Delhi HC Overturns Retroactive Cancellation of GST Registration for Discontinued Business

The retrospective cancellation of Goods and Service Tax (GST) registration has been set aside by the Delhi High Court as of ceasing the business. Mechanically the registration could not be cancelled with retrospective effect. The same could be cancelled only when the proper officer considers it appropriate to perform. The same satisfaction could not be subjective however it should be on the grounds of certain objective criteria.

The impugned order is been contested by the Petitioner, Archit Khandelwal in which the GST registration of the applicant was retrospectively cancelled w.e.f 25.05.2018. On 06.04.2021 the applicant impugns the SCN.

The applicant is been involved in the business of trading in metals and secures the GST registration. On the foundations of the closure of business, the applicant has furnished an application for cancellation of GST registration on 07.01.2020.

The applicant was furnished with the Show Cause Notice asking for the additional data and documents for the application for cancellation of registration. The applicant gave a response to the said Notice, but, the said application was denied.

The applicant was issued with the SCN asking to cancel its registration. The notice states that “Issues any invoice or bill without supply of goods and/or services in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilization of input tax credit or refund of tax.” The date and time are not cited in the SCN in which the applicant was needed to appear for a personal hearing.

In the Show Cause notice, it was mentioned that the registration is obligated to get cancelled for the said cause “Online reply submitted by the dealer is not relevant, Therefore, registration is liable to cancelled suo-moto and other proceedings as per law will be initiated”. The order cited that the effective cancellation date of registration is 25.05.2018 which is a retrospective date. The applicant for the counsel furnished that the applicant is no more carrying on the business and the activities of the business of the applicant had been discontinued.

A division bench of Justice Sanjeev Sachdeva and Justice Ravinder Dudeja SCN and the impugned order lack any details consequently it could not be sustained and neither the Show Cause Notice nor the order spell out the reasons for retrospective cancellation.

The proper officer in terms of Section 29(2) of the Act, may cancel the registration of GST of the individual from the date along with any retrospective date since he might consider it appropriate when the situation set out in the stated sub-section gets fulfilled. Mechanically the registration could not be cancelled with retrospective effect. The same could be cancelled when the proper officer considers the same appropriate. This fulfilment could not be subjective however it should be founded on certain objective criteria.

An assessee does not furnish the returns for a certain duration and does not direct that the registration of the taxpayer is needed to get cancelled with the retrospective date indeed covering the duration when the returns were filed and the assessee was a complaint.

As the applicant does not ask to continue on business or continue the registration, the impugned order on 16.06.2021 is modified to the extent that registration would now be deemed as cancelled w.e.f 31.12.2019. i.e., the date when the Petitioner stopped his business. The necessary compliances as mandated under Section 29 of the Central Goods and Services Tax Act, 2017 would be incurred by the applicant.

For the applicant, Mr. Rishabh Jain & Mr. Ramashish appeared and for the respondent, Mr. Rajeev Aggarwal appeared.