Case Law Details
Raj Enterprises Vs Superintendent Range-25 GST (Delhi High Court)
Introduction: The recent judgment by the Delhi High Court in the case of Raj Enterprises vs. Superintendent Range 25 GST has stirred discussions in the realm of Goods and Services Tax (GST) regulations. The petitioner contested the cancellation of its GST registration with retrospective effect, a decision that has broader implications on businesses. This article delves into the details of the case, exploring the arguments presented, the court’s analysis, and the consequential directives.
Detailed Analysis: Raj Enterprises, engaged in the trading of magnetic and optical readers, faced the retrospective cancellation of its GST registration, effective from the date of its grant – 19.10.2020. The petitioner ceased business operations and applied for cancellation on 19.10.2021. However, the authorities rejected the application, citing non-response to queries and later applying grounds of continuous non-filing of returns.
The core contention revolved around Section 29(2)(c) of the Central Goods and Services Tax Act, 2017, empowering the proper officer to cancel GST registration retrospectively. While recognizing this authority, the court emphasized that such cancellations must rest on objective criteria, avoiding arbitrariness.
The respondent’s primary ground for cancellation was the petitioner’s failure to file returns continuously for six months. The court, however, found this insufficient to justify retrospective cancellation, especially during periods when returns were duly filed. The decision stressed that non-filing for six months couldn’t automatically extend to periods of business operation and compliance.
Additionally, concerns were raised about the impact on Input Tax Credit for other taxpayers dealing with Raj Enterprises. Although the court expressed reservations about this, it didn’t delve into the matter, emphasizing the need for the proper officer’s thoughtful consideration.
Notably, the show cause notice (SCN) didn’t specify retrospective cancellation, depriving the petitioner of an effective opportunity to contest it. This procedural lapse further bolstered the petitioner’s argument against arbitrary cancellations.
The court, taking into account the petitioner’s cessation of business from 19.10.2021 and the application for cancellation, directed that the impugned order should take effect only till 31.12.2021 – the date of the last filed returns. This ruling balances the interests of the petitioner and the tax authorities.
Conclusion: The Delhi High Court’s ruling in Raj Enterprises vs. Superintendent Range 25 GST sets a significant precedent against arbitrary retrospective cancellation of GST registrations. The judgment underscores the importance of objective criteria and due process in such decisions. The court’s emphasis on effective opportunities for taxpayers to contest cancellations and the consideration of business cessation dates provides clarity in a nuanced legal landscape. Businesses navigating GST compliance should take note of this judgment, highlighting the need for a fair and reasoned approach by tax authorities in matters of registration cancellations.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The petitioner has filed the present petition impugning an order dated 27.09.2022 (hereafter ‘the impugned order’) whereby the petitioner’s GST registration was cancelled with effect from the date that it was granted, that is, with effect from 19.10.2020. The petitioner is aggrieved to the extent that its registration has been cancelled with retrospective effect.
2. The petitioner claims that it was, inter alia, engaged in the business of trading of magnetic and optical readers as well as other appliances and ancillary products. It had applied for registration with the GST authorities on 01.12.2021 and was assigned Goods and Services Tax Identification Number (GSTIN) 07BGCPH3048A1Z1.
3. The petitioner claims that it had stopped carrying on its business and therefore made an application on 19.10.2021 for cancellation of its GST registration. Apparently, certain queries were raised online from the petitioner, which remained unanswered. Accordingly, on 11.2021, the respondent rejected the petitioner’s application for cancellation of its GST registration.
4. Thereafter, on 01.12.2021, the petitioner once again applied for cancellation of its GST registration with effect from 15.11.2021. The petitioner claims that it has filed its returns till 31.12.2021.
5. The petitioner’s application for GST registration was rejected once again. However, the respondent issued a show cause notice dated 08.2022 (hereafter ‘the SCN’) proposing to cancel the petitioner’s GST registration on the ground that the petitioner had not filed its return under the Central Goods and Services Tax Act, 2017 (hereafter ‘the CGST Act'[ for a continuous period of six months. The petitioner’s GST registration was also suspended with effect from 10.08.2022.
6. The petitioner did not respond to the SCN and on 27.09 .2022, the respondent passed an order cancelling the petitioner’s GST registration with effect from 19.10.2020.
7. There is no cavil that in terms of Section 29(2)(c) of the CGST Act, the proper officer may cancel the GST registration from any date including with retrospective effect. However, the said cancellation with retrospective effect cannot be arbitrary and whimsical. It must be predicated on objective criteria.
8. In the present case, the sole ground for cancelling the petitioner’s GST registration is that it has not filed its return for a continuous period of six months. Absent anything more, this would not be sufficient ground to cancel the petitioner’s registration even for the period during which the petitioner had filed its returns. Non-filing of returns for a period of six months or more cannot lead to the conclusion that the petitioner’s GST registration is required to be cancelled even for the period while it was carrying on its business and duly filing its returns.
9. According to the respondent, cancelation of the petitioner’s GST registration with retrospective effect would also result in denying the benefit of Input Tax Credit to other tax payers who had availed of supplies from the petitioner. We have some reservations as to this However, it is not necessary to examine the said issue in this petition. Even assuming that the cancellation of the GST registration has the consequences as claimed by the respondent, it underscores the necessity for the proper officer to apply his mind and, on the basis of some objective criteria, pass an order for cancellation of the GST registration with retrospective effect.
10. In the present case, it is also important to note that the SCN did not indicate that the petitioner’s GST registration was proposed to be cancelled with retrospective effect. Thus, the petitioner had no effective opportunity to contest the retrospective cancellation of its GST registration.
11. The petitioner has stopped carrying on its business with effect from 19.10.2021 and, as noted above, had made a request for cancellation of its GST registration from that date.
12. In view of the above, we consider it apposite to direct that the impugned order shall take effect from 31.12.2021, which is till the date the petitioner has filed its returns.
13. It is clarified that this would not preclude the respondent authorities from initiating or pursuing any proceedings against the petitioner for statutory violations, if any.
14. The petition is disposed of in the aforesaid terms. The pending applications, if any, are also disposed of.
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