Delhi High Court Rules: GST Registration Cannot Be Cancelled Without Proper Reasoning

EM Power Engineering Private Limited Vs Central Board Of Indirect Taxes and Customs & Ors. (Delhi High Court)

In a recent case, the Delhi High Court highlighted the significance of proper procedure in the cancellation of GST registrations. Let’s break down the key facts, observations, and the conclusion of the case:

Key Facts:

1. A petitioner challenged the retrospective cancellation of their GST registration, which was effective from 1st July 2017.
2. The petitioner received a show cause notice dated 11th February 2021, citing non-filing of returns for a continuous period of six months.
3. The petitioner, a Private Limited Company, had been in business since 2014 and had been compliant with the DVAT Act and possessed GST registration.
4. Despite the petitioner’s response to the show cause notice, the registration was cancelled retrospectively without specifying cogent reasons.

Observations:

1. The order of cancellation lacked clarity and contradicted itself.
2. The petitioner’s submissions regarding the challenges faced during the COVID-19 pandemic and the unforeseen demise of their accountant were taken into consideration.
3. The court emphasized that the cancellation of registration cannot be mechanical and must be based on objective criteria.
4. Cancelling registration with retrospective effect should only occur when warranted and justified.

Conclusion:

1. The High Court set aside the show cause notice and the order of cancellation dated 19th April 2021.
2. The petitioner’s GST registration was restored, with instructions to comply with Rule 23 of the Central Goods and Service Tax Rules, 2017.
3. The petitioner was given 30 days to file all requisite returns and pay any due taxes.
4. The respondents were not precluded from taking legal steps for the recovery of taxes, penalties, or interest owed by the petitioner.

In Summary:

The case underscores the importance of procedural fairness in GST registration cancellations. The court’s decision protects taxpayers’ rights and ensures that cancellations are justified and not arbitrary. It serves as a reminder for authorities to follow due process and provide clear reasoning in such matters, ultimately upholding the principles of justice and fairness in tax administration.

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