GST registration can’t be cancelled with retrospective effect mechanically| GST Officer must provide reason for such action

Held by Hon’ble High Court of Delhi

In the matter of 

M/s ARYAN TIMBER STORE KUMAR SALES TAX OFFICER CLASS II/ AVATO WARD 62 DEPARTMENT OF TRADE AND TAXES IP ESTATE NEW DELHI (WP 628/2024 dated 18th January, 2024)

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These days, Taxpayers are genuinely facing issues in Input Tax credit due to back date cancellation of GST registrations of the suppliers. For FY 2017-18 and 2018-19, show cause notices were issued to various Assessee to disallow ITC on ground of cancellation of GST registration with retrospective effect. In most of such cases, GSTIN was cancelled due to non-filing of GST return for continuous period of six months. To resolve this issue, Hon’ble High Court of Delhi has passed a judgment to grant relief to taxpayers in the matter of ARYAN TIMBER STORE KUMAR SALES TAX OFFICER CLASS II/ AVATO WARD 62 DEPARTMENT OF TRADE AND TAXES IP ESTATE NEW DELHI (WP 628/2024 dated 18th January, 2024).

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The petitioner discontinued business operations from 31.03.2019 and applied for cancellation of GST registration vide application dated 06.05.2019. The respondent issued a SCN to cancel GST registration of the petitioner on account on non filing of GST returns of continuous period of 6 months. The respondent cancelled GST registration of the applicant with retrospective effect from 01.07.2017. The respondent did not mention retrospective cancellation in SCN.

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Hon’ble High court held that GST registration can be cancelled with retrospective effect under Section 29(2) of CGST Act only if circumstances set out in such section are satisfied. Registration cannot be cancelled with retrospective effect mechanically.  Retrospective cancellation can’t be done merely on ground of non filing of GST returns covering the period when the returns were filed. Proper officer has to consider that major consequences of retrospective cancellation is that the taxpayer’s customers are denied the ITC pertaining to such a period. Therefore, a taxpayer’s registration can be cancelled with retrospective effect only where such consequences are intended and are warranted. 

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Therefore, GST cancellation of the petitioner shall be effective from 06.05.2019, i.e., the date when the petitioner applied for cancellation of GST registration.

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1. Brief Facts of the case

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• M/s Aryan Timber Store (“The Petitioner”) discontinued its business operations with effect from 31st March, 2019.
• The Petitioner applied for cancellation of GST registration vide application dated 6th May, 2019.
• The petitioner received a show cause notice dated 15.07.2021 (“The Impugned SCN”) to explain why GST registration should not be cancelled on ground of non filing of GST returns for a continuous period of 6 months.
• In Show Cause notice, the respondent did not mention that GST registration is liable to be cancelled with retrospective effect.
• The respondent passed the order dated 09.07.2022 (“The Impugned Order”) cancelling GST registration of the petitioner with effect from 1st July, 2017.
• As the Show Cause notice did not mention cancellation of GST registration with retrospective effect, therefore, the petitioner had no opportunity to even object the retrospective cancellation.

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2. Legal Extracts

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Relevant extracts of CGST Act, 2017 is reiterated below for ready reference:

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• Cancellation of GST registration is governed by Section 29 of CGST Act.
• Section 29(2) of CGST Act is reiterated below:

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“Section 29. Cancellation or suspension of registration

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(2) 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 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 such continuous tax period as may be prescribed; 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

…”

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3. Analysis by Hon’ble High Court

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Hon’ble High Court analysised:

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1. Cancellation of GST registration for non-filing of GST return

• The petitioner has applied for cancellation of GST registration vide application dated 06.05.2019. GST registration of the petitioner got cancelled vide order dated 09.07.2022
• Once the GST registration of the petitioner got cancelled, there was no cause for the petitioner to file any return.
• Therefore, cancellation of GST registration of the applicant on the ground that petitioner has failed to file GST return is not sustainable.

2. Cancellation of GST registration with retrospective effect

• As per Section 29(2) of the Central Goods and Services Tax Act, 2017, the proper officer may cancel the GST registration of any person from retrospective effect if the circumstances set out in Section 29(2) 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. 
• Merely because the taxpayer has failed to file GST returns of some period, GST registration can’t be cancelled with retrospective effect  covering the period when the returns were filed.
• It is important to note that, one of the major consequences for cancelling GST registration with retrospective effect is that the taxpayer’s customers are denied the ITC pertaining to such a period.
• Therefore, the proper officer is also required to consider this aspect while cancelling 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 

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4. Conclusion

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Hon’ble High Court of Delhi held that:

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• In accordance with above discussion, the order of cancellation is modified to the extent that the same shall operate with effect from 06.05.2019, i.e., the date when the petitioner applied for cancellation of GST registration.