Cancellation of GST Registration Set Aside for Lack of Opportunity and Retrospective Effect

Summary in Key Points:

Issue 1: Whether the cancellation of the assessee’s GST registration was valid when the assessee was not given a reasonable opportunity to respond to the show cause notice (SCN).
Issue 2: Whether the retrospective cancellation of the assessee’s GST registration was valid when the SCN did not indicate any intention to cancel the registration retrospectively.
Facts: The assessee’s registration was cancelled. Their application for revocation was allowed, but on the same day, a new SCN was issued. The assessee was given only seven working days to respond and was summoned for a personal hearing the next day. Before the assessee could respond, their registration was cancelled again, this time with retrospective effect.
Decision: The High Court held that the cancellation order was invalid due to the lack of a reasonable opportunity for the assessee to respond and the improper application of retrospective cancellation.

Analysis:

The High Court ruled in favor of the assessee, setting aside the cancellation order. The court highlighted the following:

Violation of Natural Justice: The assessee was not given a reasonable opportunity to respond to the SCN, violating the principles of natural justice. The short timeframe and immediate hearing date were deemed arbitrary and unfair.
Lack of Reasons: The cancellation order failed to provide any reasons for the cancellation, making it arbitrary and unsustainable.
Improper Retrospective Cancellation: The power to cancel registration retrospectively should not be used routinely. Since the SCN did not mention the intention of retrospective cancellation, the order was deemed invalid.

Important Note: This case reinforces the importance of procedural fairness and transparency in GST proceedings. Tax authorities must provide assessees with a reasonable opportunity to respond to SCNs and provide clear reasons for any adverse action taken. The power to cancel registration retrospectively should be used judiciously and only when circumstances warrant it. This case serves as a reminder to tax authorities to adhere to the principles of natural justice and avoid arbitrary actions that can prejudice taxpayers.

HIGH COURT OF DELHI

D J Enterprises

Deputy Commissioner of CGST

Yashwant Varma and Dharmesh Sharma, JJ.

W.P.(C) 467 of 2024

DECEMBER 18, 2024

Abhas Mishra, Ms. Neha Singhal and Hukam Chand, Advs. for the Petitioner. Umang Misra, Adv. and Aditya Singla, SSC. for the Respondent.

ORDER

1. This writ petition has been preferred seeking the following reliefs:

“(a)

Issue an appropriate writ, order or direction in the nature of mandamus to the Respondent for allowing the application for revocation of cancellation of their GST registration forthwith; and/or

(b)

Issue an appropriate writ, order or direction in the nature of mandamus against the Respondent setting aside the order for cancellation of GST Registration dated 08.01.2024; and

(c)

Issue an appropriate writ, order or direction in the nature of mandamus restoring the GST Registration of the Petitioner;”

2. The challenge is laid to an order dated 08 January 2024 pursuant to which the registration of the writ petitioner under the Central Goods & Services Tax Act, 2017 has come to be cancelled with retrospective effect from 19 December 2018.

3. For the purposes of evaluating the challenge which stands raised, we deem it apposite to take note of the following essential facts.

4. The petitioner had initially faced an action of cancellation with an order for cancellation being passed on 26 July 2022. The petitioner aggrieved by the aforesaid, applied for revocation on 18 October 2022. That application ultimately came to be allowed by the respondents on 26 December 2023.

5. Surprisingly, and on the very same day, the respondents proceeded to issue another Show Cause Notice, this time calling upon the petitioner to explain why its Goods and Services Tax registration be not rejected.

6. That SCN reads as follows: –

“Form GST REG-17

[See Rule 22(1)/ sub-rule (2A) of rule 21A]

Reference Number: ZA07 l 223 l 70823N Date: 26/12/2023

Registration Number (GSTIN/Unique ID) : 07BPLPJ8848EIZH DNYAJAIN

IX/7600,G/F,R.P.NO.2, AMAR MOHALLA, OLD SEELAMPUR, GANDHI NAGAR, East Delhi, Delhi, 110031

Show Cause Notice for Cancellation of Registration

Whereas on the basis of information which has come to my notice, it appears that your registration is liable to be cancelled for the following reasons:

1 The registration of the said TP was earlier cancelled by this office on the basis of A.E. CGST Delhi East letter C.No. GEXCOM/ AE/VRFN/OTH/259/2022-AE-O/o-Commr-CGST Delhi(E)/Zeta/ Pt.1/1915 dated 08.07.2022. Further, for revocation filed by the TP, PV was again conducted by this office on 02.12.2022 and 23.11.23 (REG-30 reports attached) wherein genuineness/bonafide of the TP could not be ascertained. Therefore, as per direction given by the AC, CGST Div-Gandhinagar, GST Delhi East in File No. II-06(52)GST/GN/ R-148/Revocation/2022-23 dated 19.12.2023, the revoked GST Registration of the said TP is being cancelled under section 29 of CGST Act, 2017 as the option for rejection on DC portal was not available.

