Retrospective GST registration cancellation is modified to the assessee’s requested date

Retrospective GST registration cancellation is modified to the assessee’s requested date if the cancellation was initiated by the assessee and no notice was issued for the retrospective effect.

Issue:

Whether a GST registration, for which the assessee itself had applied for cancellation, can be cancelled retrospectively by the authorities on the ground of non-filing of returns, particularly if the retrospective cancellation order was passed without proper notice to the assessee.

Facts:

• The petitioner applied for cancellation of its GST registration, citing difficulty in running its business.
• This application for cancellation was rejected by the authorities.
• Subsequently, a Show Cause Notice (SCN) was issued to the petitioner on the ground of non-filing of returns.
• Based on this SCN, an impugned order was passed by the authorities, cancelling the petitioner’s GST registration with retrospective effect.
• The assessee contended that the impugned order (cancelling registration retrospectively) was passed without proper notice to the petitioner regarding the retrospective aspect.
• The assessee further argued that since it had itself sought cancellation of registration, there was no question of filing returns for subsequent periods (i.e., after the date from which it wanted cancellation).

Decision:

The court held in favor of the assessee. It found that the impugned order, imposing retrospective cancellation, was passed without proper notice to the petitioner regarding this specific aspect. The court also acknowledged the logical point that if the petitioner itself had sought cancellation of GST registration, expecting them to file returns for periods subsequent to their requested cancellation date was unreasonable. Therefore, the impugned order was modified, and the cancellation of registration was directed to be effective from the date as prayed by the petitioner.

Key Takeaways:

• Retrospective Cancellation Requires Specific Notice: While tax authorities have the power to cancel registration retrospectively in certain circumstances (e.g., if the business was never carried on or if there’s fraud), exercising this power generally requires specific notice to the assessee detailing the intention for retrospective cancellation and providing an opportunity to be heard on this aspect.
• Violation of Natural Justice: Passing an order of retrospective cancellation without a proper show cause notice regarding the retrospective period constitutes a violation of natural justice.
• Assessee-Initiated Cancellation: When the assessee itself applies for cancellation of registration from a certain date, the expectation of filing returns for periods after that requested date is often unreasonable. The department should either process the cancellation from the requested date or issue a specific SCN if it intends to cancel from an earlier date for non-compliance.
• Consequences of Retrospective Cancellation: Retrospective cancellation can have severe implications for the assessee (e.g., deemed non-filing of returns, deemed supply, ITC reversal) and their recipients (e.g., ITC blockage), hence the need for strict adherence to due process.
• Modification of Order: The court modified the order to align with the assessee’s request, demonstrating that the authorities must be reasonable and consider the specific facts, especially when the assessee initiated the cancellation process.