Manish Anand (Prop. M/S Everyday) vs. Avato Ward -45 State Goods And Services Tax & Ors.
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The petitioner, Manish Anand (Prop. M/s Everyday), challenged a GST registration cancellation order dated December 15, 2022, which retrospectively cancelled his registration from July 1, 2017. The petitioner also challenged the Show Cause Notice (SCN) dated December 2, 2021, which cited failure to furnish returns for a continuous period of six months as the reason for cancellation. The petitioner argued that the SCN did not specify cogent reasons and did not notify him of the possibility of retrospective cancellation. The impugned order was also criticized for being contradictory, stating no reply was submitted while referencing a reply dated January 2, 2022. The order also showed nil dues against the petitioner.
Held
The Court held that both the Show Cause Notice (SCN) and the impugned order dated December 15, 2022, were unsustainable as they were bereft of details and did not spell out the reasons for retrospective cancellation. The Court found that the SCN did not provide a cogent reason and failed to notify the petitioner about the possibility of retrospective cancellation, thus violating principles of natural justice. The impugned order was contradictory, stating no reply was submitted while referencing a reply, and also showed nil dues against the petitioner. The Court noted that while Section 29(2) of the CGST Act permits retrospective cancellation, it cannot be done mechanically. Such cancellation requires objective satisfaction based on criteria, and merely failing to file returns for some period does not automatically warrant retrospective cancellation covering compliant periods. The Court acknowledged that retrospective cancellation has consequences, such as denial of input tax credit to customers. Given that both parties desired cancellation of registration, the Court modified the impugned order. The registration was deemed cancelled effective from December 2, 2021, the date of the SCN, rather than the original retrospective date of July 1, 2017. The petitioner was directed to comply with Section 29 of the CGST Act. The respondents were not precluded from taking recovery steps for any dues in accordance with law.
Key Issues
1. Whether the Show Cause Notice dated 02.12.2021 and the impugned order dated 15.12.2022 are legally sustainable, considering they allegedly lack cogent reasons and do not provide adequate notice regarding retrospective cancellation of GST registration, thereby violating principles of natural justice? 2. Whether the retrospective cancellation of GST registration from 01.07.2017 is justified under Section 29(2) of the Central Goods and Services Tax Act, 2017, particularly when the petitioner had filed returns and was compliant during parts of the period and the order itself shows no dues? Petitioner's arguments: The petitioner contended that the SCN and the impugned order were bereft of details and did not provide an opportunity to object to retrospective cancellation. The petitioner also stated he had closed his business and shifted operations abroad, no longer being interested in continuing the registration. Revenue's arguments: The judgment records no specific arguments from the respondents (State Goods and Services Tax & Ors.) regarding the validity of the SCN or the retrospective cancellation. However, it notes the respondents' contention that retrospective cancellation can deny customers input tax credit.
Sections Cited
Section 29(2), Section 29
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Cause title — parties, addresses and appearances
JUDGMENT SANJEEV SACHDEVA, J. (ORAL)
Petitioner impugns order dated 15.12.2022, whereby the GST registration of the petitioner has been cancelled retrospectively with effect from 01.07.2017. Petitioner also impugns Show Cause Notice dated 02.12.2021. W.P.(C) 3533/2024 2. Vide Show Cause Notice dated 02.12.2021, petitioner was called upon to show cause as to why the registration be not cancelled for the following reason: - “returns furnished by you under section 39 of the Central Goods and Services Tax Act,2017”
The Show Cause Notice was issued to the petitioner on 02.12.2021. Though the notice does not specify any cogent reason, there is an observation in the notice stating “failure to furnish returns for a continuous period of six months”. Further, the said Show Cause Notice also does not put the petitioner to notice that the registration is liable to be cancelled retrospectively. Accordingly, the petitioner had no opportunity to even object to the retrospective cancellation of the registration.
Further, the impugned order dated 15.12.2022 passed on the Show Cause Notice does not give reasons of cancellation. It states that the registration is liable to be cancelled for the following reason “whereas no reply notice to show cause has been submitted”. However, the said order in itself is contradictory. The order states “reference to your reply dated 02/01/2022 in response to the notice to show cause dated 02/12/2021” and the reason stated for cancellation is “Whereas no reply to notice to show cause has been submitted”. The order further states that effective date of cancellation of registration is 01.07.2017 i.e., a retrospective date. There is no W.P.(C) 3533/2024 material on record to show as to why the registration is sought to be cancelled retrospectively.
In fact, in our view, order dated 15.12.2022 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.
Learned counsel for petitioner submits that petitioner is no longer interested in continuing the business and has closed down his business activities as he has shifted his business activities abroad.
We notice that the Show Cause Notice and the impugned order are bereft of any details accordingly the same cannot be sustained and neither the Show Cause Notice, nor the order spell out the reasons for retrospective cancellation.
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 said sub-section 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. 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 W.P.(C) 3533/2024 retrospective date also covering the period when the returns were filed and the taxpayer was compliant.
It is important to note 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. Although, we do not consider it apposite to examine this aspect but assuming that the respondent’s contention is 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.
It may be further noted that both the Petitioner and the department want cancellation of the GST registration of the Petitioner, though for different reasons.
In view of the fact that Petitioner does not seek to carry on business or continue the registration, the impugned order dated 15.12.2022 is modified to the limited extent that registration shall now be treated as cancelled with effect from 02.12.2021 i.e., the date when the Show Cause Notice was issued. Petitioner shall make the necessary compliances as required by Section 29 of the Central Goods and Services Tax Act, 2017. W.P.(C) 3533/2024 12. It is clarified that Respondents are not precluded from taking any steps for recovery of any tax, penalty or interest that may be due in respect of the subject firm in accordance with law including retrospective cancellation of the GST registration.
Petition is accordingly disposed of in the above terms. SANJEEV SACHDEVA, J RAVINDER DUDEJA, J MARCH 07, 2024 vp
Reproduced from the public record of the Delhi High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.