The Delhi High Court has held that simply 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 a retrospective date.

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The bench of Justice Sanjeev Sachdeva and Justice Ravinder Dudeja has held that 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 sub-section are satisfied. Registration cannot be cancelled with retrospective effect mechanically.

The show cause notice was issued to the petitioner or assessee seeking to cancel its registration. Though the notice does not specify any cogent reason, it merely states an observation: “failure to furnish returns for a continuous period of six months.” The Show Cause Notice required the petitioner to appear on December 8, 2022, at 11:00 AM before the authority issuing the notice. However, the notice does not give the name of the officer or the place where the petitioner has to appear. It merely mentions “Jurisdiction Officer,” and the digital signatures in the Show Cause Notice merely mention “digitally signed by DS Goods and Services Tax Network (4).”

A show cause notice also does not put the petitioner on notice that the registration is liable to be cancelled retrospectively. The petitioner had no opportunity to even object to the retrospective cancellation of the registration.

The order passed on the Show Cause Notice does not give any reasons for cancellation. It states that the registration is liable to be cancelled for the following reason: “Whereas no reply to the show cause has been submitted, and whereas the undersigned, based on records available with this office, is of the opinion that your registration is liable to be cancelled for the following reason(s): Section 29(2)(c): Person, other than paying tax u/s 10, failed to furnish returns for prescribed periods.”.

The order further states that the effective date of cancellation of registration is November 15, 2018, i.e., a retrospective date. There is no material on record to show as to why the registration is sought to be cancelled retrospectively.

The petitioner contended that he regularly filed his returns; however, since June 2022, he could not file his returns due to major setbacks in the business due to the lockdown period. The business of the petitioner had completely stopped, and no income was generated. Due to the closure of his business, he did not open the GSTIN portal and receive the Show Cause Notice. It was not received by him either by email or by post. Therefore, due to a lack of access to the notice, the petitioner could not file a response to the Show Cause Notice.

The department contended that one of the consequences of canceling 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 a period.

The court held that a taxpayer’s registration can be cancelled with retrospective effect only where such consequences are intended and warranted. Both the petitioner and the respondent want the GST registration to be cancelled, though for different reasons.

The court noted that the petitioner does not seek to carry on business or continue the registration. The order dated August 25, 2023, is modified to the limited extent that registration shall now be treated as cancelled with effect from November 8, 2022, i.e., the date when the Show Cause Notice was issued. The petitioner shall make the necessary compliances as required by Section 29 of the Central Goods and Services Tax Act, 2017.

“Respondents are 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, including retrospective cancellation of the GST registration,” the court said.

Counsel For Petitioner: Rajesh Mahiya

Counsel For Respondent: Rajeev Aggarwal

Case Title: Good Life Zip India Versus Commissioner Of Delhi Goods And Service Tax & Anr.

Case No.: W.P.(C) 3931/2024 & & CM APPL. 16203/2024

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