Case Law Details
Aryan Timber Store Through Its Prop Virender Kumar Vs Sales Tax Officer (Delhi High Court)
Introduction: The Delhi High Court recently delivered a significant judgment in the case of Aryan Timber Store vs. Sales Tax Officer, challenging the retrospective cancellation of GST registration. This article provides an in-depth analysis of the case, highlighting key arguments, court observations, and the implications of the decision.
Detailed Analysis:
- Background of the Case: The petitioner contested the retrospective cancellation of their GST registration, initiated through an order dated 07.2022. The cancellation, effective from 01.07.2017, was also challenged along with a Show Cause Notice issued on 15.07.2021.
- Petitioner’s Contentions: The petitioner ceased business operations on 31.03.2019 and applied for cancellation on 06.05.2019. The Show Cause Notice cited non-filing of returns for six consecutive months as grounds for cancellation, a claim disputed by the petitioner.
- Lack of Notice on Retrospective Cancellation: The petitioner raised a crucial point that the Show Cause Notice did not inform them about the possibility of retrospective cancellation. This lack of notice deprived the petitioner of the opportunity to contest such a measure.
- Questioning the Retrospective Aspect: The court observed the absence of material justifying retrospective cancellation. The petitioner’s prior application for cancellation on 06.05.2019 was a pivotal aspect, challenging the retrospective nature of the order.
- Legal Basis and Criteria for Cancellation: Section 29(2) of the Central Goods and Services Tax Act, 2017, empowers the proper officer to cancel registration retrospectively. The court emphasized that such cancellations must be based on objective criteria, not merely due to non-filing of returns.
- Consideration of Consequences: The article delves into the consequences of retrospective cancellation, particularly the denial of input tax credit for customers. The court suggests that the proper officer must weigh such consequences before making a retrospective cancellation decision.
- Modified Order by the Court: Considering the circumstances, the court modified the order, making it effective from 06.05.2019—the date of the petitioner’s initial cancellation request. The respondents were allowed to pursue lawful steps for tax recovery.
Conclusion: The Delhi High Court’s judgment highlights the importance of due process in GST registration cancellations. It establishes that retrospective cancellations should be supported by valid grounds and considerations of potential consequences. The modified order reflects a balance between taxpayer rights and regulatory requirements. This case serves as a precedent for similar disputes, emphasizing the need for fairness and clarity in tax-related decisions.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Petitioner impugns order dated 07.2022, whereby the GST registration of the petitioner was cancelled retrospectively with effect from 01.07.2017 and also impugns the Show Cause Notice dated 15.07.2021.
2. It is submitted that petitioner discontinued his business e.f 31.03.2019 and applied for cancellation on 06.05.2019. Vide Show Cause Notice dated 15.07.2021, petitioner was called upon to show cause as to why the registration be not cancelled for the following reasons:-
“Any Taxpayer other than composition taxpayer has not filed returns for a continuous period of six months”
3.We may note that though the Show Cause Notice states that petitioner failed file the returns for a continuous period of six months.
4. The impugned order also seeks to cancel the registration with effect from 01.07.2017. There is no material on record to show as to why the registration is sought to be cancelled retrospectively.
5. Further, the Show Cause Notice dated 07.2021 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.
6. Records clearly demonstrates that petitioner had submitted an application seeking cancellation of the GST registration on 06.05.2019 and thereafter, vide order dated 09.07.2022, the registration of the petitioner had been cancelled. Once the registration stood cancelled, there was no cause for the petitioner to file any returns. Accordingly, the cancellation of the registration on the ground that petitioner has failed to file returns is not sustainable. Further, we note that the cancellation of registration has been done with retrospective effect.
7. 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.
8. 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 respects 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.
9. In view of the above facts and circumstances, the order of cancellation is modified to the extent that the same shall operate with effect from 06.05.2019, i.e., the date when petitioner first applied for cancellation of registration. It is clarified that respondents are 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.
10. The petition is accordingly disposed of in the above terms.