Delhi HC: GSTIN Can’t be Cancelled Retrospectively U/S 29 (2) If GST Returns Weren’t Filed

The Delhi High Court ruled that just as a taxpayer does not file the returns for some period does not indicate that the taxpayer’s registration is directed to be cancelled with a retrospective date.

The bench of Justice Sanjeev Sachdeva and Justice Ravinder Dudeja, in terms of Section 29(2) of the Act, the proper officer might cancel the GST registration of a person from such date, including any retrospective date, since he may consider fit if the situation set out in the sub-section is satisfied. Registration does not get cancelled with a retrospective effect mechanically.

The show cause notice was furnished before the applicant asked to cancel its registration. But the notice did not establish any compelling reason, it just remarks an observation: “failure to furnish returns for a continuous period of six months.” The Show Cause Notice demanded the applicant to appear dated December 8, 2022, at 11:00 AM before the authority issued the notice.

The notice does not furnish the name of the officer or the place where the applicant needed to appear. It just cites “Jurisdiction Officer,” and the digital signatures in the Show Cause Notice merely mention “digitally signed by DS Goods and Services Tax Network (4).”

A Show Cause Notice does not put the applicant on notice that the registration is accountable to be cancelled retrospectively. No opportunity is there for the applicant to even object to the retrospective cancellation of the registration.

On the Show Cause Notice, the order passed does not furnish any reasons for cancellation. It displays that the registration is accountable to be cancelled for the following reason: “Whereas no reply to the show cause has been submitted, and whereas the undersigned, based on records available with this office, believes that your registration is liable to be cancelled for the following reason(s): Section 29(2)(c): Person, other than paying tax u/s 10, failed to furnish returns for prescribed periods.”

November 15, 2018, is the effective cancellation date which is the retrospective date, the order cites. To show why the registration is sought to be cancelled retrospectively, no material on record is there. 

The petitioner argued that he filed his returns regularly; but, since June 2022, because of significant setbacks in the business due to the lockdown period, he cannot file his returns. The applicant’s business had completely stopped, and no income was generated. He did not open the GSTIN portal and receive the Show Cause Notice, due to the closure of his business. It was not obtained by him either via email or by post. Thus, because of a lack of access to the notice, the applicant is unable to file a response to the Show Cause Notice.

One of the consequences of cancelling a taxpayer’s registration with retrospective effect is that the assessed customers are denied the input tax credit claimed for the supplies made by the taxpayer at the time of such a period, the department argued.

Read Also: Delhi HC Directs to Restore GST Registration Due to Petitioner’s Incapacity to Update Address

The court, with retrospective effect only a taxpayer’s registration can be cancelled where such effects are intended and warranted. Though for different reasons both the applicant and the respondent wish for the cancellation of the GST registration.

The court observed that the applicant was not asked to carry on business or continue the registration. The order on August 25, 2023, is revised to the limited extent that registration will now be deemed as cancelled w.e.f November 8, 2022, i.e., the date when the SCN was issued. The petitioner will do the crucial compliances as mandated by Section 29 of the Central Goods and Services Tax Act, 2017.

“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 by the law, including retrospective cancellation of the GST registration,” the court stated.