You are hereby directed to furnish a reply to the notice within seven working days from the date of service of this notice.

You are hereby directed to appear before the undersigned on 27/12/2023 at 03:00 PM

If you fail to furnish a reply within the stipulated date or fail to appear for personal hearing on the appointed date and time, the case will be decided ex parte on the basis of available records and on merits.

Please note that your registration stands suspended with effect from 26/12/2023.

Kindly refer the supportive document attached for case specific details.”

7. In terms of the above, the petitioner was to furnish a reply within seven working days. However, it was commanded to appear before the concerned officer the very next day, namely, 27 December 2023. Even before the petitioner could respond, the impugned order dated 08 January 2024 came to be passed. We deem it appropriate to extract the order of 08 January 2024 hereinbelow: –

“Form GST REG-19

[See rule 22 (3)]

Reference Number: ZA070124037824O Date: 08/01/2024

DIVYAJAIN

IX/7600,G/F,R.P.NO.2, AMAR MOHALLA, OLD SEELAMPUR, GANDHI NAGAR, East Delhi, Delhi, ll003l

GSTIN/ UIN :07BPLPJ8848ElZH

Application Reference Number (ARN): AA0712230743479

Date:

Order for Cancellation of Registration

This has reference to show cause notice issued dated 26/12/2023.

The effective date of cancellation of your registration is 19/12/2018.

3. It may be noted that a registered person furnishing return under sub-section (1) of section 39 of the CGST Act, 2017 is required to furnish a final return in FORM GSTR-10 within three months of the date of this order.

4. You are required to furnish all your pending returns.

5. It may be noted that the cancellation of registration shall not affect the liability 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.”

8. As is manifest from the above, the entire procedure as adopted by the respondents appears to be wholly arbitrary. It was on 26 December 2023 that they had ultimately chosen to allow the application made by the petitioner on 18 October 2022 seeking revocation of the original order of cancellation.

9. Inexplicably it is on the same date that yet another notice came to be issued calling upon the petitioner to show cause why its registration be not cancelled. In terms of the notice that came to be issued, the petitioner was accorded a week’s time to respond. However, it was called upon to appear the very next day. Thus the petitioner clearly appears to have been deprived of a reasonable opportunity to respond.

10. Quite apart from the above, the final order of cancellation fails to record or assign any reason in support of the allegations which stood leveled in the SCN and which preceded the passing of that order. In view of the aforesaid, we are of the firm opinion that the order of 08 January 2024 is rendered wholly unsustainable.

11. We further find ourselves unable to sustain the impugned order for an additional reason. As is manifest from a reading of the SCN of 26 December 2023, the respondents had failed to indicate any intent to cancel the registration from a retrospective date. It is in the aforesaid backdrop that we bear in mind the following principles that had come to be laid down in Riddhi Siddhi Enterprises v. Commissioner of Goods and Services Tax (CGST), South Delhi & Anr.⁴:-

“5. As is manifest from a reading of Section 29, clauses (a) to (e) of Section 29(2) constitute independent limbs on the basis of which a registration may warrant cancellation. While the provision does enable the respondents to cancel that registration with retrospective effect, the mere existence or conferral of that power would not justify a revocation of registration. The order under Section 29(2) must itself reflect the reasons which may have weighed upon the respondents to cancel registration with retrospective effect. Given the deleterious consequences which would ensue and accompany a retroactive cancellation makes it all the more vital that the order be reasoned and demonstrative of due application of mind. It is also necessary to observe that the mere existence of such a power would not in itself be sufficient to sustain its invocation. What we seek to emphasise is that the power to cancel retrospectively can neither be robotic nor routinely applied unless circumstances so warrant. When tested on the aforesaid precepts it becomes ex facie evident that the impugned order of cancellation cannot be sustained.

6. We note that while dealing with the right of the respondents to cancel GST registration with retrospective effect and the manner in which such power should be exercised in accordance with the statutory scheme was an issue which was noticed in Ramesh Chander v. Assistant Commissioner of Goods and Services Tax, Dwarka Division, CGST Delhi & Anr W.P.C 8061/2024 dated 25 September 2024. The Court in Ramesh Chander taking note of the contours of Section 29 had held:-

“1. The petitioner impugns order in appeal dated 29.12.2023, whereby the appeal filed by the petitioner has been dismissed solely on the ground of limitation. Petitioner had filed the appeal impugning order dated 13.07.2022 whereby the GST registration of the petitioner was cancelled retrospectively with effect from 01.07.2017. Petitioner also impugns Show Cause Notice dated 07.04.2022.

