Case Law Details
Indotech Magnetics Vs Commissioner of Delhi Goods And Service Tax & Anr. (Delhi High Court)
Introduction: The Delhi High Court recently issued a significant order in the case of Indotech Magnetics vs Commissioner of Delhi Goods and Service Tax, directing the retrospective cancellation of GST registration. The petitioner sought relief against an order dated 11.10.2023, wherein their GST registration was cancelled with retrospective effect.
Detailed Analysis:
Background of the Case: The petitioner, registered under the name ‘M/s Indotech Magnetics,’ claimed to have discontinued business from 01.04.2020. They filed an application on 29.05.2020, requesting the cancellation of GST registration from the said date. The GST department, however, suspended the registration on 11.01.2022, citing non-filing of returns for over six months.
Show Cause Notice and Impugned Order: A show cause notice (SCN) was issued on 11.01.2022, proposing the cancellation of GST registration due to non-filing of returns. The petitioner’s registration was suspended from the date of the SCN. Subsequently, the impugned order cancelled the registration with retrospective effect from 01.07.2017, without specifying reasons.
Legal Provisions and Court’s Observations: Section 29(2) of the Central Goods and Services Tax Act, 2017 empowers the proper officer to cancel GST registration retrospectively under specific circumstances. The court emphasized that such cancellation must be based on objective criteria and not merely due to non-filing of returns.
Flaws in the Show Cause Notice: The court noted that the SCN proposing cancellation was flawed. The petitioner had already closed the business from 01.04.2020, and non-filing of returns thereafter couldn’t be a ground for cancellation during the compliant period.
Lack of Reasons in the Impugned Order: The impugned order lacked clarity on the reasons for retrospective cancellation. It neither specified the grounds nor provided any rationale for the retroactive effect.
Conclusion: The Delhi High Court, recognizing the deficiencies in the show cause notice and the impugned order, allowed the petition. The court directed the cancellation of the petitioner’s GST registration to take effect from the date of the application, i.e., 29.05.2020. This decision highlights the importance of reasoned orders and objective criteria in the cancellation of GST registrations. The judgment ensures that cancellations are not mechanical but consider the circumstances and comply with the provisions of the law. It also preserves the rights of the taxpayer and prevents undue consequences on customers’ input tax credit. The court’s directive provides clarity and sets a precedent for similar cases, emphasizing fairness and adherence to legal procedures.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Issue notice.
2. Mr. Aggarwal, learned counsel appearing for the respondents accept notice.
3. Petitioner has filed the present petition impugning an order dated 11.10.2023 (hereafter the impugned order), whereby the petitioner’s GST registration was cancelled with retrospective effect.
4. Petitioner was registered with the GST authority with effect from 16.07.2023. The petitioner claims that he was carrying on the business under the name of ‘M/s Indotech Magnetics’ and was assigned Goods and Service Tax Identification Number (GSTIN) 07AAAFI8460N1ZZ. Petitioner claims that they discontinued the business w.e.f. 01.04.2020 and filed an application dated 29.05 .2020 praying that the GST registration be cancelled with effect from the said date. Respondent did not act on the said request for over one year. However, on 11.01.2022, the concerned officer of GST department issued a notice on the ground that no return had been filed for over six months.
5. The proper officer issued a show cause notice dated 11.01.2022 (hereafter ‘the SCN’), proposing to cancel the petitioner’s GST – registration for the following reasons:
“1 Any Taxpayer other than composition taxpayer has not filed returns for a continuous period of six months”.
6. Petitioner was called upon to respond to the SCN within a period of seven working days and to appear before the concerned officer for personal hearing “on the appointed date and time”, failing which the petitioner was cautioned that their case would be decided ex-parte. Additionally, the petitioner’s GST registration was suspended with effect from the date of the SCN, i.e. 11.01.2022.
7. Thereafter, the proper officer passed the impugned order cancelling the petitioner’s GST registration with retrospective effect from 01.07.2017. The impugned order does not indicate any reason for cancelling the petitioner’s GST registration except mentioning that no reply has been received to the SCN.
8. 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. 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.
9. 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.
10. In the present case, the petitioner had indicated that she closed the business w.e.f 01.04.2020. Thus, not filing returns, thereafter, cannot be a ground to cancel the registration in respect of the period while petitioner was carrying on the business in compliance with the provisions of the law.
11. As noted above, the SCN proposing to cancel the petitioner’s GST registration is flawed. The impugned order cancelling the petitioner’s GST registration is also liable to be set aside as it is bereft of any reason. It neither specifies the reason for cancelling the GST registration nor gives any clue as to why it was cancelled with retrospective effect.
12. In view of the above, we consider it apposite to allow the present petition and direct that the cancellation of the petitioner’s GST registration shall take effect from 29.05.2020, being the date of the application filed by the petitioner seeking cancellation of the GST registration.
13. It is clarified that this order would not preclude the respondent from initiating any steps in accordance with law, if it is found that the petitioner had violated any provisions of the Act prior to 29 .05 .2020.
14. The petition is allowed in the aforesaid terms. All pending applications are also disposed of.
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