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Case Law Details

Case Name : Manish Anand Vs AVATO Ward-45 State Goods And Services Tax & Ors. (Delhi High Court)
Appeal Number : W.P.(C) 3533/2024 & CM APPL. 14392/2024
Date of Judgement/Order : 07/03/2024
Related Assessment Year :

Manish Anand Vs AVATO Ward-45 State Goods And Services Tax & Ors. (Delhi High Court)

Introduction: The case of Manish Anand Vs AVATO Ward-45 State Goods And Services Tax & Ors. before the Delhi High Court pertained to the retrospective cancellation of GST registration due to the failure to furnish returns for a continuous period of six months. The High Court’s modification of the order has significant implications for taxpayers and tax authorities alike.

Detailed Analysis: The petitioner, Manish Anand, challenged the retrospective cancellation of his GST registration, which was effective from 01.07.2017, through an order dated 15.12.2022. The cancellation was based on a show-cause notice issued on 02.12.2021, citing the failure to furnish returns for a continuous period of six months. However, both the show-cause notice and the subsequent order lacked substantive reasons for the retrospective cancellation.

The Delhi High Court observed that the cancellation of GST registration with retrospective effect cannot be mechanical and must be based on objective criteria. Mere non-filing of returns does not warrant retrospective cancellation covering periods of compliance. Additionally, the court highlighted that retrospective cancellation affects the input tax credit availed by the taxpayer’s customers, warranting careful consideration.

Considering the petitioner’s lack of interest in continuing business activities and the absence of valid reasons for retrospective cancellation, the High Court modified the order. The registration was treated as cancelled from the date of the show-cause notice issuance, i.e., 02.12.2021. The petitioner was directed to comply with Section 29 of the Central Goods and Services Tax Act, 2017.

The court clarified that the tax authorities retain the right to take steps for the recovery of any dues, including retrospective cancellation of GST registration, in accordance with the law. The disposition of the petition marked a significant shift in the approach towards retrospective cancellation, emphasizing procedural fairness and objective assessment.

Conclusion: The modification of the order in Manish Anand Vs AVATO Ward-45 State Goods And Services Tax & Ors. by the Delhi High Court underscores the importance of procedural integrity in tax proceedings. The decision provides clarity on the grounds for retrospective cancellation of GST registration, ensuring that such actions are justified and based on objective criteria. By striking a balance between taxpayer rights and regulatory obligations, the court’s ruling sets a precedent for future cases involving GST registration cancellations.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

Petitioner impugns order dated 15.12.2022, whereby the GST registration of the petitioner has been cancelled retrospectively with effect from 01.07.2017. Petitioner also impugns Show Cause Notice dated 02.12.2021.

2. Vide Show Cause Notice dated 02.12.2021, 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. The Show Cause Notice was issued to the petitioner on 02.12.2021. 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, the petitioner had no opportunity to even object to the retrospective cancellation of the registration.

4. Further, the impugned order dated 15.12.2022 passed on the Show Cause Notice does not give reasons of cancellation. It states that the registration is liable to be cancelled for the following reason “whereas no reply notice to show cause has been submitted”. However, the said order in itself is contradictory. The order states “reference to your reply dated 02/01/2022 in response to the notice to show cause dated 02/12/2021” 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 01.07.2017 i.e., a retrospective date. There is no material on record to show as to why the registration is sought to be cancelled retrospectively.

5. In fact, in our view, order dated 15.12.2022 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.

6. Learned counsel for petitioner submits that petitioner is no longer interested in continuing the business and has closed down his business activities as he has shifted his business activities abroad.

7. We notice that the Show Cause Notice and the impugned order are bereft of any details accordingly the same cannot be sustained and neither the Show Cause Notice, nor the order spell out the reasons for retrospective cancellation.

8. 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.

9. 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 is 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.

10. 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.

11. In view of the fact that Petitioner does not seek to carry on business or continue the registration, the impugned order dated 15.12.2022 is modified to the limited extent that registration shall now be treated as cancelled with effect from 02.12.2021 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.

12. 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.

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

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