance of a fair and reasoned approach to GST registration cancellation. Retroactive cancellations impact not only taxpayers but also their stakeholders. By upholding the principle of objective criteria and independent assessment, the court ensures procedural fairness and safeguards taxpayer rights.
In essence, the judgment sets a precedent for future cases, emphasizing the need for proper officer discretion guided by legal principles. It serves as a reminder to tax authorities to exercise their powers judiciously, respecting the rule of law and taxpayer rights.
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