Case Law Details
Veetrag Traders Vs Commisiioner of SGST Delhi & Ors (Delhi High Court)
HC cancels GST Registration with effect from the date when Petitioner applied for cancellation of GST registration
The Delhi High Court recently delivered a significant judgment in the case of Veetrag Traders versus the Commissioner of SGST Delhi and Others, wherein it cancelled the GST registration of the petitioner, Veetrag Traders, with effect from the date of their application for cancellation.
The petitioner had challenged two orders – one dated 20.03.2023, which dismissed their appeal seeking restoration of the GST registration on the ground of limitation, and another dated 13.08.2020, which retrospectively cancelled their GST registration from 01.07.2017. The court also considered a Show Cause Notice dated 13.08.2020 issued to the petitioner.
Veetrag Traders, a trading firm engaged in the sale of craft paper, had applied for the cancellation of its GST registration on 01.10.2019 citing business closure. However, subsequent events, including a rejection of the cancellation application on 16.06.2020 and issuance of a Show Cause Notice on 18.02.2021, raised concerns regarding procedural fairness.
The impugned order dated 29.11.2020 lacked clarity and adequate reasoning for the retrospective cancellation, leading the court to modify it. The court emphasized that cancellation of GST registration with retrospective effect should not be mechanical and must be based on objective criteria. Mere non-filing of returns does not warrant retrospective cancellation, especially if the taxpayer was compliant during the period.
The judgment highlighted the consequences of retrospective cancellation, including the denial of input tax credit to the taxpayer’s customers, emphasizing the need for such actions to be warranted and justified.
While both parties desired the cancellation of GST registration, the court, considering Veetrag Traders’ intention to cease business operations, modified the impugned order to cancel the registration from 01.10.2019, the date of application for cancellation. The petitioner was directed to comply with necessary requirements under Section 29 of the Central Goods and Services Tax Act, 2017.
However, the respondents retained the authority to take steps for recovery of due tax, penalty, or interest, including retrospective cancellation, in accordance with the law.
In conclusion, the petition was disposed of with the Delhi High Court’s judgment providing clarity on the cancellation of GST registration and emphasizing procedural fairness and objective criteria in such matters.
This judgment stands as a significant precedent in the realm of GST law, ensuring fairness and transparency in registration cancellation proceedings.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Petitioner impugns order dated 20.03.2023 whereby the appeal of the Petitioner seeking restoration of the GST registration has been dismissed solely on the ground that the same is barred by limitation. Petitioner also impugns order dated 13.08.2020 whereby the GST registration of the petitioner was cancelled retrospectively with effect from 01.07.2017 and also impugns Show Cause Notice dated 13.08.2020.
2. Vide Show Cause Notice dated 13.08.2020, petitioner was called upon to show cause as to why the registration be not cancelled for the following reason:-
“Any Taxpayer other than composition taxpayer has not filed returns for a continuous period of six months”
3. Petitioner is a trading firm and is engaged in the business of selling of craft paper and possessed GST registration.
4. Petitioner had submitted an application seeking cancellation of GST registration dated 01.10.2019 on the ground of closure of business.
5. Pursuant to the said application, notice was given to the Petitioner on 11.04.2020 seeking additional information and documents relating to application for cancellation of registration. On account of unsatisfactory reply, order dated 16.06.2020 was passed rejecting the application for cancellation merely stating “Application rejected in accordance with the provisions of the Act”.
6. Thereafter, Show Cause Notice dated 18.02.2021 was issued to the petitioner. Though the notice does not specify any cogent reason, it merely states “Any Taxpayer other than composition taxpayer has not filed returns for a continuous period of six months”. Further, the said Show Cause Notice also does not put the petitioner to notice that the registration is liable to be cancelled retrospectively. Thus, the petitioner had no opportunity to even object to the retrospective cancellation of the registration.
7. Thereafter, the impugned order dated 29.11.2020 passed on the Show Cause Notice also does not give any tenable reasons of cancellation. It merely states that the registration is liable to be cancelled for the following reason “whereas no reply to notice to show cause notice has been submitted”. However, the said order in itself is contradictory. The order states “reference to your reply dated 23/08/2020 in response to the notice to show cause dated 13/08/2020” and the reason stated for the 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., a retrospective date.
8. In our view, the order 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.
9. Learned counsel for Petitioner submits that due to loss in business, Petitioner had closed all business activities and asked his consultant to surrender the said GST registration.
10. He further submits that the Petitioner received a notice seeking additional information and documents relating to application for cancellation of registration, however due to Covid-19 pandemic the notice was missed by the Petitioner and his consultant.
11. He further submits that the Petitioner was unaware of the legal proceedings as the consultant of the Petitioner expired due to Corona virus and hence could not file a reply or his GST returns due to lack of knowledge about GST procedure.
12. We notice that the Show Cause Notice and the impugned order are also bereft of any details. Accordingly the same cannot be sustained and neither the Show Cause Notice, nor the order spell out the reasons for retrospective cancellation.
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. It is clear that both the petitioner and the respondent want the GST registration to be cancelled, though for different reasons.
16. In view of the fact that Petitioner does not seek to carry on business or continue the registration, the impugned order dated 29.11.2020 is modified to the limited extent that registration shall now be treated as cancelled with effect from 01.10.2019 i.e., the date when Petitioner applied for cancellation of GST registration. Petitioner shall make the necessary compliances as required by Section 29 of the Central Goods and Services Tax Act, 2017.
17. It is clarified that Respondents are 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 including retrospective cancellation of the GST registration.
18. Petition is accordingly disposed of in the above terms.
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