GST registration cannot be retrospectively canceled solely on the grounds of non-filing of returns.

The Delhi High Court, in the matter of Aryan Timber Store v. Sale Tax Officer [Writ Petition (Civil) No. 628 of 2024 dated January 18, 2024], ruled that the cancellation of GST registration for an assessee cannot be done retrospectively merely due to non-filing of returns. The court emphasized that such cancellation should be based on objective criteria and at the discretion of the proper officer. Consequently, the court modified the cancellation order to take effect from the date when the assessee initially applied for cancellation.

Facts:

The Petitioner, Aryan Timber Store, ceased operations on March 31, 2019, and requested the cancellation of its GST registration on May 06, 2019. Subsequently, the Revenue Department issued a Show Cause Notice dated July 15, 2021, alleging non-filing of returns for a continuous six-month period. The department retrospectively cancelled the GST registration from July 1, 2017, without providing any material justifying the retrospective cancellation. Notably, the Show Cause Notice failed to inform the Petitioner about the potential retrospective cancellation, denying them the opportunity to contest it. Consequently, the GST registration was cancelled with retrospective effect from July 1, 2017, through the Order dated July 9, 2022.(“the Impugned Order”)

Therefore, dissatisfied with both the Show Cause Notice (Impugned SCN) and the subsequent Order (Impugned Order), the Petitioner filed the current writ petition.

Issue:

Should the GST registration of the Petitioner be annulled retrospectively?

Held

Writ Petition No. 628 of 2024 before the Delhi High Court ruled as follows:

1. Noted that under Section 29(2) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”), the proper officer is empowered to cancel a person’s GST registration from a date, including any retrospective date, if the conditions specified in the subsection are met. Emphasized that this determination should be objective and not solely based on subjective considerations. The mere non-filing of returns for a specific period should not automatically lead to the retrospective cancellation of a taxpayer’s registration, encompassing periods of compliance.

2. Expressing an opinion that, based on the Respondent’s perspective, one of the outcomes of retroactively canceling a taxpayer’s registration is the denial of input tax credit (“ITC”) to the taxpayer’s customers for supplies made during that period. While the court refrained from delving into this aspect, it suggested that if such consequences are intended, the proper officer must duly consider them before deciding on the retrospective cancellation of GST registration.

3. Concluded that the GST registration would be deemed canceled from May 6, 2019, the date when the Petitioner applied for the cancellation. Clarified that the Respondents retain the right to take lawful measures for recovering any outstanding tax, penalty, or interest from the Petitioner. As a result, the petition was resolved.

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