Case Law Details
Prem Enterprises Vs Commissioner of Delhi GST And ST & Anr. (Delhi High Court)
In a significant ruling, the Delhi High Court addressed the issue of retrospective cancellation of Goods and Services Tax (GST) registration in the case of Prem Enterprises Vs Commissioner of Delhi GST And ST & Anr. The judgment dated 18.04.2023 has implications for the GST regulatory framework, particularly concerning the cancellation of GST registrations and the rights of taxpayers.
Background of the Case
Prem Enterprises, a partnership firm engaged in the manufacturing and trading of sanitary goods, faced cancellation of its GST registration by an order dated 08.07.2021, effective retrospectively from 10.07.2017. This action followed a series of applications by the firm for cancellation of its registration, citing the cessation of business activities from 30.06.2020. The case centered on the validity of retrospective cancellation, procedural adherence by tax authorities, and the consequential rights and obligations of the taxpayer post-cancellation.
Legal Contentions and High Court’s Observations
The primary legal contention revolved around the issuance of a show cause notice dated 29.06.2021, which led to the cancellation of GST registration without specifying cogent reasons. The notice referenced a failure to furnish returns for a continuous six-month period as the basis for cancellation.
The High Court observed several procedural and substantive anomalies in the tax authorities’ approach, particularly:
- The lack of specific reasons in the show cause notice.
- The absence of an opportunity for the petitioner to address the proposed retrospective effect of the cancellation.
- The application of Section 29(2) of the Central Goods and Services Tax Act, 2017, concerning the cancellation of GST registration, requires objective satisfaction of the proper officer and cannot be exercised mechanically.
Judgment and Its Implications
The Delhi High Court modified the cancellation order to take effect from 30.06.2020, aligning with the date the petitioner ceased its business operations. This modification underscores several critical aspects of GST law enforcement:
- Retrospective cancellation of GST registration must be based on objective criteria and cannot be presumed to be the default recourse.
- Tax authorities must provide clear reasons and afford taxpayers an opportunity to address concerns, especially when considering retrospective cancellation.
- The potential impact on taxpayers’ customers, particularly concerning input tax credit, must be a consideration in deciding on the retrospective effect of cancellation.
Furthermore, the Court directed Prem Enterprises to furnish all requisite details as previously requested by the tax authorities, enabling the assessment of any tax, penalty, or interest liabilities accruing both prior and subsequent to 30.06.2020.
Conclusion
This judgment reinforces the principles of fairness and due process in the administration of GST law. By limiting the retrospective effect of GST registration cancellation to the date of actual cessation of business, the Delhi High Court has provided clarity on the rights of taxpayers and the obligations of tax authorities. The decision emphasizes the need for objective criteria in regulatory actions and underscores the importance of considering the broader implications of such actions on the taxpayer and the market.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Petitioner impugns Order in Appeal dated 18.04.2023 whereby the appeal filed by the petitioner has been dismissed solely on the ground of limitation.
2. Petitioner filed the appeal impugning order of cancellation of registration dated 08.07.2021 whereby the GST registration of the Petitioner was cancelled retrospectively with effect from 10.07.2017 Petitioner also impugns order dated 05.11.2020 and 28.06.2021, whereby the application for cancellation of GST registration was rejected. Petitioner also impugns Show Cause Notice dated 29.06.2021.
3. Vide Show Cause Notice dated 29.06.2021, 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”
4. Petitioner, a Partnership Firm was in business of Manufacturing and trading of Sanitary Goods and was registered under Goods and Services Tax Act, 2017. GST registration of the petitioner was cancelled by order dated 08.07.2021 retrospectively with effect from 10.07.2017.
5. Petitioner claims to have shut the business of w.e.f 30.06.2020 and applied for cancellation of GST registration.
6. Petitioner was called upon by the respondents to furnish certain details by notice dated 16.09.2020, However, as per the petitioner, letter dated 16.09.2020 did not require the petitioner to furnish any details and as such, no details could be furnished.
7. Application for cancellation was rejected on 05.11.2020. Thereafter, the petitioner once again applied for cancellation on 22.12.2020, in response to which, a notice dated 26.03.2021 was received, requiring the petitioner to furnish further details. However, the same was not provided and as such, the application was once again rejected. Petitioner, thereafter, filed an appeal before the Appellate Authority, which appeal has also been dismissed by order dated 18.04.2023.
8. It may be noticed that the show cause notice dated 29.06.2021 issued to the petitioner does not specify any cogent reason, there is an observation in the notice stating “failure to furnish returns for a continuous period of six months”.
9. Further, the impugned order of cancellation dated 08.07.2021 states that the registration is liable to be cancelled for the following reason “whereas no reply to notice to show cause has been submitted”. It seeks to cancel the registration with retrospective effect from 10.07.20 17. 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 29.06.2021 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. Records clearly demonstrate that the Petitioner had submitted an application seeking cancellation of the GST registration on 25.07.2020 and 22.12.2020 and thereafter, vide order dated 08.07.2021, the registration of the Petitioner had been cancelled. We note that the cancellation of registration has been done with retrospective effect.
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 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.
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 tax input tax credit availed in respect of the supplies made by the 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. 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 30.06.2020, i.e., the date on which the petitioner discontinued the business.
15. However, the petitioner shall furnish all requisite details to the respondents as required to be submitted by the petitioner by letter dated 26.03.2021 to enable the respondents to ascertain if any demand is liable to be raised against the petitioner for the periods both prior and post 3 0.06.2020.
16. 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.
17. Petition is accordingly disposed of in the above terms.
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