Delhi HC: GSTIN Can’t be Cancelled With Retrospective Effect for Non-filing of Returns

The Delhi High Court held that only the case that an assessee does not furnish the returns for a certain duration does not direct that the registration of the assessees needed to be cancelled with the retrospective date indeed covered the duration when the returns get filed and the assessee was compliant.

Justice Sanjeev Sachdeva and Justice Ravinder Dudeja mentioned that “enrollment could not be cancelled with the retrospective effect mechanically. The same could be cancelled merely when the proper officer considered the same effective to do that. This satisfaction could not be subjective however it should be on the grounds of certain objective criteria.

The applicant, proprietor of Polytec Industries committed to the manufacturing and trading of plastic products, challenged the retrospective cancellation of their registration with effect from 01.07.2017.

The applicant’s petition dismissed before only based on the limitation, shows multiple legal problems. The legal battle revolved around the rejection of the application for GST cancellation dated 5.6.2020, a show cause notice (SCN) on 1.09.2020, and the final cancellation order on 12.09.2020.

SCN quoted that the failure of the applicant to file the returns for the continuous duration of 6 months directed to the proposed cancellation. The applicant contested that they have transformed their business to Bhiwadi and duly applied for the registration cancellation based on the discontinuing business dated 01.02.2019. But the rejection of the cancellation application dated 5.06.2020 and the next retrospective cancellation order asked for serious things.

The High Court observed that the applicant was not accidentally informed of the prospective retrospective cancellation in the show cause notice. It was indeed shown that the order does not have enough material to explain the retrospective cancellation and laid down the importance of acknowledging the consequences, which certainly impacts the input tax credit(ITC) claimed by the customers of the assesses.

As per the Central Goods and Services Tax Act, 2017, a person in charge has the authority to cancel someone’s GST registration under Section 29(2). They can decide on any date, even from the past. When the circumstances shown in the rule are satisfied. But the same must not be cancelled in the retrospective effect mechanically.

Read Also: Cancelling GST Registration Retroactively Without a Valid Reason is Arbitrary

Under such cases, the court edited the cancellation order fetching that the same will function from date 1.02.2019 which aligns with the applicant’s business discontinuation date. The applicant was asked to provide the required information for the complete assessment by the respondents who are not precluded from opting for the legal steps for the tax penalty or the interest recovery.