Case Law Details
Shree Balaji Transport Vs Commissioner of Central Tax Appeals–I & Anr. (Delhi High Court)
Introduction: This article delves into the case of Balaji Transport vs. Commissioner of Central Tax Appeals–I & Anr. where the Delhi High Court scrutinized the retroactive cancellation of GST registration. The court’s detailed analysis highlights the importance of objective criteria and the lack of clarity in the cancellation order. The conclusion sets aside the impugned orders, restoring the petitioner’s GST registration.
Detailed Analysis:
1. Background of the Case:
- The petitioner, Balaji Transport, challenged the order dated 24.08.2023, which dismissed their appeal against the retrospective cancellation of GST registration.
- The grounds for cancellation, as per the show cause notice, included the petitioner’s failure to file returns for a continuous period of six months.
2. Lack of Clarity in the Orders:
- The show cause notice and the cancellation order lacked clear reasoning for the cancellation. The petitioner was not provided with specific details, including the officer’s name or the place of appearance.
- The cancellation order stated the reason as “file all returns and pay all dues,” but the table showed nil demand, creating confusion.
3. Non-Filing of Returns and Lockdown Impact:
- The petitioner, engaged in the transport business, explained the non-filing of returns by citing a severe business setback during the lockdown, resulting in no income generation.
4. Court’s Observations on the Orders:
- The court observed that both the show cause notice and the cancellation order lacked clarity and proper reasoning.
- The dismissal of the appeal solely on the ground of limitation was deemed irrelevant in the presence of flawed foundational documents.
5. Objective Criteria for Retroactive Cancellation:
- The court emphasized that GST registration cannot be canceled with retrospective effect merely based on the non-filing of returns.
- The proper officer must deem it fit to cancel the registration with retrospective effect, and this decision should be based on objective criteria, not subjective satisfaction.
6. Consequences of Retroactive Cancellation:
- The court highlighted that canceling a taxpayer’s registration with retrospective effect could impact the taxpayer’s customers, denying them input tax credit for supplies made during the affected period.
- The proper officer must consider these consequences before deciding on retroactive cancellation.
Conclusion: The Delhi High Court allowed the petition, setting aside the show cause notice, cancellation order, and the order in appeal. The petitioner’s GST registration was restored, with a directive to file returns for the relevant period within two weeks. The court’s decision emphasizes the need for clear reasoning and objective criteria for retroactive GST registration cancellations. It also highlights the importance of considering the consequences of such cancellations on taxpayers and their customers. The order preserves the right of the respondent to initiate proceedings in accordance with the law if violations are found, ensuring a fair and lawful process.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
The petitioner impugns order dated 24.08.2023, whereby the appeal filed by the petitioner has been dismissed solely on the ground of limitation. Petitioner had filed the appeal impugning order dated 07.02.2023 whereby the GST registration of the petitioner was cancelled retrospectively with effect from 31.03.2022.
2. Petitioner was in the business of transport and possessed a GST registration. A show cause notice was issued to the petitioner on 08.11.2022 calling upon the petitioner to show cause as to why the registration be not cancelled for the reason “returns furnished by you under Section 39 of the Central Goods and Services Tax Act, 2017 ”.
3. 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 i.e. authority issuing the notice. Notice does not given the name of the officer or place where the petitioner has to appear and merely states “jurisdiction officer”.
4. Further the order dated 07.02.2023 passed on the show cause notice merely refers to the reply filed by the petitioner on 09.12.2022 and does not give any reasons for cancellation of the registration. It, however, states that the registration is liable to be cancelled for the following reason “file all returns and pay all dues, if any”. The order further states that effective date of cancellation of registration is 31.03.2022 i.e. a retrospective date.
5. Neither the show cause notice nor the order spell out the reasons for cancellation. In fact, in our view, order dated 07.02.2023 does not qualify as an order of cancellation of registration. On the one hand, it states that the registration is liable to be cancelled and the reason given is “file all returns and pays all dues, if any” 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.
6. As per the petitioner, petitioner could not furnish returns as petitioner had suffered a severe setback in the business due to lockdown and the business had completely stopped and no income was even generated during the period
7. 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 i.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.
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 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. The show cause notice does not even state that the registration is liable to be cancelled from a retrospective date.
11. The petition is allowed. The impugned show cause notice dated 08.11.2022, order of cancellation dated 07.02.2023 and the order in appeal dated 24.08.2023 are accordingly set aside. GST registration of the petitioner is restored. Petitioner shall now file the returns for the relevant period up to date within a period of two weeks from today.
12. However, 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.
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