Non-filing of Returns Doesn’t Justify Retrospective GST Registration Cancellation Delhi HC

Polytec Industries Through Its Proprietor Mr. Rohit Gupta Vs Commissioner of Delhi Goods And Services Tax And Others (Delhi High Court)

The Delhi High Court, in a recent judgment, addressed the case of Polytec Industries, challenging the retrospective cancellation of its Goods and Services Tax (GST) registration. The petitioner, Mr. Rohit Gupta, impugned the order dated 12.09.2020, which revoked the GST registration retrospectively from 01.07.2017. This article provides a detailed analysis of the case and the Delhi High Court’s decision.

i. The petitioner, operating under the name M/s Polytec Industries, engaged in the manufacturing and trading of plastic products, was registered under the Goods and Services Tax Act, 2017.

ii. The petitioner claimed to have shifted the business and subsequently applied for the cancellation of the GST registration, citing the discontinuation of business from 01.02.2019.

iii. The authorities issued a Show Cause Notice on 01.09.2020, citing the petitioner’s failure to file returns for a continuous period of six months, as a ground for potential cancellation of registration.

Chronology of Events: 

i. The petitioner submitted an application for the cancellation of the GST registration on 08.05.2019.

ii. The application was rejected on 05.06.2020, as the petitioner failed to provide additional information and documents requested by the authorities.

iii. A subsequent Show Cause Notice dated 01.09.2020 was issued to the petitioner, indicating the possibility of registration cancellation due to non-filing of returns.

iv. The impugned order dated 12.09.2020 canceled the registration retrospectively from 01.07.2017, citing the petitioner’s failure to submit a reply to the show cause notice.

Key Legal Observations: 

i. The court observed that the registration cancellation was based on the petitioner’s failure to reply to the show cause notice, but no material was present to explain why the cancellation was retrospective.

ii. The Show Cause Notice did not inform the petitioner about the prospective or retrospective nature of the cancellation, denying the petitioner an opportunity to object to the retrospective cancellation.

iii. The court referred to Section 29(2) of the Central Goods and Services Tax Act, 2017, emphasizing that registration cancellation with retrospective effect should be based on objective criteria, not merely due to non-filing of returns.

iv. The judgment highlighted that consequences, such as denial of input tax credit to the taxpayer’s customers, need to be considered by the proper officer before canceling registration retrospectively.

Court’s Decision: 

i. The court modified the order of cancellation, specifying that it shall operate from 01.02.2019, the date when the petitioner discontinued the business. 

ii. The petitioner was directed to furnish necessary details to the authorities, allowing them to assess any potential demand against the petitioner. 

iii. The court clarified that authorities were not precluded from taking lawful steps for the recovery of any tax, penalty, or interest due from the petitioner.

Conclusion: The Delhi High Court’s decision reinforces the principle that retrospective cancellation of GST registration should be based on objective criteria and not solely due to the non-filing of returns. The judgment underscores the importance of providing clear notice to taxpayers and considering the implications of retrospective cancellation on various stakeholders.