GST Number cannot be cancelled retrospectively because taxpayer has not filed returns [Read Judgement]

The Delhi High Court in the matter of M/S SUMIT ENTERPRISES Vs. COMMISSIONER OF DELHI GOODS AND SERVICES TAX ANR. has ordered that the GST Number cannot be cancelled retrospectively because the taxpayer has not filed returns.

Petitioner impugns order dated 04.03.2021, whereby the application filed by the petitioner seeking cancellation of GST registration has been rejected. The petitioner is also aggrieved by an order dated 27.04.2022, whereby the GST registration of the petitioner has been cancelled.

The petitioner is registered under the Goods and Services Tax Act, 2017. As per the petitioner, the petitioner submitted an application for cancellation of registration with effect from 22.02.2021 on the ground that the petitioner had closed its business during the COVID period.

A show cause notice was issued to the petitioner on 02.09.2021 for having failed to file a return for a continuous period of six months. The petitioner did not submit any reply to the show cause notice, leading to the order dated 27.04.2022 (also impugned herein) being passed, cancelling the registration of the petitioner with effect from 02.07.2017.

Note that the application seeking cancellation of the registration of the petitioner was rejected on the ground that the petitioner had failed to furnish stock position, the value of raw material as well as the value of capital goods.

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. The 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 a 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 taxpayer’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 taxpayer during such period. Although we do not consider it apposite to examine this aspect but assuming that the respondent’s contention in this regard is correct, it would follow that the proper officer is also 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.

Clearly, the order is erroneous to the extent that the same could not have been passed retrospectively. We note that the registration was suspended with effect from 02.09.2021. Accordingly, the order is modified to the extent that cancellation shall take effect from 02.09.2021.

The petition is accordingly disposed of. The petitioner shall furnish all details to the proper officer with regard to the information sought for by the proper officer, inter-alia, the value of capital goods, raw materials as well as the stock position.

It is clarified that this Court has neither considered nor commented on the merits of the contentions of either party insofar as the stock position or payment of any tax, fine or penalty is considered. All rights and contentions of the parties are reserved.

For Official Judgment Download PDF Given Below: