03 Apr Prohibition on Retrospective GST Registration Cancellation Without Justification
In a recent judgment, the Hon’ble Delhi High Court, in the case of Rane Brake Lining Ltd. v. Superintendent, Range-17, Central GST Division [Writ petition (Civil) NO. 2259 OF 2024 dated February 16, 2024], addressed the issue of retrospective cancellation of GST registration. The Court underscored the necessity for the cancellation to be supported by sufficient reasons rather than being a mechanical process.
Facts:
- M/s. Rane Brake Lining Ltd. (“the Petitioner”) operated nationwide, manufacturing safety-critical products for automobiles and locomotives under the Central Goods and Services Act, 2017 (“the CGST Act”).
- The Superintendent, Range-17 (“the Respondent”) issued a Show Cause Notice (“the Impugned SCN”) on December 27, 2022, seeking to cancel the Petitioner's GST registration citing grounds labeled as "others". However, the Petitioner never received this notice nor responded to it.
- The subsequent Order dated January 09, 2023 (“the Impugned Order”) referenced a purported reply from the Petitioner dated January 05, 2023, which was never submitted. The registration was cancelled retroactively from July 02, 2017, citing a physical verification conducted on December 15, 2022, where the firm was allegedly absent at its registered office.
Held:
- The Court observed discrepancies between the grounds cited in the Impugned SCN and those stated in the Order, emphasizing that the Petitioner was never properly informed of the actual grounds for cancellation.
- It was noted that cancellation with retrospective effect cannot be a mechanical process, as per Section 29(2) of the CGST Act. The decision for retrospective cancellation must be justified by objective criteria and warranted consequences.
- The Court highlighted the impact of such cancellations on the Petitioner's customers, who could lose input tax credit, stressing that this aspect must be duly considered before making such decisions.
- Additionally, the Court found procedural irregularities in subsequent notices and orders issued by the Respondent, indicating a lack of proper application of mind.
- Consequently, the Impugned SCN and Orders were set aside, restoring the Petitioner's GST registration, with directions for compliance with relevant provisions of the CGST Act.
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