Delhi HC Modifies date of Retrospective GST Registration Cancellation

Shibendra Narayan Guha Vs Commissioner of GST & Anr (Delhi High Court)

In a significant ruling, the Delhi High Court has modified the date of retrospective cancellation of GST registration in the case of Shibendra Narayan Guha vs Commissioner of GST & Anr. This case highlights critical aspects of GST registration cancellation, its retrospective effect, and the legal intricacies involved in the process.

Background of the Case

The petitioner, Shibendra Narayan Guha, engaged in the business of trading V-Belt (Motor Parts), challenged the order dated 11.11.2022, which cancelled his GST registration retrospectively from 01.07.2017. The cancellation was based on a Show Cause Notice dated 07.10.2022, which alleged non-compliance with Section 39 of the Central Goods and Services Tax Act, 2017, specifically pointing out the failure to furnish returns for a continuous period of six months.

Legal Scrutiny and Court’s Observations

The court scrutinized the Show Cause Notice and the subsequent cancellation order, noting several discrepancies and a lack of clear reasoning for the retrospective cancellation. Notably, the cancellation order contradicted itself by acknowledging a reply from the petitioner, then stating no reply had been submitted. This, coupled with the absence of specified dues or demand against the petitioner, led the court to question the validity of the cancellation order.

Key Legal Points and Judicial Reasoning

The judgment touches upon several crucial legal points regarding GST registration cancellation:

• Retrospective Cancellation: The court emphasized that registration cannot be cancelled retrospectively in a mechanical manner. Such action requires objective criteria and cannot be based on subjective satisfaction alone. The decision to cancel retrospectively should be made only if the circumstances justify such a measure.
• Impact on Input Tax Credit: One significant consequence of retrospective cancellation is its impact on the taxpayer’s customers, who may be denied the input tax credit for the supplies made during the cancelled period. The court noted that such consequences should be carefully considered before making a decision on retrospective cancellation.
• Mutual Desire for Cancellation: Interestingly, both the petitioner and the department were in favor of cancelling the GST registration, albeit for different reasons. This mutual agreement influenced the court’s decision to modify the cancellation date.

Court’s Decision

The Delhi High Court decided to modify the impugned order to the extent that the GST registration of Shibendra Narayan Guha would be treated as cancelled from the date of the Show Cause Notice, i.e., 07.10.2022, instead of the retrospective date initially decided. This decision was made considering the petitioner’s disinterest in continuing the business due to health and age factors and the need for compliance with Section 29 of the Central Goods and Services Tax Act, 2017.

Implications for GST Compliance and Litigation

This ruling has significant implications for GST compliance and litigation:

• Clarity on Retrospective Cancellation: The judgment provides clarity on the conditions under which GST registration can be cancelled retrospectively, emphasizing the need for objective criteria and careful consideration of consequences.
• Judicial Scrutiny of Administrative Decisions: The case underscores the importance of judicial scrutiny in ensuring that administrative decisions, like GST registration cancellation, are made with due diligence and clear reasoning.
• Compliance and Legal Strategy: Businesses and tax professionals must take note of this decision, as it affects strategies for compliance and responding to Show Cause Notices related to GST registration.

Conclusion

The Delhi High Court’s decision in the case of Shibendra Narayan Guha vs Commissioner of GST & Anr is a landmark judgment that sheds light on the complexities of GST registration cancellation, especially its retrospective aspect. By modifying the cancellation date, the court has set a precedent that balances legal principles with practical considerations of tax compliance and business realities. This ruling is a must-read for legal professionals, tax practitioners, and businesses navigating the GST landscape, providing valuable insights into the judiciary’s approach to GST-related disputes.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. Petitioner impugns order of cancellation of registration dated 11.11.2022 whereby the GST registration of the Petitioner has been cancelled retrospectively with effect from 01.07.2017. Petitioner also impugns Show Cause Notice dated 07.10.2022.

2. Vide Show Cause Notice dated 07.10.2022, petitioner was called upon to show cause as to why the registration be not cancelled for the following reason:-

“Returns furnished by you under Section 39 of the Central Goods and Services Tax Act,2017”

3. Petitioner was engaged in business of trading of V-Belt (Motor Parts) and possessed GST registration.

4. Show cause notice dated 07.10.2022 was issued to the Though the notice does not specify any cogent reason, there is an observation in the notice stating “failure to furnish returns for a continuous period of six months”. Further, the said show cause notice also does not put the petitioner to notice that the registration is liable to be cancelled retrospectively. Accordingly, petitioner had no opportunity to even object to the retrospective cancellation of the registration.

5. Further, the impugned order dated 11.11.2022 passed on the Show Cause Notice dated 07.10.2022 does not give any reasons for 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 07.11.2022 in response to the notice to show cause dated 07.10.2022” 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.

6. In fact, in our view, order dated 11.11.2022 does not qualify as an order of cancellation of registration. On one hand, it states that the registration is liable to be cancelled and on the other, in the column at the bottom there are no dues stated to be due against the petitioner and the table shows nil demand.

7. Learned Counsel for the Petitioner submits that petitioner is no longer interested in continuing the business and has closed down his business activities because of his ill health & old age.

8. 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.

9. 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.

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 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. 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.

12. In view of the fact that Petitioner does not seek to carry on business or continue the registration, the impugned order dated 11.11.2022 is modified to the limited extent that registration shall now be treated as cancelled with effect from 07.10.2022 i.e., the date when the Show Cause Notice was issued. Petitioner shall comply with the requirements of Section 29 of the Central Goods and Services Tax Act, 2017.

13. 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 including retrospective cancellation.

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