Case Law Details
Shree Bankey Bihari Tarding Company Vs Principal Commissioner of Department of Trade And Taxes And Anr. (Delhi High Court)
The Delhi High Court recently addressed the contentious issue of retrospective cancellation of GST registration in the case of Shree Bankey Bihari Trading Company vs. Principal Commissioner of Department of Trade and Taxes and Another. The court’s ruling clarified the limitations on such cancellations, particularly focusing on the effective date starting from the issuance of the Show Cause Notice (SCN).
The petitioner, M/s Shree Bankey Bihari Trading Company, challenged the retrospective cancellation of its GST registration under the Central Goods and Service Tax Act, 2017. The retrospective cancellation, effective from 31st July 2017, was based on the grounds that the petitioner had not filed returns for a continuous period of six months. The Show Cause Notice issued on 19th September 2019 initiated the proceedings, although it lacked specific reasons and did not inform the petitioner of the retrospective cancellation possibility.
The subsequent order dated 4th October 2019 affirmed the cancellation, citing non-submission of a reply to the Show Cause Notice. However, the order’s rationale was found contradictory and lacked substantive reasoning for the retrospective action taken. Importantly, the court noted that the absence of dues against the petitioner and nil demand further underscored the arbitrary nature of the retrospective cancellation.
Delving into the legal framework, the court referred to Section 29(2) of the Act, emphasizing that cancellation of registration, especially with retrospective effect, must be justified objectively by the proper officer. The satisfaction for such cancellation cannot be merely subjective and must adhere to specific criteria. The court highlighted that the mere lapse in filing returns does not automatically warrant retrospective cancellation, especially without due process and adequate reasons provided to the taxpayer.
Furthermore, the judgment discussed the implications of retrospective cancellation on the taxpayer’s entitlement to input tax credit and the necessity for fair application of natural justice principles. It underscored that decisions affecting substantial rights of taxpayers, such as retrospective cancellation impacting past transactions and compliance, must be supported by clear and cogent reasons.
In conclusion, the Delhi High Court modified the impugned order to align with principles of natural justice and fairness. It limited the cancellation of GST registration to the date of the Show Cause Notice issuance, 19th September 2019, considering the petitioner’s decision to cease business activities.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
Petitioner impugns order dated 08.04.2024 whereby the appeal of the Petitioner has been dismissed solely on the ground that the same is barred by limitation. Petitioner also impugns order dated 04.10.2019 whereby the GST registration of the Petitioner was cancelled retrospectively with effect from 31.07.2017 and also impugns Show Cause Notice dated 19.09.2019.
2. Petitioner was the proprietor of M/s Shri Bankey Bihari Trading Company and possessed GST registration bearing number 07AHKPG4710A1ZY under the Central Goods and Service Tax Act, 2017 (hereinafter referred to as ‘the Act’).
3. Show Cause Notice dated 19.09.2019 was issued to the Petitioner seeking to cancel its registration. Though the notice does not specify any cogent reason, it merely states “Any Taxpayer other than composition taxpayer has not filed returns for a continuous period of six months”. Said Show Cause Notice required the petitioner to appear before the undersigned i.e., authority issuing the notice. However, the said Notice did not bear the date and time when the Petitioner was required to appear for personal hearing.
4. Said Show Cause Notice also does not put the Petitioner to notice that the registration is liable to be cancelled retrospectively. Thus, the Petitioner had no opportunity to even object to the retrospective cancellation of the registration.
5. Thereafter, the impugned order dated 04.10.2019 passed on the Show Cause Notice dated 19.09.2019 does not give any reasons for cancellation. It merely states that the registration is liable to be cancelled for the following reason “Whereas no reply to notice to show cause has been submitted”. However, the said order in itself is contradictory. The order states “reference to your reply dated 28/09/2019 in response to the notice to show cause dated 19/09/2019” and the reason stated for cancellation is “whereas no reply to notice to show cause has been submitted”. The order further states that effective date of cancellation of registration is 31.07.2017 i.e., a retrospective date. There is no material on record to show as to why the registration is sought to be cancelled retrospectively.
6. It may be noted that in the impugned order of cancellation, in the column of dues at the bottom there is ‘zero’ amount stated to be due against the petitioner and the table shows nil demand.
7. Learned counsel for Petitioner submits that the petitioner is no longer interested in continuing business and has closed down all business activities since February 2019.
8. We notice that the Show Cause Notice and the impugned order are bereft of any details. Neither the Show Cause Notice, nor the order spell out the reasons for retrospective cancellation. Accordingly, the same cannot be sustained.
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 Petitioner and the respondent want cancellation of the GST registration of the Petitioner, though for different reasons.
12. In view of the fact that the Petitioner does not wish to carry on business or continue with the registration, impugned order dated 04.10.2019 is modified to the limited extent that registration shall now be treated as cancelled with effect from 19.09.2019 i.e., the date when Show Cause Notice seeking cancellation of GST registration was issued.
13. Petitioner shall make the necessary compliances as required by Section 29 of the Central Goods and Services Tax Act, 2017.
14. It is clarified that Respondents are 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 of the GST registration after issuance of a proper Show Cause Notice and complying with the provisions of natural justice.
15. Petition is accordingly disposed of in the above terms.
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