Facts of the Case

The petitioner, M/s Elasto Rubber Pvt. Ltd., was registered under GST since 01.07.2017 and had been regularly filing GST returns from 2017 to 2021. However, due to disruptions caused by the COVID-19 pandemic, including medical issues within the family and business setbacks, the petitioner failed to comply with statutory requirements for a certain period.

A Show Cause Notice (SCN) dated 08.10.2022 was issued for non-filing of returns for six consecutive months. The petitioner did not respond to the SCN, allegedly due to lack of knowledge of the notice and reliance on a consultant.

Subsequently, the GST registration was cancelled by order dated 21.08.2023 with retrospective effect from 01.07.2017.

The petitioner later filed an appeal under Section 107 of the CGST/DGST Act, which was dismissed on 28.06.2024 solely on the ground of delay. 

Issues Involved

  1. Whether dismissal of appeal solely on the ground of delay is justified.
  2. Whether retrospective cancellation of GST registration without reasons is valid.
  3. Whether principles of natural justice were violated.
  4. Scope of power under Section 29(2) of the CGST/DGST Act.

Petitioner’s Arguments

  • The delay in filing returns and appeal was due to COVID-19 related disruptions and lack of communication from the consultant.
  • The petitioner was unaware of the SCN and cancellation order.
  • The cancellation of GST registration retrospectively from 01.07.2017 is arbitrary, especially when returns were properly filed for earlier periods.
  • The impugned order lacked reasoning and justification, making it legally unsustainable.
  • The petitioner intends to revive business and should be granted an opportunity. 

Respondent’s Arguments

  • The petitioner failed to file returns for a continuous period, justifying cancellation.
  • The appeal was filed beyond the prescribed limitation period and was rightly rejected.
  • Statutory provisions were followed in issuing the SCN and cancellation order. 

Court’s Findings / Order

  • The Court observed that:
    • The SCN did not specify retrospective cancellation.
    • The cancellation order failed to provide any reasons for applying retrospective effect.
    • Power under Section 29(2) must be exercised reasonably and not arbitrarily.
    • Retrospective cancellation affecting periods where compliance existed is unjustified.
  • The Court held:
    • The cancellation order was unreasoned and arbitrary.
    • The Appellate Authority erred in dismissing the appeal solely on limitation without considering merits.
  • Order:
    • The impugned appellate order dated 28.06.2024 was set aside.
    • The matter was remanded back to the Appellate Authority for fresh consideration on merits.
    • Direction to decide the appeal within 8 weeks.

Important Clarifications by the Court

  • Retrospective cancellation must be supported by cogent reasons.
  • Authorities cannot exercise power in a whimsical or arbitrary manner.
  • Even if delay exists, substantive justice must prevail over technicalities.
  • The Court raised concerns that cancellation of GST registration may completely bar business operations, though it did not decide this issue conclusively. 

Sections Involved

  • Section 107 of the Central Goods and Services Tax Act, 2017 (Appeals)
  • Section 29(2) of the CGST/DGST Act (Cancellation of Registration)

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/VIB15072024CW95162024_161035.pdf

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