Whether GST Registration can be cancelled on Retrospective Basis ?
Analysis of Case Study : M/s. Friends Media Add Company vs. Principal Commissioner of Goods and Service Tax [W.P.(C) No. 1260 of 2024 dated February 12, 2024]
Let’s simplify and elaborate on the case of M/s. Friends Media Add Company vs. Principal Commissioner of Goods and Service Tax [W.P.(C) No. 1260 of 2024 dated February 12, 2024] decided by the Delhi High Court regarding the retrospective cancellation of GST registration:
Case Summary:
Facts:
- M/s. Friends Media Add Company challenged the retrospective cancellation of their GST registration by the tax authorities.
- The company argued that the show cause notice (SCN) issued for cancellation was vague and did not provide them with an opportunity to object to the retrospective cancellation of their registration.
Legal Issue:
- Whether GST registration can be cancelled retrospectively without providing a clear opportunity for the taxpayer to respond, especially when the SCN lacks specificity.
Court’s Decision:
- Nature of SCN: The Delhi High Court noted that the SCN issued to the petitioner did not clearly indicate that their GST registration was liable to be cancelled retrospectively.
- Opportunity to Object: The court observed that the taxpayer was not granted a proper opportunity to raise objections against the retrospective cancellation, which could adversely affect their tax compliance and the rights of their customers.
- Section 29(2) of CGST Act: While acknowledging the authority of the Proper Officer to cancel GST registration retrospectively under Section 29(2) of the CGST Act, the court emphasized that such cancellations must be based on objective criteria and cannot be done mechanically.
- Impact of Retrospective Cancellation: The court highlighted that retrospective cancellation can lead to significant implications, including denial of input tax credit to the taxpayer’s customers for supplies made during the affected period.
- Modification of Order: In light of these considerations, the Delhi High Court modified the GST cancellation order to operate prospectively from the date of issuance of the SCN. This means that the cancellation would be effective only from a future date rather than retroactively.
Explanation:
- GST Registration Cancellation:
- Under Section 29(2) of the CGST Act, the Proper Officer has the authority to cancel GST registration from a retrospective date if certain conditions are met, such as non-compliance or other specified grounds.
- However, the cancellation cannot be arbitrary or based solely on the taxpayer’s failure to file returns for a period. It must be justified by objective criteria related to non-compliance with GST regulations.
- Due Process and Opportunity:
- The case underscores the importance of due process in tax administration. Taxpayers have the right to be informed clearly and specifically through the SCN about the grounds and implications of cancellation, especially if it is to be done retrospectively.
- The lack of a proper opportunity to respond to such notices undermines the principles of natural justice and procedural fairness.
- Legal Precedents:
- The Delhi High Court referred to similar judgments like Singla Exports v. CBIC and Rishiraj Aluminium Pvt. Ltd. v. GST Officer, where it upheld the rights of taxpayers against arbitrary retrospective cancellations of GST registrations.
- These decisions uphold the rule of law and ensure that tax authorities follow a fair and transparent process when exercising their powers under the GST law.
Conclusion:
The judgment in M/s. Friends Media Add Company vs. Principal Commissioner of GST highlights the judiciary’s role in safeguarding taxpayer rights and ensuring procedural fairness in tax matters. By modifying the cancellation order to operate prospectively, the Delhi High Court protected the interests of the taxpayer and emphasized the importance of providing clear and adequate opportunities for taxpayers to respond to show cause notices. This decision reinforces the principles of natural justice and due process in GST administration, contributing to a more equitable tax regime.