GST Registration not to be cancelled retrospectively when vague SCN is issued

Registration not to be cancelled retrospectively when vague SCN is issued and no reasonable opportunity granted to file reply

The Hon’ble Delhi High Court in the case of M/s. Friends Media Add Company v. Principal Commissioner of Goods and Service Tax [W.P.(C) No. 1260 of 2024 dated February 12, 2024] modified the GST cancellation order to operate prospectively from the date of issuance of the SCN thereby holding that, GST registration should not be cancelled retrospectively when the SCN issued is vague in nature and no opportunity was granted to file objection against retrospective cancellation.

Facts:

Revenue Department (“the Respondent”) issued show cause notice dated August 25, 2023 (“the SCN”) to M/s. Friends Media Add Company (“the Petitioner”) alleging that the Petitioner has issued invoices or bills without supply of goods and/or services, leading to wrongful availment or utilization of input tax credit or refund of tax. Thereafter, GST registration of the Petitioner was cancelled retrospectively vide order dated December 12, 2023 (“the Impugned Order”).

Aggrieved by the Impugned Order, the Petitioner filed a writ petition before the Hon’ble High Court, contending that, the SCN issued is vague in nature, as there is no reference to any alleged invoice or bill issued without any supply of goods and/or services based on which the SCN has been issued.

Issue:

Whether GST registration should be cancelled retrospectively when the SCN issued is vague in nature and no opportunity was granted to file objection against retrospective cancellation?

Held:

The Hon’ble Delhi High Court in Writ Petition (C) No. 1260 of 2024 held as under:

• Observed that, as per Section 29(2) of the Central Goods and Services Act, 2017 (“the CGST Act”), the Proper Officer is empowered to cancel GST registration of a person from a certain date including retrospective date, if the circumstances enumerated in sub-section (2) of Section 29 of the CGST Act are satisfied. Also, the registration cannot be cancelled with retrospective date mechanically and must be based on objective criteria.
• Noted that, merely because a taxpayer has not filed return for some period should not lead to cancellation of taxpayer registration from retrospective date, also covering the period for which the returns have been filed and tax has been paid.
• Further Noted that, the proper officer is required to take into consideration the fact that, the cancellation of Petitioner registration retrospectively, would lead to denial of credit to the Petitioner customers with respect to the supplied made during the said period.
• Further Noted that, the SCN does not give the Petitioner to notice that the registration is liable to be cancelled retrospectively.
• Opined that, the Petitioner was not granted any opportunity to raise objection with respect to cancellation of GST registration retrospectively.
• Held that, the order of cancellation was modified to operate prospectively from the date of issuance of the SCN.

Relevant Provision:

Section 29(2) of the CGST Act:

“Section 29: Cancellation or suspension of registration:

(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 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.”

Conclusion: The judgment by the Hon’ble Delhi High Court provides clarity and relief to taxpayers facing retrospective cancellation of GST registration. It underscores the principles of natural justice, emphasizing the necessity of clear allegations and fair opportunities to respond. This ruling sets a precedent for future cases and reaffirms the judiciary’s role in safeguarding procedural fairness in tax matters. Businesses can now have confidence in the legal system’s protection against arbitrary actions, promoting compliance and transparency in the GST regime.

(Author can be reached at info@a2ztaxcorp.com)