Friends Media Add Company vs Principal Commissioner of Goods and Service Tax West Delhi

The petitioner challenges the order dated 12.12.2023, which retrospectively canceled the petitioner’s GST registration effective from 30.05.2022, and seeks the restoration of said GST registration. The controversy began with a Show Cause Notice issued on 25.08.2023, in which the petitioner was asked to explain why their registration should not be canceled. The notice cited the reason: “Issues any invoice or bill without supply of goods and/or services in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilization of input tax credit or refund of tax.”

However, the Show Cause Notice lacked specifics, stating merely that the petitioner had issued invoices or bills without corresponding supplies, leading to wrongful availment or utilization of input tax credit or refund of tax. It provided no particular details or references to specific invoices or bills that the petitioner was alleged to have issued without making any actual supplies. The notice seemed to use a generic format, listing several potential reasons without specifying which applied to the petitioner. Terms like “without supply of goods and/or services” and “leading to wrongful availment or utilization of input tax credit or refund of tax” were mentioned in a broad and non-specific manner.

The respondents appear to be issuing these notices using a template, lacking in particularity and failing to provide clear information about whether the petitioner issued invoices or bills without making supplies, or whether the petitioner’s actions led to the wrongful availment or utilization of input tax credit or refund of tax. Additionally, the Show Cause Notice did not mention the quantum of the alleged wrongful availment of input tax credit or any refund claimed on that account.

The impugned order itself did not state any reasons for the retrospective cancellation of the GST registration. Like the Show Cause Notice, it was devoid of reasoning and particulars. This lack of specificity and failure to provide detailed reasons render both the Show Cause Notice and the impugned order fundamentally flawed. They fail to give the petitioner adequate information to understand the allegations or to prepare a defense, thus violating principles of natural justice. The petitioner’s challenge emphasizes that such generic and non-specific documentation is insufficient for such a serious administrative action as canceling a GST registration, especially with retrospective effect. Consequently, the petitioner seeks the restoration of their GST registration and a more detailed and substantiated explanation from the respondents regarding the alleged violations.

Learned counsel for the respondent submits that the Deputy Excise & Taxation Commissioner (Sales Tax Kurukshetra), via a letter dated 26.05.2023, has informed that the petitioner had availed/utilized ungenuine Input Tax Credit (ITC) amounting to Rs.3,60,000/- from a fraudulent supplier, M/s. Shubh Advertiser. In response, the learned counsel for the petitioner has placed on record Form GST DRC-03, contending that a sum of Rs.3,60,000/-, in addition to interest of Rs.32,400/-, has been deposited without prejudice to his rights and contentions. The petitioner further submits that they do not seek to continue their business operations and intend to close the business. Therefore, they request that the cancellation of registration be made effective from the date when the Show Cause Notice dated 25.08.2023 was issued.

Under Section 29(2) of the Central Goods and Services Tax Act, 2017, the proper officer may cancel a person’s GST registration from such date, including any retrospective date, as deemed fit, provided the circumstances set out in the said sub-section are satisfied. However, the registration cannot be canceled with retrospective effect in a mechanical manner. Such cancellation can only occur if the proper officer deems it fit, and this determination must be based on objective criteria rather than subjective satisfaction. Simply because a taxpayer has not filed returns for a certain period does not necessitate the retrospective cancellation of the registration for periods during which the taxpayer was compliant and had filed returns.

It is crucial to note that, according to the respondent, one consequence of canceling a taxpayer’s registration with retrospective effect is the denial of input tax credit to the taxpayer’s customers for supplies made during the affected period. While it is not necessary to delve into this aspect, assuming the respondent’s contention is correct, it implies that the proper officer must consider this consequence while passing any order for retrospective cancellation of GST registration. Therefore, a taxpayer’s registration can be canceled with retrospective effect only when such consequences are intended and warranted.

Moreover, the Show Cause Notice did not indicate that the petitioner’s registration was liable for retrospective cancellation, depriving the petitioner of the opportunity to object to such cancellation. Given these circumstances, the order of cancellation is modified to the extent that it shall be effective from 25.08.2023, the date on which the Show Cause Notice was issued. The respondents are not precluded from taking any steps to recover any tax, penalty, or interest that may be due from the petitioner in accordance with the law. Consequently, the petition is disposed of in these terms.

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Delhi High Court 

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