Bansal Exim v DGST Commissioner (Delhi High Court)

In Bansal Exim versus DGST Commissionerthe Delhi High Court considered the cancellation of GST registration of Bansal Exim, which was retrospectively revoked due to non-filing of returns for over six months. The petitioner, registered under the Central Goods and Services Tax (CGST) and Delhi Goods and Services Tax (DGST) Acts, has not responded to the show cause notice (SCN) issued on 13.01.2023, which led to the cancellation of GST. registration effective from 01.07.2017. The petitioner’s appeal to revoke the annulment was rejected because it was filed beyond the permitted three-month period. Bansal Exim argued that the inability to file the returns was due to illness and declared itself ready to file the pending returns.

The court held that the SCN had not moved for retrospective cancellation of GST registration and the petitioner was not given an opportunity to challenge this harsh measure, thereby violating the principles of natural justice. Furthermore, the annulment order was not sufficiently reasoned to justify retroactive effect. Citing precedents, notably that Suguna cutting center And Rakesh Enterprises In some cases, the court has emphasized the need to give taxpayers the opportunity to remedy the cause of the cancellation because it affects their fundamental right to operate a business. The court ordered the restoration of Bansal Exim’s GST registration for 30 days, enabling them to file returns. The officer concerned had the discretion to take further action if necessary, subject to due process.

This judgment highlights the importance of adhering to the principles of natural justice when canceling GST registrations and highlights the serious implications of such cancellations for businesses.

FULL TEXT OF THE DELHI HIGH COURT JUDGMENT/ORDER

1. Issue an opinion.

2. Learned counsel for the respondents accepts the notice.

3. The applicant filed the present application, among others, attacking a decree of 04.07.2024 (hereinafter the impugned order), whereby the petitioner’s appeal has been filed under Section 107 of the Delhi Goods and Services Tax Act, 2017 (hereinafter the DGST law) against an order dated 07.11.2023 rejecting the petitioner’s application for revocation of the annulment order dated 16.02.2023 (hereinafter the contested annulment order), was rejected.

4. The petitioner has been registered under the Central Goods and Services Tax Act, 2017 (hereinafter the CGST law) with effect from 01.07.2017 and has been assigned the Goods and Services Tax Identification Number (GSTIN): 07AHGPB5674C1ZM.

5. Apparently, the petitioner failed to furnish his returns for a continuous period of six months. In view of the above, the Competent Officer has issued the show cause notice dated 13.01.2023 (hereinafter the SCN attacked) asking the petitioner to show cause why his GST registration should not be canceled due to failure to submit returns for a continuous period of six months. The petitioner was directed to furnish a response within thirty days from the date of service of the impugned SCN and was also directed to appear before the competent officer on 10.02.2023 at 11:00 a.m. Further, the GST registration of the petitioner was suspended from the date of the impugned SCN, i.e. with effect from 13.01.2023.

6. The applicant did not respond to the contested SCN.

7. In view of the above, the GST registration of the applicant has been canceled by the impugned cancellation order, though with retroactive effect from 01.07.2017. Apart from the reference to the contested SCN, the contested annulment order does not mention any other reason for its issuance.

8. The petitioner filed an application dated 15.03.2023 seeking setting aside the impugned order of cancellation, which was dismissed by an order dated 07.11.2023. The applicant preferred to file an appeal against the contested annulment order, which was rejected by the impugned order, because it was filed beyond the three-month deadline.

9. The applicant claims that he did not file his statements because he was ill. However, the petitioner is now ready to furnish GST returns.

10. Learned counsel for the respondents disputes the said argument. He states that the applicant had not filed a declaration for more than two years. He states that the declarations for the period of the year 2021 were filed after the issuance of the contested SCN.

11. It is important to note that the impugned SCN did not propose cancellation of the GST registration of the applicant with retrospective effect. The petitioner therefore did not have the opportunity to challenge this annulment. The impugned cancellation order also does not set out the reasons for cancellation of the GST registration of the petitioner. ab initioi.e. from the date of grant of this registration.

12. Section 29(2) of the CGST Act/DGST Act expressly empowers the competent officer to cancel the GST registration, including with retrospective effect, if any of the conditions laid down in the said provision are fulfilled. However, it is settled case law that such an exercise must be justified and the taxpayer’s registration cannot be canceled retrospectively, in a fanciful or arbitrary manner. It must be based on convincing reasons. In the present case, the impugned annulment order does not reflect any of these reasons.

13. We are also of the view that cancellation of the GST registration of the petitioner with retrospective effect is a violation of the principles of natural justice since no such adverse action was contemplated in the impugned SCN.

14. Cancellation of GST registration has serious and adverse consequences for the taxpayer. There is no doubt that no taxpayer can operate his business in the absence of GST registration.

15. In Suguna Cutpiece Center v. Deputy Appellate Commissioner (ST) (TPS), SALEM: 2022 (61) GSTL 515 (Mad.)the Madras High Court had held that since cancellation of GST registration affects the fundamental right of a person, an opportunity must be given to the taxpayer to remedy the cause of such cancellation. This Court also took a similar view in Rakesh Enterprises v. The Principal Commissioner, Central Goods and Services Tax and Others. : WP(C) n° 14250/2022, decided on 02/09/2023.

16. In the given circumstances, we consider it appropriate to direct the respondents to reinstate the GST registration of the petitioner for a period of thirty days to enable the petitioner to file his returns. In the event that the petitioner does so, the appropriate official may determine whether further action is necessary. If the competent officer finds the same to be justified, he is not precluded from issuing a fresh show cause notice and taking a fresh decision after giving the applicant an opportunity of being heard personally. We clarify that this order also does not prevent the concerned officer from taking further action for any violation of the law, as may be justified in accordance with the law.

17. The application is judged in the above-mentioned terms. Request pending, it is also rejected.