Delhi High Court Rules Against Retrospective GST Registration Cancellation Due to Non-Filing of Returns
In a significant ruling, the Delhi High Court has established clear guidelines regarding the cancellation of Goods and Services Tax (GST) registration, particularly concerning retrospective actions due to non-filing of returns. The bench, comprising Justice Sanjeev Sachdeva and Justice Ravinder Dudeja, emphasized that the mere failure to file returns does not warrant automatic retrospective cancellation of a taxpayer’s registration.
The verdict stemmed from a case where a taxpayer received a show cause notice for the cancellation of their GST registration. However, the notice lacked specificity, merely citing the failure to file returns for a continuous period of six months as grounds for cancellation. Moreover, it failed to provide crucial details such as the officer’s name or the venue for the petitioner’s appearance. The digital signatures on the notice further added to the ambiguity, bearing only the designation “digitally signed by DS Goods and Services Tax Network (4).”
Crucially, the court highlighted that the show cause notice failed to inform the petitioner of the possibility of retrospective cancellation, depriving them of the opportunity to contest it. The subsequent order for cancellation also lacked substantive reasoning, merely citing the absence of a response to the notice as grounds for cancellation, and setting a retrospective date for the action.
The petitioner argued that their failure to file returns was due to adverse business conditions during the lockdown period, which led to a complete halt in operations and income generation. Furthermore, they asserted that they did not receive the show cause notice due to the closure of their business and lack of access to the GSTIN portal.
In response, the department contended that one consequence of retrospective cancellation is the denial of input tax credit to the taxpayer’s customers, thereby justifying the action. However, the court emphasized that retrospective cancellation should only be employed when necessary and warranted, with due consideration for the implications on both parties involved.
Ultimately, the court modified the order to cancel the registration with effect from the date of the show cause notice issuance, providing relief to the petitioner. However, it clarified that the respondents retain the right to pursue recovery of any outstanding taxes, penalties, or interest, including through retrospective cancellation if warranted by law.
This ruling by the Delhi High Court sets a precedent for fair and judicious handling of GST registration cancellations, ensuring that taxpayers are not unduly penalized while upholding compliance with tax regulations.
