Retrospective GST Registration Cancellation Modified to Prospective Effect, Portal Access Granted for Compliance

Retrospective GST Registration Cancellation Modified to Prospective Effect, Portal Access Granted for Compliance

Issue: Whether the retrospective cancellation of an assessee’s GST registration from July 1, 2017, due to non-filing of returns for an old business, is valid, especially when the assessee was unaware of the retrospective nature of the cancellation, and if the authorities can agree to modify the effective date of cancellation.

Facts: The petitioner’s GST registration was cancelled retrospectively, effective from July 1, 2017. The petitioner’s case was that they had initially operated a firm named Natraj Steels and later changed its name to Natraj Industry, obtaining a new registration. Due to the closure of the old business, the petitioner’s accountant failed to file proper returns, leading to the cancellation of the GST registration. However, the petitioner claimed they were unaware that the cancellation was retrospective. They only discovered this in 2024 and attempted to file an appeal, but it was rejected as being beyond the period of limitation. This led to the filing of the present writ petition under Article 226 of the Constitution of India.

Decision: The court ruled in favor of the assessee. The authorities agreed that the cancellation of the assessee’s GST registration should be given effect from the date of the show cause notice, i.e., September 4, 2021, instead of retrospectively from July 1, 2017. Furthermore, it was directed that the GST portal needed to be opened for the sake of filing returns and any other necessary documents by the assessee. The assessee was instructed to withdraw the appeal previously filed against the impugned order.

Key Takeaways:

• Retrospective Cancellation is Discretionary, Not Automatic: While Section 29 of the CGST Act allows for retrospective cancellation of registration, it is a discretionary power and should not be exercised mechanically, especially when it leads to undue hardship or when the taxpayer was genuinely unaware of the retrospective impact.
• Impact of Lack of Knowledge: The assessee’s genuine lack of awareness about the retrospective cancellation due to accountant’s failure and closure of old business played a crucial role in the court’s intervention.
• Prospective Effect of Cancellation: The decision to change the effective date of cancellation from July 1, 2017, to September 4, 2021 (date of SCN) provides significant relief to the assessee. This limits their compliance burden and potential liabilities to the period after the SCN, rather than from the very inception of GST.
• Access to Portal for Compliance: Directing the authorities to open the portal for the assessee to file returns and other documents is critical. This allows the assessee to regularize their compliance for the intervening period between the effective date of cancellation and the present.
• Writ Jurisdiction (Article 226): This case exemplifies the High Court’s exercise of its extraordinary writ jurisdiction under Article 226 to provide equitable relief and correct administrative actions that cause undue hardship or are arbitrary, especially when statutory appeal remedies are time-barred.
• Resolution by Agreement: The authorities’ agreement to the modification signifies a practical approach to resolving the dispute, acknowledging the peculiar facts of the case.
• In Favour of Assessee: The outcome is highly beneficial for the assessee, as it rectifies a harsh retrospective application of cancellation and facilitates future compliance.