Registration should not be cancelled retrospectively for the period when the taxpayer has fulfilled compliance requirements

The Delhi High Court has ruled that GST registration should not be cancelled retrospectively for periods where a taxpayer has fulfilled their compliance obligations. In the case of Sharda Metal Works, the court set aside a retrospective cancellation notice and order, finding them lacking in proper reasoning. The court emphasised that registration cancellation, even retrospectively, requires objective criteria and cannot be done mechanically, especially when returns have been filed and the taxpayer was compliant.

The Hon'ble Delhi High Court in the case of Sharda Metal Works v. Commissioner of Central Goods and Services Tax [W.P.(C) NO. 16190 OF 2023 dated January 4, 2024]disposed of the writ petition, thereby setting aside the Show Cause Notice and Order of cancellation of Assessee GST Registration as the aforesaid Notice and Order is bereft of any proper reasoning. Hon'ble High Court further stated that the registration should not be cancelled retrospectively for the period when the returns have been filed and the taxpayer was compliant. 

Facts

Shardha Metal Works ("the Petitioner") was issued Show Cause Notice dated September 6, 2022 ("the Impugned SCN") by the Revenue Department ("the Respondent") as to why the registration of the Petitioner should not be cancelled, reason being that the Petitioner has issued invoice or bill without the supply of goods and/or services, thereby leading to wrongful availment or utilization of ITC or refund of tax. Thereafter, the Respondent vide Order dated May 02, 2023 ("the Impugned Order") cancelled the registration of the Petitioner with retrospective effect. 

Aggrieved by the Impugned Order and Impugned SCN, the Petitioner filed a writ petition before the Hon'ble Delhi High Court. 

Issue

Whether registration should be cancelled retrospectively for the period when the taxpayer has fulfilled compliance requirements?

Held

The Hon'ble Delhi High Court in W.P. (C) NO. 13754 OF 2023held as under:

• Observed that, Section 29(2) of the Central Goods and Services Tax Act, 2017 ("the CGST Act") states that, the Proper Officer may cancel the GST registration of a person from such date which includes retrospective date, if the circumstances laid out in the said provision are satisfied.  
• Noted that, no particulars or details have been mentioned in the Impugned SCN and there is no reference to any invoice or bill pertaining to which it has been alleged that no supply of goods or services has been made. Also, it is stated that, the Respondent is using the standard template for issuance of Notices as there is no clarity as to whether the Petitioner has issued invoices or bills without supply or action of the Petitioner which led to wrongful availment or utilization of ITC or refund of tax. 
• Further Noted that, Registration with retrospective effect cannot be cancelled mechanically. The Registration can be cancelled only if the Proper Officer deems fit to do so. The satisfaction should be based on objective criteria. 
• Further Noted that, the registration should not be cancelled retrospectively for the period when the returns have been filed and taxpayer was compliant. 
• Opined that, the Impugned Order and Impugned SCN are bereft of any proper reasoning, thereby disposed the writ petition. 
• Held that, the Impugned Order and Impugned SCN is set aside. 
• Clarified that, the Respondent has the option to take further action in accordance with law. However, the Respondent is required to issue proper Show Cause Notice and proper opportunity of hearing. 

Related Provision

Section 29(2) of the CGST Act

"Section 29: Cancellation or suspension of registration

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 forsuch 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:

Provided that the proper officer shall not cancel the registration without giving the person an opportunity of being heard.

Provided further that during pendency of the proceedings relating to cancellation of registration, the proper officer may suspend the registration for such period and in such manner as may be prescribed."