Case Law Details
Riddhi Siddhi Enterprises Vs Commissioner of Goods And Services Tax (CGST) (Delhi High Court)
Delhi High Court reviewed the writ petition of Riddhi Siddhi Enterprises, which challenged the retrospective cancellation of its GST registration. The petitioner’s registration was revoked with effect from September 28, 2017, through an order dated July 25, 2023, following a Show Cause Notice (SCN) issued on July 10, 2023. The SCN cited Section 29(2)(e) of the CGST Act, alleging that the registration was obtained through fraud or misstatement. The petitioner argued that the cancellation order lacked a detailed explanation and due consideration of the implications of retrospective revocation. The court examined the power conferred under Section 29 of the CGST Act, which allows for the cancellation of GST registration, including retrospectively, but emphasized that such cancellations must be reasoned and not applied mechanically.
Referring to previous rulings, including Ramesh Chander vs. Assistant Commissioner of Goods and Services Tax and Delhi Polymers vs. Commissioner, Trade and Taxes, the court reiterated that retrospective cancellation should be based on clear findings and cannot be imposed automatically. The court found that the cancellation order lacked sufficient reasoning, making it unsustainable. Consequently, the High Court quashed the cancellation order while allowing the tax authorities to initiate fresh proceedings in compliance with the law. The judgment reinforces the principle that GST registration cancellations must be justified and not merely procedural.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The writ petitioner is aggrieved by an order dated 25 July 2023 pursuant to which its Goods and Service Tax1 Registration has been cancelled with retrospective effect from 28 September 2017.
2. Undisputedly the Show Cause Notice2 in this respect was issued on 10 July 2023. That SCN stood framed in the following terms:-
“Show Cause Notice for Cancellation of Registration
Whereas on the basis of information which has come to my notice, it appears that your registration is liable to be cancelled for the following reasons:
1. Section 29(2)(e)-registration obtained by means of fraud, wilful misstatement or suppression of facts
You are hereby directed to furnish a reply to the notice within seven working days from the date of service of this notice.
You are hereby directed to appear before the undersigned on I 7/07/2023 at 04:30 PM
If you fail to furnish a reply within the stipulated date or fail to appear for personal hearing on the appointed date and time, the case will be decided ex parte on the basis of available records and on merits .
Please note that your registration stands suspended with effect from 10/07/2023”
3. The registration ultimately came to be cancelled with retrospective effect from 28 September 2017 in terms of an order dated 25 July 2023 and which is extracted hereinbelow:-
“ Order for Cancellation of Registration
This has reference to show cause notice issued dated 10/07/2023. The effective date of cancellation of your registration is 28/09/ 2017.
3. It may be noted that a registered person furnishing return under sub-section (1) of section 39 of the CGST Act, 2017 is required to furnish a final return in FORM GSTR-10 within three months of the date of this order.
4. You are required to furnish all your pending returns.
5. It may be noted that the cancellation of registration shall not affect the liability to pay tax and other dues under this Act or to discharge any obligation under this Act or the rules made thereunder for any period prior to the date of cancellation whether or not such tax and other dues are determined before or after the date of cancellation.”
4. The power to cancel a registration under the Central Goods and Services Tax Act, 20173 with retroactive effect stands enshrined in Section 29 which reads thus:-
“29. Cancellation[or suspension] of registration.—(1) The proper officer may, either on his own motion or on an application filed by the registered person or by his legal heirs, in case of death of such person, cancel the registration, in such manner and within such period as may be prescribed, having regard to the circumstances where,—
(a) the business has been discontinued, transferred fully for any reason including death of the proprietor, amalgamated with other legal entity, demerged or otherwise disposed of; or
(b) there is any change in the constitution of the business; or
[(c) the taxable person is no longer liable to be registered under Section 22 or Section 24 or intends to optout of the registration voluntarily made under sub-section (3) of Section 25]:
[Provided that during pendency of the proceedings relating to cancellation of registration filed by the registered person, the registration may be suspended for such period and in such manner as may be prescribed.]
