Case Law Details
Delhi Polymers Vs Commissioner (Delhi High Court)
Introduction: Delhi Polymers filed an appeal against the retrospective cancellation of its GST registration by the GST department. The Delhi High Court examined the legality of the cancellation, especially its retrospective nature, and provided crucial directives in this regard.
Detailed Analysis: The crux of the matter revolved around the retrospective cancellation of Delhi Polymers’ GST registration by the GST department, effective from July 1, 2017. The cancellation was based on a Show Cause Notice issued to the petitioner, citing reasons for potential cancellation related to tax payment delays.
However, the Court noted several inconsistencies and shortcomings in both the Show Cause Notice and the subsequent cancellation order. Firstly, the Show Cause Notice failed to mention the possibility of retrospective cancellation, depriving the petitioner of a fair opportunity to contest this aspect. Additionally, the cancellation order lacked clear reasoning and contained contradictory statements regarding the petitioner’s response to the notice.
The Court emphasized that GST registration cannot be cancelled retrospectively without valid reasons. It highlighted that such cancellations must be based on objective criteria and cannot be merely due to a taxpayer’s failure to file returns for a specific period. Furthermore, the Court noted the significant implications of retrospective cancellation on input tax credit for the taxpayer’s customers.
Both the petitioner and the department expressed a desire for cancellation, albeit for different reasons. Considering that the petitioner no longer intended to continue business operations, the Court modified the cancellation order. It directed the cancellation of registration from the date of issuance of the Show Cause Notice, providing relief to the petitioner while ensuring compliance with legal requirements.
Conclusion: The judgment of the Delhi High Court in Delhi Polymers Vs Commissioner clarifies the legal principles governing the retrospective cancellation of GST registration. It underscores the importance of procedural fairness and reasoned decision-making in such matters. The directive to cancel registration from the issuance date of the Show Cause Notice strikes a balance between the interests of the taxpayer and regulatory compliance.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Petitioner has filed the appeal impugning order of cancellation of registration dated 15.12.2021 whereby the GST registration of the Petitioner has been cancelled retrospectively with effect from 01.07.2017. Petitioner also impugns Show Cause Notice dated 04.09.2021.
2. Vide Show Cause Notice dated 04.09.2021, petitioner was called upon to show cause as to why the registration be not cancelled for the following reason:-
“Collects any amount representing the tax but fails to pay the same to the account of the Central/State Government beyond a period of three months from the date on which such payment becomes due”
3.Petitioner was engaged in the business of Sanitary ware Products & Accessories i.e., Baths, Shower, Washbasins, Seats and Cover and possessed GST registration.
4. Show Cause Notice dated 04.09.2021 was issued to the Petitioner seeking to cancel its registration. However, the 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. Further, the impugned order dated 15.12.2021 passed on the Show Cause Notice dated 04.09.2021 does not give any reasons for It, however, states that the registration is liable to be cancelled for the following reason “whereas no reply to the show cause notice has been submitted”. However, the said order in itself is contradictory. The order states “reference to your reply dated 15.12.2021 in response to the notice to show cause dated 04.09.2021” and the reason stated for the cancellation is “whereas no reply to notice 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.
6. Neither the show cause notice, nor the order spell out the reasons for retrospective cancellation. In fact, in our view, order dated 12.2021 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.
7. Learned Counsel for the Petitioner submits that the said order reflected that the GST registration of petitioner stands cancelled from 07.2017 even though returns thereafter have been filed by the Petitioner.
8. He further submits that the petitioner is no longer interested in continuing the business and the business has been discontinued.
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 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 Petitioners and the department want cancellation of the GST registration of the Petitioner, though for a different reason.
12. In view of the fact that Petitioner does not seek to carry on business or continue the registration, the impugned order dated 15.12.2021 is modified to the limited extent that registration shall now be treated as cancelled with effect from 04.09.2021 i.e., the date when the Show Cause Notice was issued.
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.
14. Petition is accordingly disposed of in the above terms.
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