Retrospective GST Registration Cancellation – Delhi High Court’s Stand

The Indian GST system is as complicated as it is. There is a broad scope of mistakes and miscalculations bound to happen. The icing on the cake becomes injustice or the wrong actions taken by the authorities, leading to repercussions for the taxpayers and their families which also includes GST registration cancellation

The same is true for Mr Varyam Dass Khurana when applying for GST registration cancellation; it was done on retrospective basis. The law case of Varyam Dass Khurana v. Commissioner of GST, New Delhi, emphasizes how a certain taken by the Commissioner of GST became a problem for Mr Varyam and his family.

In this blog, we’ll cover this case in detail and observe the role of the Delhi High Court and its significant observations.

What is GST Registration?

GST registration refers to the process through which businesses register themselves under the Goods and Services Tax (GST) regime. Our GST system is a unified tax system implemented in India to replace various indirect taxes. Under GST, businesses meeting certain criteria require registration and obtain a unique GST identification number (GSTIN) from the tax authorities.

What is The Significance of GST Registration?

The significance of GST registration lies in several key aspects:

1. Legality:

GST registration is mandatory for businesses involved in the supply of goods or services exceeding certain turnover thresholds. Failure to register under GST can result in legal consequences, including penalties and fines.

2. Input Tax Credit (ITC):

Registered businesses can claim input tax credits, allowing them to offset the GST paid on purchases against the GST collected on sales. This helps reduce the overall tax liability and promotes transparency in the tax system.

3. Compliance:

GST registration ensures compliance with the tax laws and regulations laid down by the government. Registered businesses are required to file regular GST returns, maintain proper accounting records, and adhere to GST guidelines, thereby fostering transparency and accountability in the tax system.

4. Business Expansion

GST registration enables businesses to participate in interstate trade without restrictions. It provides a level playing field by eliminating the cascading effect of taxes and simplifying the tax structure, thereby facilitating business expansion and growth opportunities.

5. Customer Trust:

GST registration enhances the credibility and trustworthiness of a business in the eyes of customers, suppliers, and other stakeholders. It signifies adherence to regulatory norms and compliance with tax obligations, instilling confidence in the business’s operations.

Facts of retrospective cancellation of GST registration

Late Mr. Varyam Dass Khurana was a supplier of building materials like cement, bricks, dust, etc. He was operating from his principal place of business and fulfilling all tax regulations on time. He met with an untimely demise on January 02, 2019; his son, Mr. Sanjay Khurana, was responsible for the business operations.

Mr. Sanjay filed all the returns on time, meeting the standards of tax regulations, and on February 17, 2020, he applied for GST registration cancellation.

The authorities acknowledged the application, so it is safe to say it was in favour of Mr. Varyam Dass Khurana.

Subsequently, a show cause notice was issued in Mr. Sanjay’s name, which was done by the Commissioner of GST (“the Respondent”). He meant to seek further information regarding the cancellation application.

Further, on May 29, 2020, the commissioner of GST released an order (“an Impugned Order”) to retrospectively cancel Mr. Varyam’s GST registration from July 4, 2017.

Unfortunately, a personal hearing was not possible due to the COVID-19 pandemic lockdown at that time. Tragically, Mr. Sanjay Khurana passed away on April 28, 2021.

Disturbed by the impugned order issued to cancel the GST registration on a retrospective basis, Mr. Sandeep Kumar Khurana filed a writ petition before the Hon’ble Delhi High Court.

What is The Issue of Respective GST Cancellation?

The key issue before the court was whether the GST registration could be cancelled retrospectively from the date of the Show Cause Notice issuance.

Delhi High Court’s Ruling – The Result

In W.P. (C) No. 15670 of 2023, the Hon’ble Delhi High Court made the following observations:

1. The GST registration cancellation did not aggrieve the Petitioner, as the business had already been closed. The grievance was with the retrospective cancellation of the registration from the date of the initial grant.

2. The court ruled that the cancellation order would be effective from May 18, 2020, the date of the show cause notice.

3. Additionally, it clarified that the cancellation order would not prevent the authorities from pursuing recovery. He can clear all outstanding taxes or address any statutory violations found in accordance with the law and tax regulations. Consequently, the decision led to the resolvent of the writ petition.

How This Judgment Might Affect Future Cases

In light of this judgement, we can clearly see that if a taxpayer abides by all legal laws, GST compliance guidelines and his documents are complete, then he has an explicit right to appeal. The law forbids the acting authorities to cancel a GST registration on a respective basis.

Expert Opinion

How to handle this issue?

If the Adjudicating Authority cancels the GST registration of the Petitioner with retrospective effect then the Petitioner can file the writ before the Hon’ble High Court to challenge the order of Adjudicating Authority.

Steps on How Can We Avoid This?

It’s always better to avoid such a condition from occurring. See our tax expert Mr. Ajay Gupta’s checklist to avoid any such scenario from occurring.

1. Clear Outstanding Dues: Make sure all outstanding dues, including taxes, interest, and penalties, are paid before applying for cancellation. Failure to clear dues may lead to complications in the cancellation process.

2. File Pending Returns: Complete all pending GST returns up to the date of cessation of business or the date you become eligible for cancellation. Filing all pending returns is crucial to avoid penalties and streamline the cancellation process.

3. Compile Necessary Documents: Gather all relevant documents required for GST cancellation, such as registration certificate, business closure documents, financial statements, and any other supporting documents as per the tax authority’s requirements.

4. Monitor Application Status: Regularly monitor the status of your cancellation application on the GST portal and promptly respond to any communications or requests from the tax authorities to expedite the process.

Conclusion

This judgement sheds light on the issue of retrospective cancellation of GST registration. The court clarified that the cancellation of registration should take effect from the date of the SCN rather than retrospectively from the initial date of registration.    

This ruling provides certainty to taxpayers regarding the effective date of GST registration cancellation and the authorities’ powers to initiate proceedings for tax recovery or statutory violations

This decision by the Delhi High Court offers certainty regarding the effective date of GST registration cancellation and delineates the authorities’ powers to initiate proceedings for tax recovery or address statutory violations. As the GST regime continues to evolve, such judicial pronouncements play a crucial role in clarifying ambiguities and providing guidance to both taxpayers and authorities on various aspects of GST compliance.