GST registration cannot be cancelled with retrospective unless satisfied with sufficient reasons

The Hon'ble Delhi High Court in the case of Rane Brake Lining Ltd. v. Superintendent, Range-17, Central GST Division [Writ Petition (Civil) NO. 2259 OF 2024 dated February 16, 2024]held that the Registration could not be cancelled with retrospective effect mechanically unless the consequences of cancellation are deliberate and justified.

Facts

M/s. Rane Brake Lining Ltd. ("the Petitioner") was engaged in the business of manufacturing of safety-critical products for automobiles and locomotives across India and was registered under the Central Goods and Services Act, 2017 ("the CGST Act"). The Superintendent, Range-17 ("the Respondent") issued a Show Cause Notice ("the Impugned SCN") to the Petitioner on December 27, 2022, seeking to cancel the GST registration of the Petitioner. The ground mentioned in the SCN was "others". The Petitioner had never received the Impugned SCN earlier and accordingly did not respond thereto. Further, SCN required the Petitioner to appear before the undersigned i.e., the signatory of the Notice. However, there was no name or designation of the officer mentioned who had issued the SCN. The digital signatures on the SCN also showed "DS Goods and Services Tax Network 07".

Thereafter, the Order dated January 09, 2023 ("the Impugned Order") was passed canceling the registration of the Petitioner. The Impugned Order referred to a reply of the Petitioner dated January 05, 2023, which was never made. The Impugned Order further cancelled the GST registration on the ground that physical verification was conducted on December 15, 2022, and no such firm was found present at the registered office. The Impugned Order further cancelled the registration retrospectively with effect from July 02, 2017.

Hence, aggrieved by the Impugned Order, the present writ petition was filed by the Petitioner.

Issue

Whether the department can cancel the GST registration on the ground that the firm was not found during physical verification?

Held

The Hon'ble Delhi High Court in Writ Petition (Civil) NO. 2259 OF 2024 held as under:

• Observed that, the grounds for cancellation of the GST registration were different from the grounds in the Impugned SCN. The Petitioner was never intimated as to the real ground for cancellation. The Impugned Order also suffers from infirmity in as much as the officer seems to have considered a reply of the Petitioner when no such reply has been filed. Further, Petitioner was never put to notice that the registration was liable to be canceled retrospectively.
• Noted that, in terms of Section 29(2) of the CGST 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 said sub-section are satisfied. The GST registration cannot be canceled with retrospective effect mechanically unless the proper officer deems it fit to do so. Such satisfaction must be based on some objective criteria. 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 a retrospective date, considering the period when the returns were filed and the taxpayer was compliant.
• Opined that, one of the consequences for canceling a taxpayer's registration with retrospective effect is that the taxpayer's customers are denied the input tax credit ("ITC") availed in respect of the supplies made by the taxpayer during such period. 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 canceled with retrospective effect only where such consequences are intended and are warranted.
• Observed that, the Petitioner thereafter filed an application seeking revocation. According to the application for seeking revocation, the Impugned SCN dated January 04, 2024 was issued to the Petitioner, seeking to reject the revocation application. The said Show Cause Notice also required the Petitioner to appear once again before the undersigned i.e., the signatory of the notice. However, again, neither the name nor the designation of the officer issuing the notice was mentioned. The notice was digitally signed and the endorsement on the digital signature is "DS Goods and Services Network-07".
• Held that, the Respondent has passed the defective Impugned SCN and the Impugned Order. There appears to be complete non-application of mind. The Show Cause Notices dated December 27, 2022 and January 04, 2024 as also the Impugned Order cancelling the registration of the Petitioner retrospectively, and the order dated January 16, 2024 rejecting the revocation of cancellation application suffer from infirmity and cannot be sustained. Therefore, the Impugned SCN and the Impugned Orders were set aside. The GST registration of the Petitioner was restored. Lastly, the Petitioner was directed to comply with the provisions of Rule 23 and its provisos of the CGST Act.

Our Comments

Section 29 of the CGST Act, talks about "Cancellation or suspension of registration". According to the proviso of Sub Section (2) of Section 29 of the CGST 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 said sub-section are satisfied. Provided that the proper officer shall not cancel the registration without giving the person an opportunity of being heard.

The proper officer may cancel the registration of a person from such date, including any retrospective date, as he may deem fit, where,––

(a) a registered person has contravened such provisions of the CGST Act or the rules made thereunder as may be prescribed; or
(b) a person paying tax under section 10 has not furnished the return for a financial year beyond three months from the due date of furnishing the said return; or
(c) any registered person, other than a person specified in clause (b), has not furnished returns for a continuous period of six months; or
(d) any person who has taken voluntary registration under sub-section (3) of section 25 has not commenced business within six months from the date of registration; or
(e) registration has been obtained by means of fraud, wilful misstatement or suppression of facts.

Further, the Hon'ble Delhi High Court in the case of M/s. At SYS India Pvt. Ltd. Estex Tele Pvt. Ltd. Consortium v. Commissioner of Goods and Service Tax [W.P. (C) 14494/2023 dated November 20, 2023] allowed the writ petition and directed the Revenue Department to restore Petitioner GST Registration thereby holding that, GST Registration canceled without granting any hearing and proper reasoning is not sustainable.