HC: Retrospective GST Cancellation Requires Specific Proposal in SCN.

HC: Retrospective GST Cancellation Requires Specific Proposal in SCN.

Issue

Whether a GST registration can be cancelled with retrospective effect when the Show Cause Notice (SCN) proposing the cancellation did not specify that the cancellation would be from a prior date, thereby denying the taxpayer an opportunity to contest the retroactivity.

Facts

• The petitioner’s GST registration was effective from July 16, 2020.
• A Show Cause Notice (SCN) was issued on August 24, 2024, proposing the cancellation of the registration on the grounds that the business unit did not exist at the registered address.
• The SCN indicated that the registration would be suspended from the date of the notice (August 24, 2024), but it did not propose to cancel the registration with retrospective effect.
• The final order, passed on September 10, 2024, cancelled the registration with retrospective effect from the initial date of registration, July 16, 2020.
• The petitioner challenged this order in the High Court.

Decision

• The High Court set aside the cancellation order.
• It ruled that cancelling the registration with retrospective effect without putting the petitioner on notice for such an action is a clear violation of the principles of natural justice.
• The court reasoned that the SCN only proposed a prospective cancellation, and therefore, the petitioner was never given an effective opportunity to explain why their registration should not be cancelled from a prior date.
• The matter was remanded back to the tax authority to pass a fresh order after providing a proper hearing on all aspects, including the proposed effective date of cancellation.

Key Takeaways

• SCN Must Be Specific and Complete: A Show Cause Notice must clearly state all proposed adverse actions. If the department intends to cancel a registration retrospectively, this intention must be explicitly mentioned in the SCN.
• Natural Justice is Paramount: A taxpayer has the right to know the full scope of the case against them to mount an effective defense. An order cannot travel beyond the allegations and proposals made in the SCN.
• Severe Consequences of Retrospective Cancellation: A retrospective cancellation has serious implications, as it can invalidate all transactions conducted during that period and jeopardize the Input Tax Credit (ITC) claimed by the taxpayer’s customers. Therefore, the bar for imposing it is high and requires strict adherence to due process.
• No Surprises in the Final Order: The final order cannot introduce a more severe penalty or action that was not part of the initial notice. Any such enhancement is legally unsustainable.