The Delhi High Court in Alibaba Enterprises v. Sales Tax Officer Class-II/AVATO Ward-83 W.P. (C) No. 10498 of 2024 dated [August 1, 2024] has modified an order cancelling the petitioner's GST registration retrospectively, ruling that such cancellation without proper notice violates natural justice principles. The court held that retrospective cancellation must be based on valid reasons, which were absent in this case.
Facts of the Case:
The petitioner, Alibaba Enterprises, was issued a Show Cause Notice (SCN) dated 13.11.2023 asking why its GST registration should not be cancelled for failing to furnish returns for a continuous period of six months. The SCN required the petitioner to reply within thirty days and appear before the Proper Officer on 11.12.2023. The petitioner's GST registration was suspended from the date of the SCN (13.11.2023). The petitioner did not respond to the SCN. Consequently, the Proper Officer passed an order dated 05.02.2024 cancelling the petitioner's GST registration with retrospective effect from 01.07.2017.
The only reason provided in the cancellation order, apart from referencing the SCN, was "Others Rule 22(1)/sub-rule (2A) of rule 21A".
The petitioner claimed to have filed its return in October 2019 but had not carried out any transactions thereafter. The petitioner stated that it had closed down its business and was not aggrieved by prospective cancellation of its GST registration.
The petitioner filed a writ petition challenging both the SCN and the cancellation order.
Held:
The Hon'ble Delhi High Court in W.P. (C) No. 10498 of 2024 held that:
1. The reasons set out in the impugned cancellation order were not intelligible.
2. The reference to Rule 22(1) of the Central Goods and Services Tax Rules, 2017 in the order was inapposite, as it merely describes the procedure for issuing a show cause notice and cannot be a reason for cancellation.
3. The reference to Rule 21A(2A) was also difficult to understand, as it pertains to suspension of registration due to discrepancies between GSTR-1 and GSTR-3B returns, which was not the case here.
4. The SCN did not propose cancellation of GST registration from a retrospective date (01.07.2017). The only reason stated in the SCN was the failure to file returns for a continuous period of six months.
5. As per Section 29(2) of the CGST Act, while the Proper Officer is empowered to cancel registration retrospectively, such decision must be informed by reason. The court emphasized that cancellation from a retrospective date cannot be whimsical or arbitrary.
6. The failure to file returns for six months, without any additional factors, does not present a reason for cancellation of registration for periods when returns were duly filed.
7. The court could not sustain the decision for retrospective cancellation for two primary reasons:
a) The SCN did not propose such action, making it a violation of natural justice principles.
b) The decision to cancel registration with retrospective effect was not supported by any valid reason.
8. Given the circumstances, the court deemed it appropriate to modify the cancellation order to be effective from the date of the SCN (13.11.2023) instead of the retrospective date (01.07.2017).
9. The court clarified that this order does not preclude the respondent authority from initiating or pursuing any action for statutory violations by the petitioner, provided such action is in accordance with the law.
10. The petition was disposed of with the modification of the cancellation order as stated above.
Relevant Sections:
1. Section 29(2) of the Central Goods and Services Tax Act, 2017 / Delhi Goods and Services Tax Act, 2017: Cancellation or suspension of registration
2. Rule 22(1) of the Central Goods and Services Tax Rules, 2017: Procedure for cancellation of registration
3. Rule 21A(2A) of the Central Goods and Services Tax Rules, 2017: Suspension of registration
Arguments by Lawyers:
Petitioner's Counsel:
1. Argued that the reasons set out in the cancellation order were not intelligible.
2. Pointed out that Rule 22(1) of the CGST Rules only describes the procedure for issuing a show cause notice and cannot be a reason for cancellation.
3. Highlighted that Rule 21A(2A) pertains to suspension due to discrepancies between GSTR-1 and GSTR-3B returns, which was not applicable in this case.
4. Contended that the petitioner had filed its return in October 2019 but had not carried out any transactions thereafter.
5. Stated that the petitioner had closed down its business and was not aggrieved by prospective cancellation of its GST registration.
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