Delhi HC Ordered restoration of GST registration of petitioner

Visiontek Engineers Vs Commissioner of SGST Delhi & Anr (Delhi High Court)

In the case of Visiontek Engineers v. Commissioner of SGST Delhi & Anr, the Delhi High Court addressed the cancellation of GST registration of Visiontek Engineers (hereinafter referred to as “the petitioner”) by the tax authorities. The judgment, delivered on a petition challenging the cancellation, provides insights into procedural fairness and legal principles governing such cancellations under the Central Goods and Services Tax Act, 2017.

Background and Facts: Visiontek Engineers, engaged in services as a contractor and trader of air conditioning machines, held GST registration under the Act with registration number 07AEYPB6907R2ZK. The issue arose when a Show Cause Notice dated 11th October 2021 was issued to the petitioner, proposing retrospective cancellation of its GST registration effective from 1st July 2017. The notice cited non-filing of returns for a continuous period of six months as the grounds for cancellation.

Key Points of the Judgment:

1. Procedural Irregularities: The High Court noted several procedural irregularities in both the Show Cause Notice and the subsequent cancellation order:
   • The Show Cause Notice lacked specificity and failed to provide adequate reasons for the proposed cancellation.
   • It did not mention the date and time of the personal hearing, depriving the petitioner of an opportunity to present its case effectively.
   • The cancellation order, dated 23rd July 2022, also lacked reasoned grounds and cited the petitioner’s failure to respond to the notice, despite contradictory information within the order itself.
2. Legal Analysis: The Court invoked Section 29(2) of the CGST Act, 2017, which allows for retrospective cancellation of GST registration under certain conditions. However, it emphasized that such cancellations must be justified by objective criteria and not done mechanically. Mere non-filing of returns does not automatically warrant retrospective cancellation covering periods of compliance.
3. Fairness and Compliance: Highlighting fairness in administrative actions, the Court criticized the lack of detailed reasoning in the notice and the order. It stressed that taxpayers must be informed adequately of the grounds and implications of such cancellations, especially regarding the denial of input tax credit to customers.
4. Relief Granted: In its decision, the Delhi High Court set aside the cancellation order dated 23rd July 2022. It directed the restoration of Visiontek Engineers’ GST registration, effective immediately. However, it mandated the petitioner to comply with all necessary requirements, including filing requisite returns and information as per Rule 23 of the CGST Rules, 2017.
5. Future Actions: The judgment clarified that while the registration was restored, the tax authorities were not barred from pursuing recovery of any taxes, penalties, or interest due from the petitioner. Any prospective cancellation of GST registration would require proper notice and an opportunity for the petitioner to be heard, ensuring procedural fairness.

Conclusion: The Visiontek Engineers case underscores the importance of procedural fairness and reasoned decision-making in administrative actions under GST law. It reaffirms that tax authorities must provide clear and specific reasons when proposing retrospective cancellations of GST registration.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. Petitioner impugns order dated 23.07.022 whereby the GST registration of the petitioner was cancelled retrospectively with effect from 01.07.2017. Petitioner also impugns Show Cause Notice dated 11.10.2021.

2. Petitioner is engaged in the business of providing service/ contractor and trader of air condition machines and possessed GST registration bearing number 07AEYPB6907R2ZK under the Central Goods and Services Act, 2017 (hereinafter referred to as the Act).

3. Show Cause Notice dated 11.10.2021 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 does not bear the date and time whereby the petitioner was required to appear for personal hearing.

4. 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.

5. Thereafter, impugned order dated 23.07.2022 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 07/01/2022 in response to the notice to show cause dated 11/10/2021” 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.

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 the petitioner under instructions submits that after cancellation of the GST registration till the date petitioner has not carried out any business.

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.

9. In terms of Section 29(2) of the Central Goods and Services Tax Act, 2017, 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. The 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 this regard is correct, it would follow that the proper officer is also 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. In view of the aforesaid, order dated 23.07.2022 cannot be sustained and is accordingly set aside. The GST registration of the petitioner is restored. Petitioner shall, however, make all necessary compliances and file the requisite returns and information inter alia in terms of Rule 23 of the Central Goods and Services Tax Rules, 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 after giving a proper notice and an opportunity of hearing.

13. The petition is accordingly disposed of in the above terms.