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Case Law Details

Case Name : Shree Balaji Industries Vs Commissioner of DGST And Anr (Delhi High Court)
Appeal Number : W.P.(C) 1448/2024
Date of Judgement/Order : 21/02/2024
Related Assessment Year :

Shree Balaji Industries Vs Commissioner of DGST And Anr (Delhi High Court)

Introduction: In a significant judgment, the Delhi High Court addressed the issue of GST registration cancellation for Shree Balaji Industries, highlighting the criticality of providing cogent reasons in administrative notices. The court’s decision to set aside both the show cause notice and the order of cancellation due to their lack of substantive reasoning underlines the importance of due process in tax administration.

Detailed Analysis: The case revolved around a show cause notice issued to Shree Balaji Industries, proposing the cancellation of its GST registration based on alleged wrongful Input Tax Credit (ITC) availed from M/s Jagdamba Enterprises. The court found several procedural and substantive flaws in the manner in which the tax authorities handled the cancellation process:

1. Lack of Specific Reasons: The show cause notice and the subsequent order of cancellation failed to provide specific reasons for the proposed action, merely citing a letter received from JC(AE) Noida about wrong ITC availment.

2. Procedural Anomalies: The order of cancellation was found contradictory, mentioning both the absence and presence of a reply from the petitioner to the show cause notice. Furthermore, the notice itself did not specify a date and time for a personal hearing, rendering it procedurally deficient.

3. Retrospective Cancellation: The court criticized the retrospective effect given to the cancellation, dating back to 2017, noting that such decisions require objective criteria and cannot be done “mechanically.”

4. Impact on Taxpayers and Customers: The judgment also touched upon the broader implications of retrospective cancellation, such as the denial of ITC to the taxpayer’s customers, emphasizing that such consequences must be carefully considered by the proper officer.

5. Legal Framework: The court’s analysis was grounded in the provisions of the Central Goods and Services Tax Act, 2017, specifically highlighting the need for objective satisfaction by the proper officer before cancelling a registration, especially with retrospective effect.

Conclusion: The Delhi High Court’s decision in the case of Shree Balaji Industries vs Commissioner of DGST And Anr is a landmark judgment that reiterates the foundational principles of justice and due process in the administration of tax laws. By setting aside the GST registration cancellation notice for lack of cogent reasons, the court has underscored the necessity for tax authorities to adhere strictly to procedural and substantive legal standards. This judgment serves as a reminder of the legal safeguards in place to protect taxpayers’ rights and the importance of administrative authorities providing clear, detailed, and justified reasons for their actions. The case also highlights the potential implications of such administrative actions on the broader economic ecosystem, including the effects on input tax credit chains.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. Petitioner impugns order dated 27.12.2021 whereby the GST registration of the petitioner was cancelled retrospectively with effect from 08.07.2017. Petitioner also impugns Show Cause Notice dated 31.08.2021.

2. Vide impugned Show Cause Notice dated 31.08.2023, petitioner was called upon to show cause as to why the registration be not cancelled for the following reasons:-

Letter recvd. 802 dt 27/07/2020 from JC(AE)Noida, wrong ITC availment from M/s Jagdamba Enterprises

3. Petitioner was working in the name of M/s Shree Balaji Industries, at Khasra No. 628/469, 480, Sultanpur Mazra, North-West Delhi- 1100086 which is a partnership firm. Petitioner was engaged in business of manufacturing of labels, badges and similar articles of textile material and possessed GST registration.

4. Show cause notice dated 31.08.2021 was issued to the petitioner seeking cancellation of GST registration. The notice does not specify any cogent reason, and merely states Letter recvd. 802 dt27/07/2020 from JC(AE)Noida, wrong ITC availment from M/s Jagdamba Enterprises”.

5. Further, the order dated 27.12.2021 passed on the show cause notice dated 31.08.2021 does not give any reasons for cancellation of the registration. It merely states “whereas no reply to notice show cause has been submitted”. However, the said order in itself is contradictory, the order states “reference to your reply dated 10.2021 in response to the notice to show cause dated 31.08.2021” 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 08.07.2017 i.e., a retrospective date.

6. Neither the show cause notice nor the order spell out the reasons for cancellation. In fact, in our view, order dated 27.12.2021 does not qualify as an order of cancellation of 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 amounts stated to be due against the petitioner and the table shows nil demand.

7. The Show Cause Notice did 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.

8. Show Cause Notice dated 08.2021 records that wrongful Input Tax Credit [“ITC”] was availed from M/S Jagdamba Enterprises, however, as per the petitioner, he did not have any dealing with M/S Jagdamba Enterprises and no ITC has been availed qua the said entity.

9. Further, it may be noticed that the show cause notice directed the petitioner to appear for personal hearing on an appointed date and time whereas no date and time was mentioned in the said show cause notice.

10. As per the petitioner he could not file reply to the said show cause notice. However, the impugned order dated 27.12.2021 refers to a reply dated 10.2021 allegedly submitted by the petitioner and in the next line states that no reply to the notice has been filed by the petitioner and thereafter cancels the registration retrospectively with effect from 08.07.2017.

11. We notice that the show cause notice and the impugned order are also bereft of any details accordingly the same cannot be sustained.

12. 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 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.

13. 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 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.

14. Further, there is no reasoning in the said show cause notice and in the impugned order as to why the cancellation has been done retrospectively.

15. In view of the above, petition is allowed. The impugned show cause notice dated 31.08.2021, order of cancellation dated 27.12.2021 are accordingly set aside. The GST registration of the petitioner is Petitioner shall comply with Rule 23 of the Central Goods and Service Tax Rules, 2017.

16. It is clarified that respondents are at liberty to take further action in accordance with law and are not precluded from taking any steps for recovery of any tax, penalty or interest that may be due from the petitioner.

17. Petition is disposed of in above terms.

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