Delhi HC quashes order cancelling GST Number with retrospective effect [Read Order]

The Delhi High Court in the matter of Pratima Tyagi Vs. Commissioner of GST and ANR. has quashed the order cancelling GST Number with retrospective effect.

The petitioner filed this appeal to challenge a judgment dated 03.02.2021 (hereinafter ‘the impugned order’), which cancelled the petitioner’s GST registration with retroactive effect from 01.07.2017.

It is the petitioner’s case that she was conducting business under the name of sole proprietorship concern ‘M/s P. S. Metal,’ however she ceased operations on 11.11.2019 due to illness. As a result, on the specified date, the petitioner filed an application for cancellation of her GST registration. Although this was acknowledged, the petitioner’s application to cancel the registration was not addressed.

Following that, the proper officer issued a show cause notice dated 12.01.2021 (hence ‘the SCN’) proposing to cancel the petitioner’s GST registration on the grounds that the petitioner had not filed the returns for six months in a row. The petitioner was required to respond to the SCN within seven working days of the date of service of the SCN. Furthermore, the petitioner was summoned for a personal hearing on the scheduled date and time, failing which she was warned that the issue would be resolved ex parte.

It is worth noting that the SCN did not mention the designated date or time for hearing the petitioner. Following that, the competent authority issued the impugned order cancelling the petitioner’s GST registration. The impugned order does not state why the petitioner’s GST registration was cancelled, but it does state that no response was received from the SCN.

It is clear from the foregoing that the impugned order is unsustainable since it is not based on logic. The impugned order was also issued in breach of natural justice principles because the petitioner was not given an opportunity to be heard. Although the SCN requested that the petitioner appear for a personal hearing, it did not specify the date, time, or location of the hearing. As a result, the petitioner was unable to attend the hearing.

As previously indicated, the impugned ruling revoked the petitioner’s GST registration with retrospective effect from July 1, 2017. According to Section 29(2) of the Central Goods and Services Tax Act, 2017, the proper officer has the authority to terminate the registration from any date, including retrospectively; however, this authority cannot be utilized arbitrarily. The decision to cancel the registration subsequently must be based on objective criteria. In the current instance, the petitioner’s GST registration was revoked due to six months of non-filing of returns. We see no basis to revoke the petitioner’s GST registration, even if she was filing returns at the time.

According to the respondents, cancelling the petitioner’s GST registration would also deprive the petitioner’s customers of the benefit of the input tax credit claimed in relation to the supplies given by the petitioner. It is debatable whether such effects result from the cancellation of the supplier’s registration with retroactive effect. However, even if the respondents are correct, it highlights the need for 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 taxpayer made supplies and duly filed returns for the same. As previously stated, the impugned order provides no rationale for cancelling the GST registration, let alone a reason for doing so retroactively.

As stated above, the impugned order is required to be set aside, however, we do not consider it apposite to do so since the petitioner’s prayer is limited. She prays that her GST registration be cancelled with effect from 11.11.2019 as the petitioner had stopped her business from the said date.

In view of the above, we direct that the impugned order cancelling the petitioner’s GST registration would take effect from 11.11.2019 and not from 01.07.2017.

It is also clarified that this would not preclude the respondents from taking any action or steps in accordance with the law, if it is found that the petitioner has defaulted in her statutory obligations.

The petition is disposed of in the aforesaid terms.

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