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Case Law Details

Case Name : EM Power Engineering Private Limited Vs Central Board Of Indirect Taxes and Customs & Ors. (Delhi High Court)
Appeal Number : W.P.(C) 2339/2024& CM. APPL. 9695/2024
Date of Judgement/Order : 16/02/2024
Related Assessment Year :
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EM Power Engineering Private Limited Vs Central Board Of Indirect Taxes and Customs & Ors. (Delhi High Court)

Introduction: In a significant judgment by the Delhi High Court, EM Power Engineering Private Limited saw a major victory as the court overturned the cancellation of its GST registration. This case, “EM Power Engineering Private Limited Vs Central Board Of Indirect Taxes and Customs & Ors.,” underscores the necessity of due process and adequate reasoning in administrative actions, particularly concerning GST registration cancellations. The court’s decision came after the company’s registration was cancelled retrospectively without a clear explanation, highlighting a crucial oversight in procedural fairness.

Detailed Analysis: The crux of the matter stemmed from a show cause notice issued to EM Power Engineering, which ambiguously stated non-compliance with GST return filings for six months as the reason for potential cancellation. However, the subsequent cancellation order notably lacked any substantive reasoning, merely indicating the absence of a reply from the company and deciding on a retrospective cancellation effect from July 1, 2017. This contradiction and the lack of a cogent explanation rendered the cancellation order unsustainable.

Upon reviewing the circumstances, the High Court identified several procedural lapses. Firstly, the show cause notice and the cancellation order failed to provide a detailed reasoning for the cancellation, particularly with a retrospective effect. Secondly, the court noted that the cancellation of GST registration cannot be executed mechanically or retrospectively without assessing the specific conditions that justify such action.

The judgment further emphasized the importance of considering the implications of retrospective cancellation, such as denying input tax credit to the taxpayer’s customers, which necessitates a careful and reasoned approach by the proper officer. The court ultimately ruled that administrative decisions, especially those affecting taxpayers’ rights and obligations, must be grounded in clear, justifiable reasons.

Conclusion: The Delhi High Court’s decision to restore EM Power Engineering’s GST registration sends a strong message about the essential principles of transparency, procedural fairness, and reasoned decision-making in administrative actions. By setting aside the impugned show cause notice and cancellation order, the court reaffirmed the need for authorities to adhere to legal standards and safeguard taxpayers’ rights. This judgment not only offers relief to EM Power Engineering but also serves as a precedent for future cases, ensuring that GST registration cancellations are conducted with due regard for legal procedures and substantive reasoning.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. Petitioner impugns order dated 19.04.2021, whereby the GST registration of the petitioner has been cancelled retrospectively with effect from 01.07.2017. Petitioner also impugns the Show Cause Notice dated 11.02.2021

2. Vide impugned Show Cause Notice dated 11.02.2021 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. Petitioner is a Private Limited Company and has been engaged in business since 2014. Said company had been registered under the DVAT Act and thereafter possessed GST registration.

4. Show cause notice dated 11.02.2021 was issued to the petitioner seeking cancellation of GST registration. The notice does not specify any cogent reason, and merely states “not filed returns for a continuous period of six months.”

5. Further, the impugned order dated 19.04.2021 passed on the show cause notice dated 11.02.2021 does not give any reason for cancellation. It however, states that the registration is liable to be cancelled for the following reason “whereas no reply to the show cause notice has been submitted.” Said order in itself is contradictory. Said order states “reference to your reply dated 19.03.2021 in response to the notice to show cause dated 11.02.2021” and the reason stated for the cancellation is “whereas no reply to notice show cause has been submitted & whereas on the day fixed for hearing you did not appear”. The order further states that effective date of cancellation of registration is 01.07.2017 i.e., a retrospective date.

6. Neither the show cause notice, nor the order spell out the reasons for retrospective cancellation. In fact, in our view, order dated 19.04.2021 does not qualify as an order of cancellation of registration. 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 dues stated to be due against the petitioner and the table shows nil demand.

7. Learned Counsel for petitioner submitted that the respondents had earlier issued show cause notice for cancellation dated 29.11.2019, however since the returns were filed till September 2019 the registration was not cancelled.

8. He further submitted that another show cause dated 11.02.2021 was issued by which the registration was sought to be cancelled.

9. He further submitted that the petitioner had duly provided details of filing of returns till January 2020, however, petitioner company was unaware of the fact that the accountant of the company had filed returns only till September 2019.

10. He further submitted that the petitioner company suffered major setbacks, due to which the entire management of the petitioner company was in a state of turmoil, and during March 2020 i.e., during the COVID -19 pandemic period petitioner was not able to make compliances in respect to GST returns.

11. As per the petitioner, they became aware of non-filing of returns only in January 2021 i.e. when the Accountant passed away. Learned counsel submitted that since the Login credentials were not available with the petitioner company they were unable to access and login the said GST portal.

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

13. In terms of Section 29(2) of the Act, 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.

14. It is important to note that, according to the respondent, one of the consequences for cancelling a taxpayer’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 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.

15. 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.

16. In view of the above the petition is allowed. The impugned show cause notice dated 11.02.2021 and order of cancellation dated 19.04.2021 are accordingly set aside. The GST registration of the petitioner is restored. Petitioner shall comply with Rule 23 of Central Goods and Service Tax Rules, 2017. Petitioner shall file all requisite returns and pay the tax, if any, within a period of 30 days from today.

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. Petition is disposed of in the above terms.

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