Case Law Details
Green Work Metal Vs Principal Commissioner of GST & Anr. (Delhi High Court)
In a recent judgment, the Delhi High Court modified the cancellation date of GST registration for Green Work Metal, a business dealing in copper-related goods. The petitioner, Green Work Metal, challenged the retrospective cancellation of its GST registration to 11.09.2017, seeking instead an effective cancellation date of 16.01.2021, the date on which the petitioner originally applied for cancellation.
Case Background
Green Work Metal, engaged in trading stranded wire, cable, plated bands, and other copper articles, had registered under the Goods and Services Tax (GST) Act, 2017. On 16.01.2021, the petitioner applied to cancel this registration due to business discontinuation. The respondent, Principal Commissioner of GST, issued a notice on 18.01.2021, requesting additional information, which was followed by a Show Cause Notice (SCN) on 29.01.2021. This SCN stated concerns about tax collection and payment failures, prompting a potential cancellation of registration.
Respondent’s Actions and Issues Raised
The petitioner’s application for GST cancellation was initially rejected on 27.01.2021. However, the rejection order did not provide specific reasons for dissatisfaction with the petitioner’s response. Subsequently, on 08.02.2021, the GST registration was cancelled with retrospective effect from 11.09.2017, citing no response to the SCN as justification. The petitioner argued that there was no prior indication in the SCN of the intention to apply retrospective cancellation, depriving them of a fair opportunity to contest it.
Legal Grounds for Retrospective Cancellation
According to Section 29(2) of the Central GST Act, a proper officer may cancel a GST registration from a retrospective date if deemed necessary. The High Court emphasized that such cancellations cannot be executed arbitrarily; they require objective justification. The court noted that retrospective cancellations may have significant consequences for the taxpayer’s customers, particularly with regard to input tax credit (ITC) on supplies made during the cancelled period. Therefore, any retrospective cancellation must consider whether these impacts are warranted and intended.
Court’s Observations and Decision
The court observed that both the petitioner and respondent sought cancellation of the GST registration, albeit for different reasons. The court also highlighted procedural gaps, particularly the lack of clarity and reasoning in the respondent’s initial rejection of the petitioner’s application for cancellation.
Based on these findings, the Delhi High Court ruled in favor of the petitioner. The court modified the GST cancellation order, setting the effective cancellation date to 16.01.2021, in line with the petitioner’s initial application date. The petitioner is required to provide the necessary information as per the notice issued on 18.01.2021, allowing the authorities to determine any outstanding liabilities.
Final Remarks
The court clarified that the modified order does not prevent the respondent from pursuing any lawful recovery of taxes, penalties, or interest from the petitioner if applicable. The judgment underlines the need for fair procedural adherence in tax-related cancellations, particularly regarding retrospective effects that could have broad impacts on stakeholders.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Petitioner seeks direction to respondent to cancel the GST registration of the petitioner with effect from 16.01.2021 and impugns order dated 08.02.2021 whereby the GST registration of the petitioner was cancelled retrospectively with effect from 11.09.2017.
2. Vide Show Cause Notice dated 29.01.2021, petitioner was called upon to show cause as to why the registration be not cancelled for the following reasons:-
“Collects any amount as 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 the proprietor of Green Work Metal and was in business of trading goods like stranded wire, cable, plated bands, and similar copper articles without electrical insulation and was registered under Goods and Services Tax Act, 2017.
4. Petitioner had submitted an application seeking Cancellation of Registration Certificate on 16.01.2021 on ground of discontinuation of business.
5. Pursuant to the said application, notice was issued by the respondent on 18.01.2021 seeking additional information and documents relating to application for cancellation of registration.
6. Said application for cancellation was rejected vide order dated 27.01.2021. Though the order rejects it on the ground of an unsatisfactory reply, the order does not specify any specific cogent reason for the same.
7. It appears that the respondents are using a template for issuing said order without providing any particulars. There is no clarity as to why the reply has been found to be unsatisfactory.
8. Thereafter, on 29.01.2021, Show Cause Notice was issued to petitioner on the ground that “collects any amount as 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”.
9. It may be noticed that the impugned order dated 08.02.2021 states that the registration is liable to be cancelled for the following reason “whereas no reply to notice to show cause has been submitted”. The order also seeks to cancel the registration with retrospective effect from 11.09.2017. However, there is no material on record to show as to why the registration is sought to be cancelled retrospectively.
10. The Show Cause Notice dated 29.01.2021 also does not put the petitioner to notice that the registration is liable to be cancelled retrospectively. Accordingly, petitioner had no opportunity to even object to the retrospective cancellation of the registration.
11. 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. 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 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.
13. Records clearly demonstrate that the Petitioner had submitted an application seeking cancellation of the GST registration on 16.01.2021 which was rejected and thereafter, vide order dated 08.02.2021, the registration of the petitioner has been cancelled retrospectively with effect from 11.09.2017.
14. It is clear that both the petitioner and the respondent want the GST registration to be cancelled, though for different reasons.
15. In view of the above facts and circumstances, the petition is allowed. The order of cancellation is modified to the extent that the same shall operate with effect from 16.01.2021, i.e., the date of the petitioner’s application for cancellation of registration.
16 However, petitioner shall furnish all requisite details to the respondents as required to be submitted by the petitioner in respect of notice dated 18.01.2021 to enable the respondents to ascertain if any demand is liable to be raised against the petitioner.
17. 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 from the petitioner in accordance with law.
18. The petition is accordingly disposed of in the above terms.
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