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Case Law Details

Case Name : Amar Enterprises Through Its Proprietor Vs Commissioner of Delhi Goods And Services Tax And Anr (Delhi High Court)
Appeal Number : W.P.(C) 3182/2024 & CM. APPLS. 13113-14/2024
Date of Judgement/Order : 04/03/2024
Related Assessment Year :
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Amar Enterprises Through Its Proprietor Vs Commissioner of Delhi Goods And Services Tax And Anr (Delhi High Court)

Introduction: The Delhi High Court, in the case of Amar Enterprises Through Its Proprietor vs. Commissioner of Delhi Goods And Services Tax And Anr, recently addressed the contentious issue of retrospective cancellation of GST registration. The petitioner challenged an order dated 08.08.2023, wherein the GST registration was cancelled retrospectively from 03.07.2017. Additionally, the petitioner contested the Show Cause Notice dated 29.10.2021.

Detailed Analysis: The Show Cause Notice, dated 29.10.2021, cited the reason for potential cancellation as the petitioner’s failure to file returns for a continuous period of six months. However, crucially, it did not explicitly inform the petitioner about the possibility of retrospective cancellation. The subsequent order, dated 08.08.2023, lacked clarity in justifying the retrospective cancellation, stating only that it was based on Section 29(2)(c) – failure to furnish returns.

The petitioner’s counsel highlighted the petitioner’s decision to cease business activities, emphasizing the lack of interest in continuing operations. The court noted that the registration had previously been cancelled on 11.08.2021, with restoration after an application for revocation on 01.09.2021. The subsequent cancellation, through the impugned order, raised concerns regarding the absence of detailed reasons and the retrospective nature of the decision.

The court underscored that Section 29(2) allows the proper officer to cancel GST registration from any retrospective date, but such a decision should not be arbitrary. The satisfaction leading to cancellation must be based on objective criteria, and the absence of returns alone should not warrant automatic retrospective cancellation. The court also acknowledged potential consequences for the taxpayer’s customers, emphasizing the need for justified and warranted retrospective cancellations.

Both the petitioner and the tax department desired the cancellation of GST registration, albeit for different reasons. In light of the petitioner’s disinterest in business continuation, the court modified the order to treat the cancellation as effective from 29.10.2021, the date of the Show Cause Notice. The petitioner was directed to fulfill necessary compliances as per Section 29 of the Central Goods and Services Tax Act, 2017. The respondents were not precluded from pursuing steps for tax, penalty, or interest recovery.

Conclusion: The Delhi High Court’s decision in Amar Enterprises vs. Commissioner of Delhi Goods And Services Tax And Anr offers clarity on the retrospective cancellation of GST registration. By modifying the order and setting the cancellation date as per the Show Cause Notice, the court ensures a more reasoned approach to such decisions. The ruling emphasizes the importance of objective criteria and justified reasoning, preventing arbitrary cancellations and protecting the interests of taxpayers and their customers. It stands as a notable precedent in the evolving landscape of GST regulations.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. Petitioner impugns order dated 08.08.2023, whereby the GST registration of the petitioner has been cancelled retrospectively with effect from 03.07.2017. Petitioner also impugns Show Cause Notice dated 29.10.2021.

2. Vide Show Cause Notice dated 29.10.2021, petitioner was called upon to show cause as to why the registration be not cancelled for the following reason:-

“Any taxpayer other than composition taxpayer has not filed returns for a continuous period of six months”

3. Petitioner is a proprietorship firm engaged in retail and wholesale of paper, corrugated paper and paperboard and possessed GST registration.

4. Show Cause Notice dated 29.10.2021 was issued to the Petitioner seeking to cancel its registration on the ground “any taxpayer other than composition taxpayer has not filed returns for a continuous period of six months. The said Show Cause Notice does not put the petitioner to notice that the registration is liable to be cancelled retrospectively. Accordingly, the petitioner had no opportunity to even object to the retrospective cancellation of the registration.

5. Thereafter, the impugned order dated 08.08.2023 passed on the Show Cause Notice dated 29.10.2021 does not give any reasons for cancellation of registration. It merely states, “Whereas no reply to the show cause notice has been submitted and whereas, the undersigned based on record available with this office is of the opinion that your registration is liable to be cancelled for following reason(s): Section 29(2)(c)- Person, other than paying tax u/s 10 failed to furnish returns for prescribed periods’.

6. Learned counsel for the petitioner submits that petitioner is no longer interested in continuing the business and has closed down all business activities.

7. Further, he submits that the registration of the petitioner was cancelled by Impugned Order dated 11.08.2021 with effect from 06.2020. Pursuant to the said impugned order, an application seeking revocation of cancellation dated 01.09.2021 was filed by the petitioner whereby the registration was restored. Thereafter, subject Show Cause Notice dated 29.10.2021 was issued and by the impugned order dated 08.08.2023, it was once again cancelled retrospectively with effect from 03.07.20 17 on the ground of “Section 29(2)(c)- Person, other than paying tax u/s 10 failed to furnish returns for prescribed periods”.

8. We notice that the impugned Show Cause Notice and the impugned order are also bereft of any details and accordingly the same cannot be sustained. Neither the impugned Show Cause Notice, nor the impugned 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 taxpayer’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 taxpayer 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 department want cancellation of the GST registration of the Petitioner, though for different reasons.

12. In view of the fact that Petitioner does not seek to carry on business or continue the registration, the impugned order dated 08.08.2023 is modified to the limited extent that registration shall now be treated as cancelled with effect from 29.10.2021 i.e., the date when the Show Cause Notice was issued. Petitioner shall make the necessary compliances as required by 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 of the GST registration.

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

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