SATYAM ENTERPRISES PROP. HITESH CHUGH HUF THROUGH KARTA MR. HITESH CHUGH vs COMMISSIONER OF DELHI GOODS AND SERVICES TAX AND ANR
$~25
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision: 03.07.2024
+ W.P.(C) 8904/2024, CM No.36335/2024 & CM No.36336/2024
SATYAM ENTERPRISES PROP. HITESH CHUGH
HUF THROUGH KARTA MR. HITESH CHUGH …..Petitioner
Through: Mr. Rakesh Kumar & Mr. Parveen Kumar Gambhir, Advs.
Versus
COMMISSIONER OF DELHI GOODS AND
SERVICES TAX AND ANR …..Respondents
Through: Mr. Rajeev Aggarwal & Mr. Shubham Goel, Advs.
CORAM:
HON’BLE MR. JUSTICE VIBHU BAKHRU
HON’BLE MR. JUSTICE SACHIN DATTA
VIBHU BAKHRU, J. (Oral)
1. The petitioner has filed the present petition, inter alia, praying that the Show Cause Notice dated 17.08.2020 (hereafter the impugned SCN) and the order dated 27.08.2020 (hereafter the impugned order) passed pursuant to the impugned SCN be set aside.
2. The respondent authorities had issued the impugned SCN calling upon the petitioner to show cause why the petitioners GST Registration (GSTIN: 07AADHH0053H1ZP) should not be cancelled. The reason set out in the impugned SCN reads as: Any Taxpayer other than composition taxpayer has not filed returns for a continuous period of six months. The petitioner was called upon to file its response to the impugned SCN within a period of seven working days from the date of the service of the notice.
3. Concededly, the petitioner did not respond to the impugned SCN. Resultantly, the proper officer passed the impugned order cancelling the petitioners GST registration for the sole reason that the petitioner has not responded to the impugned SCN.
4. The petitioner is not aggrieved by the cancellation of its GST registration. It is essentially aggrieved by the cancellation of its GST registration with retrospective effect from 01.07.2017. It is also material to note that the impugned order has set out a tabular statement, which indicates that no tax or cess was determined to be paid by the petitioner.
5. There is no dispute that the petitioner had not filed its returns for a continuous period of six months. Concededly, the petitioner had filed its return till December, 2019 but not thereafter. The petitioner claims that it had not done so as it had stopped carrying on its business. The learned counsel appearing for the petitioner also submits that there were certain disputes between the family members and therefore the petitioner could not take any steps for making the necessary application immediately after stopping the business.
6. Since the reasons for which the petitioners GST registration is cancelled viz. non filing of returns for a period of six months, is not disputed, the decision to cancel the petitioners registration cannot be faulted. As noted above, the petitioner is also not assailing the said decision.
7. In terms of Section 29(1) of the Central Goods and Services Tax Act, 2017 (hereafter the CGST Act), the proper officer is empowered to cancel the registration on his own motion or on an application filed by the registered person or his legal heirs in case of death. In terms of Section 29(2) of the CGST Act, the proper officer is also empowered to cancel the registration of a person from such date as he may deem fit including from a retrospective date. Section 29(2) of the CGST Act is set out below:
(2) The proper officer may cancel the registration of a person from such date, including any retrospective date, as he may deem fit, where,
(a) a registered person has contravened such provisions of the Act or the rules made thereunder as may be prescribed; or
(b) a person paying tax under section 10 has not furnished returns for three consecutive tax periods; or
(c) any registered person, other than a person specified in clause (b), has not furnished returns for a continuous period of six months; or
(d) any person who has taken voluntary registration under sub-section (3) of section 25 has not commenced business within six months from the date of registration; or
(e) registration has been obtained by means of fraud, wilful misstatement or suppression of facts:
Provided that the proper officer shall not cancel the registration without giving the person an opportunity of being heard:
[Provided further that during pendency of the proceedings relating to cancellation of registration, the proper officer may suspend the registration for such period and in such manner as may be prescribed.]
8. Whilst the opening sentence of Section 29(2) of the CGST Act does indicate that the proper officer can cancel the registration with retrospective effect, it is obvious that such an exercise cannot be mechanical or whimsical. The decision to cancel a taxpayers GST registration with retrospective effect must necessarily be premised on a rational basis.
9. In the present case, the impugned SCN does not set out any reason proposing to cancel the petitioners GST registration with retrospective effect. The impugned order also does not indicate any reason as to why the proper officer has decided to cancel the petitioners GST registration from the date on which the CGST Act came into force. It is material to note that the only ground on which petitioners GST registration was proposed to be cancelled was that it has not filed its return for more than six months. We find no reason which would warrant cancellation of the petitioners GST registration even for the period it had furnished its returns. Clearly, non-filing of returns for a period of six months or more cannot, absent any other consideration warranting cancellation of registration to cover the period during which the taxpayer had duly complied with the provisions of the CGST Act, cannot constitute a reason to cancel the same with retrospective period to cover the period for which GST returns were duly filed.
10. According to the respondents the consequences of cancelling the registration with retrospective effect covering the period during which the business was carried on and the returns were filed, is that the persons availing supplies from the taxpayer would be denied the benefit of Input Tax Credit (ITC) and the same would be wiped out from their system.
11. We have some reservations whether such a consequence would arise, as a matter of law, which deprives the bonafide purchasers of the benefit of the ITC which had been duly deposited by the suppliers, can result from retrospective cancellation of a taxpayers GST registration. However, it is not necessary to examine the said issue in this case. Suffice it is to note that cancellation of registration with retrospective effect does have adverse ramifications on the taxpayer as well as the persons who have dealt with the registered taxpayer. It is thus necessary that the power to cancel the registration with retrospective effect be exercised with due regard to the consequences and only when such an exercise is necessary and warranted.
12. The taxpayer must also have full opportunity to contest the proposal for cancellation of GST registration with retrospective effect. In the present case, we find that no reasons has been stated by the proper officer for cancelling the GST registration with retrospective effect. We also find that no such reason has been set out in the impugned SCN. In the circumstances, we consider it apposite to confine the operation of the impugned order to cancellation of the petitioners GST registration albeit from the date of the impugned order. It is directed accordingly.
13. We also clarify that the present order would not preclude the concerned authorities from initiating any further proceedings for violation of provisions of the CGST Act or the Delhi Goods & Services Tax Act, 2017, if the same is warranted. The petitioner is also not precluded from making a request for cancellation of his GST registration with effect from the date when he closed its business activities. If such an application is moved by the petitioner, the proper officer would consider the same.
14. All rights and contentions of the parties are reserved.
15. All pending applications are also disposed of.
VIBHU BAKHRU, J
SACHIN DATTA, J
JULY 3, 2024
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W.P.(C) 8904/2024 Page 2 of 2