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Damned if you do, damned if you don't

AUGUST 30, 2023

By Vijay Kumar

IN the grand dance of taxes, there's a tale that takes the cake for being the ultimate jest in the realm of Goods and Services Tax (GST). Picture this: a sprightly senior citizen, aged 70 and above, merrily minding his business of copper wire manufacturing and trading, finds himself entangled in a comedy of errors with none other than the GST Department. Hold on as we unravel the uproarious escapade of a septuagenarian tax tangle!

A senior citizen of 70+was engaged in the business of manufacturing and trading in copper wires. He was registered in Delhi with the GST Department with effect from 01.07.2017. Because of his ailing health, not very unnatural at the age of 70, he could no longer carry on the business and accordingly, applied for cancellation of his GST Registration on 20.11.2020 with effect from the same date. His health deteriorated further in the month of January 2021, even without hearing from GST authorities.

This is the story of a spirited septuagenarian, ailing health and all, deciding to call it quits in the business world. Armed with the desire for relaxation and a dash of copper wire wisdom, he submitted his GST registration cancellation request on a fine day in November 2020. Little did he know, a twist of hilarious fate awaited him!

During the time that his health was not having a good time, he got a notice dated 04.02.2021 from the GST authorities stating that the GST officer had examined his application and was not satisfied with it for the following reasons:

"Cancellation Details – Others (Please specify) – Please submit bank statement for all periods, Sale and Purchase Invoices, GRs, E-Way Bills etc."

The GST officer, in his infinite wisdom, had examined his application and decided it didn't quite hit the mark. Since the applicant was unwell, he did not respond to the said notice within the stipulated period. The GST officer does not wait for the sick or sincere and issued an order dated 16.02.2021 rejecting his application for cancellation of his registration. The said order reads as under:

"Order of Rejection of Application for Registration.

This has reference to your reply filed vide ARN AA071120043257P dated 20/11/2020. The reply has been examined and the same has not been found to be satisfactory for the following reasons:

Therefore, your application is rejected in accordance with the provisions of the Act."

Without a reply from him , the officer swung into action and issued a rejection order. The irony! The order read as if it was consequent to a reply that was never submitted in the first place. Talk about a bureaucratic comic twist!

Look how ridiculous this order is:

1. He had not filed any reply and therefore, the question of the same being considered as unsatisfactory did not arise.

2. The GST Officer could consider and declare unsatisfactory a reply that was never submitted! It happens only in GST.

3. The order also does not state any reasons for rejecting the application for cancelation of his GST Registration – the space for filling in the reasons is left blank. Can anybody fill it up?

4. Although the notice dated 04.02.2021 issued earlier stated that the GST officer was not satisfied with the application, it did not provide any specific reasons for being so dissatisfied or for proposing rejection of his application. The said notice merely called upon him to provide certain details.

5. It is not in dispute that the concerned officer had no particular information or ground on account of which the petitioner's application for seeking cancellation of the registration was found to be unsatisfactory.

It is relevant to note that the applicant has produced medical documents to show that he had health issues. He was diagnosed with "carcinoma left buccal mucosa" and had undergone surgery in the month of February 2021.

So, the application for cancellation of registration was rejected for lofty reasons.

Now starts the story.

Just when you thought this tale couldn't get any funnier, our protagonist received another notice. This time, it was all about cancellation. Wasn't that where we started from?

After his application seeking cancellation of his GST Registration was rejected, he received a show cause notice dated 16.02.2021 proposing to cancel his registration for the reason that "the taxpayer found not functioning /non-existing at the principal place of business".

Remember the applicant was facing certain medical issues at the material time and therefore, he neither responded to the said show cause notice nor appeared before the concerned officer.

His GST Registration was cancelled by an order dated 02.11.2021 with retrospective effect from 01.07.2017. The said order sets out a tabular statement, which reflects that no tax was due from the petitioner at the material time. Suddenly, he became an offender- retrospectively. Our copper connoisseur was cast back in time as an offender, all the way to 01.07.2017. Time travel, GST-style!

Being aggrieved by the said order cancelling his GST Registration with retrospective effect, the applicant preferred an appeal before the Appellate Authority on 16.02.2023 under Section 107 of the Central Goods and Services Tax Act, 2017. The same was, as expected, rejected on the ground that it was filed beyond the prescribed period.

The still aggrieved not very healthy 70+ taxpayer had the audacity to approach the High Court. (VIRENDER KUMAR JAIN vs DELHI GST OFFICER in W.P.(C) 9919/2023.-2023-TIOL-1066-HC-DEL-GST)

The High Court observed, -

1. As noticed above, it is the petitioner's case that it had stopped business on account of ill-health and had sought cancellation of his GST Registration with effect from 20.11.2020. Thus, there is no question of the petitioner being available at the principal place of business after he had ceased to carry on any business.

2. The petitioner is not aggrieved by cancellation of his GST Registration; he is aggrieved because the registration has been cancelled with retrospective effect from 01.07.2017.

3. It is important to note that the show cause notice dated 16.02.2021 calling upon the petitioner to show cause why his GST Registration not be cancelled, did not indicate that the concerned officer had proposed to cancel the same with retrospective effect.

4. The show cause notice also does not indicate that any inquiries were made, which revealed that the petitioner had never existed at his declared place of business.

5. The order dated 02.11.2021 cancelling the petitioner's registration also contains no reason whatsoever. It merely records that no reply was submitted to the show cause notice.

6. It is an unreasoned order and completely disregards that the petitioner had filed an application dated 20.11.2020 for cancellation of his GST Registration and disclosed that he had stopped carrying on business.

7. Thus, as stated above, the question of the petitioner being available at the principal place of business did not arise. It follows that this could not have been the ground for cancellation of the petitioner's GST Registration with retrospective effect.

The High Court allowed the writ petition and directed that the cancellation of the GST Registration shall be effective from 20.11.2020.

However, the High Court clarified that this would not preclude the GST Authorities from initiating any proceedings for recovery of any dues, if it is found that the petitioner has failed to comply with any provisions of the Act. The respondents are also not precluded from cancelling the petitioner's registration retrospectively from the date of registration, if there is any material to establish that the petitioner had not carried on any business after securing the GST Registration.

The High Court cautioned,

Needless to state that any such action shall be preceded by a proper show cause notice and no order shall be passed without affording the petitioner an opportunity to be heard .

Should the High Court teach the GST officers that Show Cause Notices have to be issued and orders should not be passed without affording an opportunity to be heard? It is utterly amusing that the show cause notice never even hinted at a retroactive cancellation. And the cherry on top? The cancellation order itself was about as detailed as a postcard from a scenic vacation - with absolutely no reasons mentioned.

Is it safe to entrust the task of revenue to such officers who do not know/do not care/do not follow basic principles before they go out to harass the unsuspecting taxpayer? The tax officers should be taught that they get their salaries and perks from the taxes paid by the citizens and the taxpayers are the masters, who should be treated with respect.

Until Next week

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