Cancellation of GST registration cannot be rejected due to ongoing tax investigation

Application of cancellation of GST registration cannot be rejected on the basis of inquiry proceedings against Assessee for determining tax liability for the previous period

Summary: The Delhi High Court, in M/s Sanjay Sales India v. Chief Commissioner, Ministry of Commerce and Revenue, Government of NCT, Delhiheld that an application for cancellation of a GST registration cannot be rejected on the basis of an examination procedure involving the examination of the past tax liabilities of an Assessee. M/s Sanjay Sales India, after ceasing operations, has applied for cancellation of GST registration. However, the tax authorities have issued a notice requiring the petitioner to pay outstanding taxes and provide detailed monthly data on previous transactions, effectively suspending the cancellation application. Dissatisfied, the petitioner approached the Delhi High Court seeking relief from this procedural delay. The court held that the ministry’s reasoning was flawed as the cancellation of the GST registration does not negate the Assessee’s responsibility to settle outstanding tax debts or address prior legal liabilities. Furthermore, the Court found it unreasonable for the Department to insist on data from the Assessee as cancellation should not affect obligations relating to past tax liabilities. The judgment emphasized that an ongoing investigation into past taxes cannot be a valid basis for withholding a legitimate cancellation request. Accordingly, the Court directed the Department to promptly process the cancellation petition, clarifying that Section 29 of the CGST Act requires that the taxpayer’s prior cancellation obligations remain intact regardless of the status of registration.

The Hon’ble Delhi High Court in the matter of M/s Sanjay Sales India v. Chief Commissioner, Ministry of Commerce and Revenue, Government of NCT, Delhi (Writ Petition (Civil) No. 10234 of 2024 dated 26th July, 2024) has held that the application for cancellation of GST registration cannot be dismissed on the ground that the inquiry proceedings have been initiated in respect of the tax liability of the Assessee for the previous period.

Facts:

M/s Sanjay Sales India (“the submitter”) had availed GST registration on July 1, 2017. After winding up of business, the petitioner had sought cancellation of GST registration vide application dated June 13, 2024 (“the Application”).

However, the department (“the defendant”) issued notice dated July 16, 2024 (“the disputed notification”) stating the reasons for suspending the petitioner’s application for cancellation of registration, i.e., the petitioner must pay the taxes and penalties due and submit monthly details of tax due/paid and sales/purchase invoice, together with the GR and stock register and the bank statement since the date of registration.

Therefore, the petitioner, aggrieved by the grounds raised, filed a writ petition before the Hon’ble High Court.

Problem:

Cannot the application for cancellation of GST registration be rejected on the basis of inquiry proceedings against Assessee for determining tax liability for the previous period?

Held:

The Hon’ble High Court of Delhi in the matter of Writ Petition (Civil) No. 10234 of 2024) held as under:

• It is noted that the reason given by the respondent for rejecting the request to cancel the GST registration of the petitioner on account of cessation of business is not valid as the cancellation of the GST registration does not affect the obligation of the petitioner to pay outstanding taxes and fines.
• It was further observed that the other reasoning of the respondent that the petitioner is required to file details of tax paid along with share register and bank statements is irrational as it is settled law that cancellation of GST registration would not affect the liability of the petitioner. to pay any taxes due or be liable for any legal violation prior to the date of cancellation.
• Is of the view that the examination of the petitioner’s tax liability for the previous period cannot be a ground for rejecting the petitioner’s request for cancellation of GST registration.
• It is directed that the respondent is required to process the petitioner’s application for cancellation of GST registration. The summons is therefore dismissed.

Our comments:

Section 29 of the CGST Act applies “Cancellation or suspension of registration”. Further, Section 29(3) of the CGST Act states that cancellation of registration shall not affect the liability of the person to pay tax and other dues for a period before the date of cancellation, irrespective of the fact that amount of tax or other charges will be determined before or after the date of cancellation.

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