Case Law Details
Ravi Parkash Goel proprietor of M/S. Gopish Pharma Vs Sales Tax Officer Class II/AVATO (Delhi High Court)
In a notable case, Ravi Parkash Goel vs. Sales Tax Officer Class II/Avato, the Delhi High Court addressed the retrospective cancellation of GST registration without adequate reasoning. The judgment, delivered on the 30th of November, 2022, provides critical insights into the procedural deficiencies and the requirements for a valid cancellation order under the Central Goods and Services Tax Act, 2017 (CGST Act).
The petitioner, Ravi Parkash Goel, engaged in the business of plastic granules and PVC compounds, held GST registration since the implementation of the CGST Act in July 2017. On April 25, 2022, Goel applied for the cancellation of his GST registration, citing business closure due to old age. Subsequently, on April 26, 2022, the tax authorities issued a notice requesting additional information regarding the cancellation application. Despite providing the required information, the application was rejected on May 30, 2022, without specifying substantial reasons for the rejection. Following the rejection, a Show Cause Notice was issued on the same day, alleging fraudulent invoicing and wrongful utilization of input tax credit. However, this notice lacked essential details such as the specific allegations, the date and time for the hearing, and the name of the concerned officer. This procedural flaw deprived the petitioner of a fair opportunity to contest the allegations. On November 30, 2022, an order was issued retrospectively canceling the GST registration from July 1, 2017. The order stated the cancellation was due to the petitioner’s failure to respond to the Show Cause Notice, despite contradictory mentions of a reply submitted on October 13, 2022. This inconsistency, coupled with the lack of detailed reasoning, prompted the petitioner to challenge the order in the Delhi High Court. The court highlighted the deficiencies in both the Show Cause Notice and the cancellation order. According to Section 29(2) of the CGST Act, the proper officer may cancel a GST registration from a retrospective date only if the circumstances justify such action. The court emphasized that retrospective cancellation cannot be executed mechanically and must be supported by objective criteria. In Goel’s case, the tax authorities failed to provide a cogent rationale or evidence justifying the retrospective effect, rendering the cancellation order unsustainable. Furthermore, the court noted the significant consequence of denying input tax credit to customers due to retrospective cancellation. Such an action must be deliberate and warranted, which was not evident in this case. The court modified the cancellation order, making it effective from April 25, 2022, the date of Goel’s initial application for cancellation, aligning with the petitioner’s intention to cease business operations.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Petitioner impugns order dated 30.11.2022 whereby the GST registration of the petitioner was cancelled retrospectively with effect from 01.07.2017 and also impugns Show Cause Notice dated 30.05.2022.
2. Petitioner was engaged in the business of plastic granules, pvc compound etc. and possessed GST Registration under the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the Act).
3. Petitioner submitted an application dated 25.04.2022 seeking cancellation of the GST Registration on the ground of closure of business.
4. Pursuant to the said application, Notice dated 26.04.2022 was issued to the petitioner seeking additional information and documents relating to the application for cancellation of registration. However, the application seeking cancellation of registration was rejected vide order dated 30.05.2022. Though the said order does not give any specific reasons for rejection, it merely states “The reply has been examined and the same has not been found to be satisfactory for the following reasons” Said order does not give any particulars or details.
5. Thereafter, impugned Show Cause Notice dated 30.05.2022 was issued to the Petitioner seeking to cancel its registration. Said notice also does not specify any cogent reason, it merely states “Issues any invoice or bill without supply of goods and/or services in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilization of input tax credit or refund of tax.” Said Show Cause Notice required the petitioner to appear before the undersigned i.e., authority issuing the notice. However, the said Notice does not bear the date, time and name of the officer or place where the petitioner was required to appear for personal hearing. It merely has digital signatures and mentions “digitally signed by DS GOODS AND SERVICES TAX NETWORK (4) ‘
6. 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.
7. Thereafter, impugned order dated 30.11.2022 passed on the Show Cause Notice 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 13/10/2022 in response to the notice to show cause dated 30/05/2022” 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. It may be noted that in the column at the bottom there are no dues stated to be due against the petitioner and the table shows nil demand.
8. As per the petitioner, all returns have been filed till March 2022 e., till the business was functional.
9. Learned counsel for petitioner submits that the petitioner is no longer interested in continuing business and has closed down all business activities due to the Petitioners old age.
10. We notice that the Show Cause Notice and the impugned order are also 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.
11. 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.
12. 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 ’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 customers are denied the 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.
13. It is clear that both the petitioner and the respondent want the GST registration to be cancelled, though for different reasons.
14. In view of the above that the Petitioner does not seek to carry on business or continue the registration, the impugned order dated 30.11.2022 is modified to the limited extent that registration shall now be treated as cancelled with effect from 25.04.2022 i.e., the date when petitioner filed an application seeking cancellation of GST registration.
15. Petitioner shall make the necessary compliances as required by Section 29 of the Central Goods and Services Tax Act, 2017.
16. 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 giving a proper notice and a personal hearing to the Petitioner.
17. Petition is disposed of in the above terms.
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