Decision To Cancel Registration Of GST With Retrospective Effect Must Be Based On Some Objective Criteria: Delhi HC

The Delhi High Court held that the decision to cancel the registration of GST (Goods and Services Tax) with retrospective effect must be based on some objective criteria.

The Court was dealing with a petition against an order by which the person’s GST registration was cancelled with retrospective effect from July 1, 2017.

A Division Bench comprising Justice Vibhu Bakhru and Justice Amit Mahajan observed, “… the impugned order cancelled the petitioner’s GST registration with retrospective effect from 01.07.2017. In terms of Section 29(2) of the Central Goods and Services Tax Act, 2017, the proper officer has a discretion to cancel the registration from any date including with retrospective effect, however, the said discretion cannot be exercised in arbitrary manner. The decision to cancel the registration with retrospective effect must be based on some objective criteria. In the present case, the petitioner’s GST registration was cancelled on account of non-filing of returns for a period of six months. We find no reason for cancellation of the petitioner’s GST registration even for a period when she was filing the returns.”

Advocate Dinesh Mohan Singha appeared on behalf of the petitioner in this case.

Factual Background -

It was the petitioner’s case that she was carrying on the business under the name of sole proprietorship concern ‘M/s P. S. Metal’ but she closed down her business activities on November 11, 2019 on account of ill-health. Therefore, she filed an application on the said date for cancellation of her GST registration. The same was duly acknowledged, but her application for cancellation of the registration was not processed and thereafter, the proper officer issued a show cause notice (SCN) proposing to cancel her GST registration on the ground that she had not filed the returns for a continuous period of six months.

She was called upon to furnish a reply to the SCN within a period of seven working days from the date of service of the SCN. Additionally, she was called upon to appear for a personal hearing on the appointed date and time, failing which she was cautioned that the case would be decided ex parte. The SCN did not specify the appointed date and time fixed for hearing her and thereafter, the proper officer passed the impugned order cancelling her GST registration. The impugned order did not specify any reason for cancelling her GST registration, however, it mentioned that no reply was received to the SCN.

The High Court in the above context of the case noted, “According to the respondents, the cancellation of GST registration would also have a fact of denying the petitioner’s customers the benefit of the input tax credit availed in respect of the supplies provided by the petitioner. There is a controversy whether such consequences follow on cancellation of the supplier’s registration with retrospective effect. However, assuming that the respondents are correct in their view, it underscores the requirement of the proper officer to be fully satisfied that the registration was required to be cancelled with retrospective effect to include the period during which the tax payer had made supplies and had duly filed the returns for the same.”

The Court said that the impugned order does not provide any reason for cancellation of the GST registration let alone reason for doing so with retrospective effect.

Accordingly, the High Court disposed of the petition and directed that the order cancelling the petitioner’s GST registration would take effect from November 11, 2019 instead of July 1, 2017.

Cause Title- Pratima Tyagi v. Commissioner of G.S.T. & Anr. (Neutral Citation: 2023:DHC:9025-DB)

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