Case Law Details
Anil Soni Prop Vs Superintendent (Delhi High Court)
GST registration cannot be cancelled retrospectively without recording reason for such retrospective cancellation
The Delhi High Court recently addressed a case wherein Anil Soni Prop challenged an order dated 08.06.2022, which cancelled their GST registration retrospectively from 02.07.2017.
Anil Soni Prop was involved in the trading of rubber and rubber chemicals and possessed GST registration. A show cause notice dated 26.05.2022 was issued to them, seeking cancellation of their registration, citing “Others” as the reason. However, the impugned order passed on the notice did not provide any reasons for cancellation, merely stating that the registration was liable to be cancelled with effect from 02.07.2017. Notably, no explanation was given for the retrospective cancellation.
The Court observed that the impugned order did not qualify as an order of cancellation as it failed to provide adequate reasoning. Furthermore, neither the show cause notice nor the order detailed the reasons for retrospective cancellation. Additionally, the petitioner was not notified that their registration could be cancelled retrospectively, depriving them of an opportunity to object to it.
Under Section 29(2) of the Act, GST registration can be cancelled retrospectively if certain circumstances are satisfied, but this decision must be based on objective criteria rather than subjective judgment. The mere failure to file returns for a period does not justify retrospective cancellation covering the compliant period.
While both the petitioner and the respondent desired cancellation of the GST registration, it was emphasized that retrospective cancellation should only be done if the consequences, such as denial of input tax credit to customers, are intended and warranted.
Considering that the petitioner had ceased business activities, the impugned order was modified to cancel the registration from the date of the order itself, i.e., 08.06.2022. The petitioner was instructed to fulfill all necessary compliances as per Section 29 of the Central Goods and Services Tax Act, 2017.
However, the respondents were not precluded from taking steps for recovery of any tax, penalty, or interest due, including retrospective cancellation of GST registration, in accordance with the law.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Petitioner impugns order dated 08.06.2022, whereby the GST registration of the petitioner has been cancelled retrospectively with effect from 02.07.2017.
2. Petitioner was engaged in the business of trading of rubber and rubber chemicals and possessed GST registration.
3. Show Cause Notice dated 26.05.2022 was issued to the Petitioner seeking to cancel its registration. Though the notice does not specify any cogent reason, it merely states “Others”.
4. Thereafter, the impugned order dated 08.06.2022 passed on the Show Cause Notice does not give any reasons for cancellation. It states that the registration is liable to be cancelled for the following reason “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.”. The order further states that effective date of cancellation of registration is 02.07.2017 i.e., a retrospective date. There is no material on record to show as to why the registration is sought to be cancelled retrospectively.
5. In our view, impugned order dated 08.06.2022 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.
6. Learned counsel for Petitioner submits that the petitioner is no longer interested in continuing business and has closed down all business activities.
7. We notice that the Show Cause Notice and the impugned order are 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.
8. Further, the said 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.
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 is 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 is clear that both the petitioner and the respondent want the GST registration to be cancelled, though for different reasons.
12. In view of the fact that the Petitioner does not seek to carry on business or continue the registration, the impugned order dated 08.06.2022 is modified to the limited extent that that registration shall now be treated as cancelled with effect from 08.06.2022 i.e., the date of the order for cancellation of registration. Petitioner shall make all the necessary compliances as required by Section 29 of the Central Goods and Services Tax Act, 2017.
13. 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.
14. Petition is accordingly disposed of in the above terms.
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