Delhi High Court says GST Registration cannot be Cancelled Due to Temporary Business Suspension from illness
The Delhi High Court has made an important ruling regarding the cancellation of a taxpayer’s GST (Goods and Services Tax) registration. The court found that the order to cancel the registration was not justified, especially because it was made retroactively, meaning it applied to a past date without proper reasons.
Background of the Case
The case began when officials from the Anti-Evasion Department of CGST (Central Goods and Services Tax) were checking for non-genuine taxpayers as part of a special verification effort. They visited the registered address of the taxpayer but found him absent. As a result, they issued a Show Cause Notice (SCN) in Form GST REG-17, which ultimately led to the cancellation of the taxpayer’s GST registration effective from a prior date.
Key Findings of the Court
- Lack of Justification for Cancellation: The court observed that the only accusation against the taxpayer was that he was “non-existent.” The taxpayer explained that he was away in Rajasthan due to his father’s serious health issues. At the time of the department’s visit, he was traveling, which meant his business premises were closed, leading to the mistaken assumption that he was non-existent.
- Temporary Closure Does Not Warrant Cancellation: The High Court ruled that a temporary shutdown of business activities due to health issues should not result in the cancellation of a taxpayer’s GST registration. The court emphasized that such situations should be considered, as they do not indicate that a taxpayer is no longer in business.
- Retrospective Cancellation Issues: The Division Bench of the court, consisting of Justice Yashwant Varma and Justice Ravinder Dudeja, noted that cancelling GST registration with retrospective effect can have serious implications. For instance, it could prevent other businesses from claiming input tax credits if they have received supplies from the affected taxpayer.
Legal Framework
The court referred to Section 29(2) of the CGST Act, which allows a proper officer to cancel a taxpayer’s registration from any date, including a past date, if specific conditions are met. However, the court stressed that cancellation should only happen when there is clear and objective evidence to justify it.
Issues with the Show Cause Notice
The court pointed out that the SCN required the taxpayer to appear before the issuing authority but did not specify the officer’s name or the location of the hearing. This omission meant that the taxpayer was not given a fair chance to defend himself, which is a crucial aspect of legal proceedings.
Departmental Circulars
The judges highlighted that any circulars or instructions issued by the tax department are mandatory for the officials to follow. The department cannot ignore these circulars simply because they conflict with statutory rules. By denying the taxpayer the chance to be heard, the department violated principles of natural justice.
Court’s Decision
Since the order to cancel the GST registration did not mention any proper inquiry being conducted, the High Court ordered the Revenue Department to restore the taxpayer’s GST registration. The court concluded the petition, ensuring that the taxpayer would not be unfairly penalized for circumstances beyond his control.
Conclusion
This ruling emphasizes the importance of providing taxpayers with fair treatment and the need for government authorities to follow due process before taking action that significantly affects taxpayers’ rights. It highlights that temporary health issues should not lead to severe consequences like the cancellation of GST registration, ensuring that taxpayers are given the opportunity to explain their situations adequately.