2. Vide impugned Show Cause Notice dated 07.04.2022, petitioner was called upon to show cause as to why the registration be not cancelled for the following reasons:-

“Any Taxpayer other than composition taxpayer has not filed returns for a continuous period of six months”

3. Petitioner was in the business of services involving repair, alterations, additions, replacements, renovation, maintenance or remodelling of the building covered above, General construction services of harbours, waterways, dams, water mains and lines, irrigation and other waterworks, General construction services of long-distance underground/ overland/ submarine pipelines, communication and electric power lines (cables); pumping stations and related works; transformer stations and related works, General construction services of local water & sewage pipelines, electricity and communication cables & related works, Installation, assembly and erection services of other prefabricated structures and constructions and possessed a GST registration.

4. A show cause notice was issued to the petitioner on 07.04.2022 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 give the name of the officer or place or time where the petitioner has to appear.

5. Further the order dated 13.07.2022 passed on the show cause notice 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 “whereas no reply to notice to show cause has been submitted”. However, the said order in itself is contradictory, the order states “reference to your reply dated 16.04.2022 in response to the notice to show cause dated 07.04.2022” and the reason stated for 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. retrospective date.

6. Neither the show cause notice, nor the order spell out the reasons for retrospective cancellation. In fact, in our view, order dated 13.07.2022 does not qualify as an order of cancellation of registration.

7. As per the petitioner, the said order reflected that the GST of the Petitioner stands cancelled from 01.07.2017 even though returns thereafter have been filed by the Petitioner.

8. 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.

9. 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 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.

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 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.

11. The show cause notice does not even state that the registration is liable to be cancelled from a retrospective date.

12. The petition is allowed. The impugned show cause notice dated 07.04.2022, order of cancellation dated 13.07.2022 and the order in appeal dated 29.12.2023 are accordingly set aside. GST registration of the petitioner is restored, subject to petitioner filing requisite returns upto date.

13. It is clarified that since the petitioner could not have filed the return after the GST registration was suspended, there shall be no liability to pay any penalty or fine for delayed filing. However, this would only apply in case petitioner files an affidavit of undertaking that petitioner has not carried out any business or raised invoices or taken any Input Tax Credit after the registration was suspended with effect from 07.04.2022 i.e., the date of suspension of the registration.

14. 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.

15. Petition is disposed of in the above terms.”

7. We further take note of the judgment in Delhi Polymers v. Commissioner, Trade and Taxes & Anr.⁵ wherein the following was observed:-

“1.Petitioner has filed the appeal impugning order of cancellation of registration dated 15.12.2021 whereby the GST registration of the Petitioner has been cancelled retrospectively with effect from 01.07.2017. Petitioner also impugns Show Cause Notice dated 04.09.2021.

2. Vide Show Cause Notice dated 04.09.2021, petitioner was called upon to show cause as to why the registration be not cancelled for the following reason:-

“Collects any amount representing the tax but fails to pay the same to the account of the Central/State Government beyond a period of three months from the date on which such payment becomes due”

3. Petitioner was engaged in the business of Sanitary ware Products & Accessories i.e., Baths, Shower, Washbasins, Seats and Cover etc. and possessed GST registration.

4. Show Cause Notice dated 04.09.2021 was issued to the Petitioner seeking to cancel its registration. However, the 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.

5. Further, the impugned order dated 15.12.2021 passed on the Show Cause Notice dated 04.09.2021 does not give any reasons for cancellation. It, however, states that the registration is liable to be cancelled for the following reason “whereas no reply to the show cause notice has been submitted”. However, the said order in itself is contradictory. The order states “reference to your reply dated 15.12.2021 in response to the notice to show cause dated 04.09.2021” and the reason stated for the cancellation is “whereas no reply to notice 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.

6. Neither the show cause notice, nor the order spell out the reasons for retrospective cancellation. In fact, in our view, order dated 15.12.2021 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.

7. Learned Counsel for the Petitioner submits that the said order reflected that the GST registration of petitioner stands cancelled from 01.07.2017 even though returns thereafter have been filed by the Petitioner.

8. He further submits that the petitioner is no longer interested in continuing the business and the business has been discontinued.

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 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.

11. It may be further noted that both the Petitioners and the department want cancellation of the GST registration of the Petitioner, though for a different reason.

12. In view of the fact that Petitioner does not seek to carry on business or continue the registration, the impugned order dated 15.12.2021 is modified to the limited extent that registration shall now be treated as cancelled with effect from 04.09.2021 i.e., the date when the Show Cause Notice was issued.

13. It is clarified that Respondents are also 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.

14. Petition is accordingly disposed of in the above terms.”

8. In view of the aforesaid and in light of an abject failure on the part of the authority to assign even rudimentary reasons for a retroactive cancellation, we find ourselves unable to sustain the order impugned.”

Accordingly, and for all the aforesaid reasons, we find that the impugned order of 08 January 2024 cannot possibly be sustained.

12. The writ petition is, accordingly, allowed. The impugned order of 08 January 2024 is hereby quashed and set aside. The writ petitioner shall be entitled to consequential reliefs.