Denial Of ITC To Customers Is One Of The Consequence Of Retrospective GST Registration Cancellation: Delhi High Court

The Delhi High Court has held that one of the consequences of cancelling a taxpayer'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 taxpayer.

The bench of Justice Sanjeev Sachdeva and Justice Ravinder Dudeja has observed that simply because a taxpayer has not filed the returns for some period, it does not mean that the taxpayer's registration is required to be cancelled, with a retrospective date also covering the period when the returns were filed and the taxpayer was compliant.

The petitioner/assessee is in the business of TMT Bars and possesses GST registration under the Central Goods and Services Act, 2017.

A show cause notice was issued to the petitioner seeking to cancel its registration. Though the notice does not specify any cogent reason, it merely states, “Any taxpayer other than a composition taxpayer has not filed returns for a continuous period of six months." The Show Cause Notice required the petitioner to appear before the undersigned, i.e., the authority issuing the notice. However, the notice does not state the date and time by which the petitioner was required to appear for a personal hearing.

The Show Cause Notice also does not put the petitioner on notice that the registration is liable to be cancelled retrospectively. Thus, 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 merely states that the registration is liable to be cancelled for the following reason: “Whereas no reply to notice to show cause has been submitted." The order in itself is contradictory. The order states “reference to your reply dated April 5, 2023, in response to the notice to show cause dated August 18, 2021,” and the reason stated for cancellation is “Whereas no reply to the notice to show cause has been submitted." The order further states that the effective date of cancellation of registration is July 1, 2017, 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 assessee contended that, as per the order, the registration is liable to be cancelled, and on the other hand, in the column at the bottom, there are no dues stated to be due against the petitioner, and the table shows nil demand.

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 subsection are satisfied. 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 court noticed that the Show Cause Notice and the impugned order are also bereft of any details. Neither the show cause notice nor the order spell out the reasons for retrospective cancellation. Accordingly, the same cannot be sustained.

The court noted that the petitioner does not seek to carry on business or continue the registration; the impugned order dated is modified to the limited extent that registration shall now be treated as cancelled with effect from August 18, 2021, 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.

Counsel For Petitioner: Vedant Chandel

Counsel For Respondent: Rajeev Aggarwal

Case Title: Mukesh Kumar Singh Versus Commissioner Of Delhi GST

Citation: 2024 LiveLaw (Del) 507

Case No.: W.P.(C) 5791/2024 & CM APPLs. 23959-60/2024

Click Here To Read The Order