Case Law Details
Sumit Enterprises Vs Commissioner of Delhi Goods And Services Tax Anr (Delhi High Court)
Introduction: This article explores the case of Sumit Enterprises vs. Commissioner of Delhi Goods And Services Tax Anr, where the Delhi High Court scrutinized the retrospective cancellation of GST registration. The court analyzed the rejection of the cancellation application and the subsequent cancellation order, emphasizing the importance of furnishing required details and the proper officer’s objective criteria for retrospective cancellation.
Detailed Analysis:
1. Background of the Case: The petitioner, Sumit Enterprises, challenges the rejection of its application for GST registration cancellation on 03.2021 and the subsequent cancellation order on 27.04.2022, with retrospective effect.
2. Cancellation Application Rejection: The petitioner had applied for cancellation, citing the closure of its business during the COVID period. However, the application was rejected on 04.03.2021, as the petitioner failed to furnish details regarding the value of raw material stock, capital goods, and stock position.
3. Show Cause Notice and Cancellation Order: A show cause notice was issued for the petitioner’s failure to file returns continuously for six months. No reply was received, leading to the cancellation order dated 27.04.2022, with retrospective effect from 02.07.2017.
4. Section 29(5) of the Act: Section 29(5) of the Central Goods Services Tax Act, 2017, mandates the payment of an amount equivalent to input tax credit for canceled registrations. The petitioner’s failure to furnish necessary details led to the rejection of the cancellation application.
5. Retrospective Cancellation Criteria: Section 29(2) allows the proper officer to cancel GST registration retrospectively based on certain circumstances. The court emphasizes that such cancellations should not be mechanical but based on the officer’s objective criteria.
6. Consequences of Retrospective Cancellation: The court notes the respondent’s claim that retrospective cancellation affects the taxpayer’s customers, denying them input tax credit for supplies made during the canceled period. This aspect, though not examined, underscores the need for the officer to consider consequences.
7. Error in Retrospective Order: The court finds an error in the retrospective cancellation order, emphasizing that it could not have been passed mechanically. The registration suspension from 09.2021 led to the modification of the cancellation, effective from 02.09.2021.
8. Directions to the Petitioner: The petitioner is directed to furnish all necessary details to the proper officer, including the value of capital goods, raw material, and stock position.
Conclusion: The Delhi High Court disposed of the petition, highlighting the error in passing the retrospective cancellation order. The importance of furnishing required details for cancellation applications and the need for objective criteria in retrospective cancellations were emphasized. The court clarified that it did not comment on the merits of tax, fine, or penalty contentions, preserving the rights and contentions of both parties. This case underscores the significance of a fair and informed process in GST registration cancellations, balancing the interests of both taxpayers and their customers.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Petitioner impugns order dated 03.2021, whereby the application filed by the petitioner seeking cancellation of GST registration has been rejected. Petitioner is also aggrieved by order dated 27.04.2022, whereby the GST registration of the petitioner has been cancelled.
2. Issue Notice is accepted by learned counsel for respondents.
3. With the consent of parties, petition is taken up for final disposal.
4. Petitioner is registered under the Goods and Services Tax Act, As per the petitioner, petitioner submitted an application for cancellation of registration with effect from 22.02.2021 on the ground that petitioner had closed its business during COVID period.
5. Respondent No.2 issued a notice stating that the value of raw material stock, stock value of capital goods appears to be incorrect and there were excess sales and purchases and accordingly particulars about stock were sought for from the petitioner. Since no reply was received from the petitioner, the application seeking cancellation of registration was rejected by the order dated 04.03.2021, (impugned herein).
6. Thereafter, a show cause notice was issued to the petitioner on 09.2021 for having failed to file return for a continuous period of six month. Petitioner did not submit any reply to the show cause notice, leading to the order dated 27.04.2022 (also impugned herein) being passed, cancelling the registration of the petitioner with effect from 02.07.2017.
7. We note that the application seeking cancellation of the registration of the petitioner was rejected on the ground that petitioner had failed to furnish stock position, value of raw material as well as the value of capital goods.
8. In terms of Section 29 sub-section 5 of the Central Goods Services Tax Act, 2017 (hereinafter referred to as the Act), every person whose registration is cancelled is liable to pay an amount equivalent to the credit of input tax in respect of inputs held in stocks and inputs contained in semi-finished or finished goods held in stock or capital goods of plant and machinery on the day immediately preceding the date of such cancellation or the output tax payable on such goods, whichever is higher.
7. For the authority to determine the said amount under Section 29 (5) of the Act, details are required by the authority. Since the petitioner has failed to furnish the value of the raw material stock, capital goods and the stock position, the proper office in our view has rightly rejected the application on account of lack of information.
10. Coming to the cancellation of registration, by order dated 04.2022, we notice that the same has been cancelled with retrospective effect.
11. 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. 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.
12. 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 Thus, a taxpayer’s registration can be cancelled with retrospective effect only where such consequences are intended and are warranted.
13. Clearly, the order is erroneous to the extent that the same could not have been passed retrospectively. We note that the registration was suspended with effect from 02.09.2021. Accordingly, the order is modified to the extent that cancellation shall take effect from 02.09.2021.
14. Petition is accordingly disposed of. Petitioner shall furnish all details to the proper officer with regard to the information sought for by the proper officer, inter-alia, the value of capital goods, raw material as well as the stock position.
15. It is clarified that this Court has neither considered nor commented on the merits of the contentions of either party insofar as the stock position or payment of any tax, fine or penalty is considered. All rights and contentions of the parties are reserved.
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