(2) The proper officer may cancel the registration of a person from such date, including any retrospective date, as he may deem fit, where,—
(a) a registered person has contravened such provisions of the Act or the rules made thereunder as may be prescribed; or
(b) a person paying tax under Section 10 has not furnished 89[the return for a financial year beyond three months from the due date of furnishing the said return]; or
(c) any registered person, other than a person specified in clause (b), has not furnished returns for [such continuous tax period as may be prescribed]; or
(d) any person who has taken voluntary registration under sub- section (3) of Section 25 has not commenced business within six months from the date of registration; or
(e) registration has been obtained by means of fraud, wilful misstatement or suppression of facts:
Provided that the proper officer shall not cancel the registration without giving the person an opportunity of being heard.
[Provided further that during pendency of the proceedings relating to cancellation of registration, the proper officer may suspend the registration for such period and in such manner as may be prescribed.]
(3) The cancellation of registration under this section shall not affect the liability of the person to pay tax and other dues under this Act or to discharge any obligation under this Act or the rules made thereunder for any period prior to the date of cancellation whether or not such tax and other dues are determined before or after the date of cancellation.
(4) The cancellation of registration under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act, as the case may be, shall be deemed to be a cancellation of registration under this Act.
(5) Every registered person whose registration is cancelled shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi- finished or finished goods held in stock or capital goods or plant and machinery on the day immediately preceding the date of such cancellation or the output tax payable on such goods, whichever is higher, calculated in such manner as may be prescribed:
Provided that in case of capital goods or plant and machinery, the taxable person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery, reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery under Section 15, whichever is higher.
(6) The amount payable under sub-section (5) shall be calculated in such manner as may be prescribed.”
5. As is manifest from a reading of Section 29, clauses (a) to ( e) of Section 29(2) constitute independent limbs on the basis of which a registration may warrant While the provision does enable the respondents to cancel that registration with retrospective effect, the mere existence or conferral of that power would not justify a revocation of registration. The order under Section 29(2) must itself reflect the reasons which may have weighed upon the respondents to cancel registration with retrospective effect. Given the deleterious consequences which would ensue and accompany a retroactive cancellation makes it all the more vital that the order be reasoned and demonstrative of due application of mind. It is also necessary to observe that the mere existence of such a power would not in itself be sufficient to sustain its invocation. What we seek to emphasise is that the power to cancel retrospectively can neither be robotic nor routinely applied unless circumstances so warrant. When tested on the aforesaid precepts it becomes ex facie evident that the impugned order of cancellation cannot be sustained.
6. We note that while dealing with the right of the respondents to cancel GST registration with retrospective effect and the manner in which such power should be exercised in accordance with the statutory scheme was an issue which was noticed in Ramesh Chander vs Assistant Commissioner of Goods and Services Tax, Dwarka Division, CGST Delhi & Anr. 2024 SCC OnLine Del 410 The Court in Ramesh Chander taking note of the contours of Section 29 had held:-
“1. The petitioner impugns order in appeal dated 29.12.2023, whereby the appeal filed by the petitioner has been dismissed solely on the ground of limitation. Petitioner had filed the appeal impugning order dated 13.07.2022 whereby the GST registration of the petitioner was cancelled retrospectively with effect from 01.07.2017. Petitioner also impugns Show Cause Notice dated 07.04.2022.
2. Vide impugned Show Cause Notice dated 07.04.2022, 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 was in the business of services involving repair, alterations, additions, replacements, renovation, maintenance or remodelling of the building covered above, General construction services of harbours, waterways, dams, water mains and lines, irrigation and other waterworks, General construction services of long-distance underground/ overland/ submarine pipelines, communication and electric power lines (cables); pumping stations and related works; transformer stations and related works, General construction services of local water & sewage pipelines, electricity and communication cables & related works, Installation, assembly and erection services of other prefabricated structures and constructions and possessed a GST registration.
4. A show cause notice was issued to the petitioner on 07.04.2022 Though the notice 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. The show cause notice requires the petitioner to appear before the undersigned e. authority issuing the notice. Notice does not give the name of the officer or place or time where the petitioner has to appear.
