Merely Because GST Returns Were Not Filed For Some Period, Registration Cannot Be Cancelled Retrospectively From The Date Of Registration: Delhi HC

Recently, the Delhi High Court stated that GST registration cannot be cancelled retrospectively from the date of registration merely because returns were not filed for some period.

The bench of Justices Sanjeev Sachdeva and Ravinder Dudeja was dealing with the petition challenging the order whereby the GST registration of the Petitioner was cancelled retrospectively with effect from 07.07.2017 and also challenging the show cause notice dated 30.06.2021. 

In this case, the Petitioner had submitted an application seeking cancellation of GST registration on 28.09.2019. Pursuant to the said application, the taxpayer after a gap of 9 months was issued another show cause notice dated 12.05.2020 seeking stock statement and sale-purchase summary. 

However, the said notice did not provide an opportunity for a personal hearing. After that, the provisional registration of the petitioner had been suspended.

A show cause notice dated 30.06.2021 was issued to the petitioner to show cause as to why the registration should not be cancelled on the allegation that the firm has made purchases from suspicious firms.

The bench stated that neither the show cause notice nor the order spell out the reasons for cancellation. The order dated 29.01.2021 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.

High Court observed that under Section 29(2) of the Central Goods and Services Tax Act, 2017, 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. 

The bench opined that 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. 

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High Court stated 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. 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.”

In view of the above, the bench modified the impugned order dated 25.08.2021 to the limited extent that registration be cancelled with effect from 29.08.2019  i.e., the date when the Petitioner had submitted the application for cancellation of GST registration. 

Case Title: M/s MK Traders Through its proprietor Ajay Kumar v. Sales Tax Officer Class II Avato

Bench: Justices Sanjeev Sachdeva and Ravinder Dudeja 

Case No.: W.P.(C) 2568/2024