Case Law Details
Chehak Fashions Vs Commissioner (Delhi High Court)
Background of the Case – Chehak Fashions, a business engaged in the trading of woven fabric, was served with a Show Cause Notice (SCN) on September 20, 2021, for not filing returns for a continuous period of six months. The SCN was vague, lacking specific reasons and not specifying the date and time for a personal hearing. Subsequently, on October 26, 2021, the GST registration of Chehak Fashions was canceled with retrospective effect from July 26, 2017, without providing a clear rationale.
Procedural Flaws in Issuance of SCN – The Delhi High Court observed several procedural flaws in the issuance of the SCN and the subsequent order. The SCN failed to specify detailed reasons for the proposed cancellation and did not notify the petitioner of the possibility of retrospective cancellation. Furthermore, the order dated October 26, 2021, was contradictory, as it referenced a reply from the petitioner but simultaneously stated that no reply had been submitted. The absence of material evidence to justify retrospective cancellation was also noted.
Legal Provisions and Court’s Interpretation – Under Section 29(2) of the Central Goods and Services Tax (CGST) Act, 2017, a proper officer may cancel GST registration from a retrospective date if circumstances warrant such action. However, the Court emphasized that such cancellation should be based on objective criteria and not merely on the non-filing of returns. The decision to cancel retrospectively should consider whether such a move is necessary and justified by the circumstances.
Court’s Decision – The Court found that the SCN and the cancellation order lacked substantive justification and procedural fairness. It was noted that both the petitioner and the respondent agreed on the cancellation of the GST registration but for different reasons. Given that the petitioner had ceased business operations and did not wish to continue the registration, the Court modified the cancellation date to September 20, 2021, the date of the SCN issuance.
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