5. Further the order dated 13.07.2022 passed on the show cause notice does not give any reasons for cancellation of the It, however, states that the registration is liable to be cancelled for the following reason “whereas no reply to notice to show cause has been submitted”. However, the said order in itself is contradictory, the order states “reference to your reply dated 16.04.2022 in response to the notice to show cause dated 07. 04.2022” and the reason stated for cancellation is “whereas no reply to notice to show cause has been submitted”. The order further states that effective date of cancellation of registration is 01.07.2017 i.e. 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 13.07.2022 does not qualify as an order of cancellation of
7. As per the petitioner, the said order reflected that the GST of the Petitioner stands cancelled from 01.07.2017 even though returns thereafter have been filed by the Petitioner.
8. We notice that the show cause notice as well as the impugned order of cancellation, are themselves vitiated on account of lack of reason and clarity. The appeal has been dismissed solely on the ground of limitation. Since the very foundation of entire proceedings e. show cause notice and the order of cancellation are vitiated, we are of the view that no purpose would be served in relegating the petitioner to the stage of an appeal.
9. 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.
10. 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.
11. The show cause notice does not even state that the registration is liable to be cancelled from a retrospective date.
12. The petition is The impugned show cause notice dated 07.04.2022, order of cancellation dated 13.07.2022 and the order in appeal dated 29.12.2023 are accordingly set aside. GST registration of the petitioner is restored, subject to petitioner filing requisite returns up to date.
13. It is clarified that since the petitioner could not have filed the return after the GST registration was suspended, there shall be no liability to pay any penalty or fine for delayed filing. However, this would only apply in case petitioner files an affidavit of undertaking that petitioner has not carried out any business or raised invoices or taken any Input Tax Credit after the registration was suspended with effect from 07.04.2022 i.e., the date of suspension of the registration.
14. Respondent would be at liberty to initiate appropriate proceedings in accordance with law after giving a proper show cause notice containing complete details, if so advised. Further 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.
15. Petition is disposed of in the above ”
7. We further take note of the judgment in Delhi Polymers vs Commissioner, Trade and Taxes & Anr. 2024 SCC OnLine Del 1134 wherein the following was observed:-
“1.Petitioner has filed the appeal impugning order of cancellation of registration dated 15.12.2021 whereby the GST registration of the Petitioner has been cancelled retrospectively with effect from 01.07.2017. Petitioner also impugns Show Cause Notice dated 04.09.2021.
2. Vide Show Cause Notice dated 09.2021, petitioner was called upon to show cause as to why the registration be not cancelled for the following reason:-
“Collects any amount 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 engaged in the business of Sanitary ware Products & Accessories i.e., Baths, Shower, Washbasins, Seats and Cover etc. and possessed GST registration.
4. Show Cause Notice dated 04.09.2021 was issued to the Petitioner seeking to cancel its registration. However, the Show Cause Notice 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.
5. Further, the impugned order dated 15.12.2021 passed on the Show Cause Notice dated 09.2021 does not give any reasons 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”. However, the said order in itself is contradictory. The order states “reference to your reply dated 15.12.2021 in response to the notice to show cause dated 04.09.2021” and the reason stated for the cancellation is “whereas no reply to notice show cause has been submitted”. 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 In fact, in our view, order dated 15.12.2021 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 the Petitioner submits that the said order reflected that the GST registration of petitioner stands cancelled from 01.07.2017 even though returns thereafter have been filed by the Petitioner.
8. He further submits that the petitioner is no longer interested in continuing the business and the business has been discontinued.
9. 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.
10. 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 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.
11. It may be further noted that both the Petitioners and the department want cancellation of the GST registration of the Petitioner, though for a different reason.
12. In view of the fact that Petitioner does not seek to carry on business or continue the registration, the impugned order dated 15.12.2021 is modified to the limited extent that registration shall now be treated as cancelled with effect from 04.09.2021 i.e., the date when the Show Cause Notice was issued.
13. 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 in respect of the subject firm in accordance with law.
14. Petition is accordingly disposed of in the above terms.”
8. In view of the aforesaid and in light of an abject failure on the part of the authority to assign even rudimentary reasons for a retroactive cancellation, we find ourselves unable to sustain the order
9. The writ petition is accordingly allowed. The impugned order dated 25 July 2023 is hereby quashed. This order, however, shall be without prejudice to the right of the respondents to draw proceedings afresh and in accordance with law.
Notes:
1 GST
2 SCN
3 CGST Act
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