Blog

Finding that proper officer passed the order cancelling taxpayer’s GST registration with retrospective effect, the Delhi High Court clarified that such order does not indicate any reason for cancelling the GST registration much less from retrospective effect.

The High Court found that the only allegation against the assessee was that it was non-existent, which was sufficiently addressed by the assessee in his reply by claiming that he had to go to Rajasthan due to ill health of his father.

Further, at the relevant time when visit was scheduled by the Department, the taxpayer was travelling to Rajasthan and owing to this, his business place was closed and it was presumed that the taxpayer is non-existent, added the Court.

Thus, the High Court ruled that temporary suspension of business activity on account of ill health would not warrant cancellation of taxpayer’s GST registration.

The Division Bench of Justice Yashwant Varma and Justice Ravinder Dudeja observed that retrospective cancellation of GST registration has a cascading effect in as much as the concerned authorities would also deny the input tax credit to other tax payers who might have received supplies from the taxpayer.

Facts of the case

An enquiry was conducted in relation to non-genuine taxpayers, as a part of special drive for verification of GSTINs, and the officers of Anti Evasion, CGST visited the premises of assessee/ petitioner. During such visit at the registered address, assessee was found non-existent. Hence, a Show Cause Notice in Form GST REG-17 was issued, resulting in retrospective cancellation of registration.

Observations of the High Court

The Bench observed that in terms of Section 29(2) of CGST Act, the proper officer may cancel the GST registration of a person from such date, including any retrospective date, as he deems fit, if the circumstances set out in the said section are satisfied.

However, the registration cannot be cancelled with retrospective effect, and can be cancelled upon objective satisfaction of the proper officer, added the Bench.

Even though the SCN requires the assessee to appear before the undersigned i.e authority issuing the notice, the Bench found that said notice does not give the name of the officer or the place where the assessee was to appear.

Thus, the very foundation of the proceedings i.e. SCN is defective, as no effective opportunity for hearing was granted to the assessee before passing the final order on the show cause notice, added the Bench.

Observing that the circular/instructions issued by the Department are binding on the departmental authorities, the Bench explained that Dept. cannot take a contrary stand and cannot repudiate a circular even on the ground that it was inconsistent with the statutory provisions and thus, the effective right of being heard having been denied to the assessee, the order is violative of principles of natural justice.

Since the order is completely silent with regard to even any enquiry having been conducted, the High Court directed the Revenue to restore assessee’s GST registration, and disposed of the petition.

Counsel for Petitioner/ Assessee: Sumit K. Batra, Manish Khurana, Priyanka Jindal and Siddhanth Sarwal

Counsel for Respondent/ Revenue: Akshay Amritanshu, Samyak Jain, Drishti Saraf and Pragya Upadhyay

Case Title: Ram Niwas versus Commissioner of Central Goods and Services Tax & Anr

Case Number: W.P.(C) 13450/2024

The GST department has barred taxpayers from filing GST returns after expiry of a three-year period from due date of furnishing the said return. The changes, applicable for GSTR-1, GSTR 3B, GSTR-4, GSTR-5, GSTR-5A, GSTR-6, GSTR 7, GSTR 8 and GSTR 9, are going to be implemented in the GST portal from early 2025.

The department has, therefore, advised the taxpayers to reconcile their records and file their GST Returns as soon as possible if not filed till now. The rule change was brought under the Finance Act, 2023, and is effective from 1 October 2023.

According to tax experts, the move aligns with a broader intent to ensure timely compliance, enhance data reliability, and potentially reduce the backlog of unfiled returns within the GST system.

“By capping the period for delayed filings, taxpayers are motivated to reconcile and rectify their records promptly. However, it may also create challenges for taxpayers with historically unfiled returns, especially those facing administrative or logistical constraints in consolidating older records,” says Rajat Mohan, Senior Partner, AMRG & Associates.

In the recent months, around 40-50 more offshore entities have got themselves registered with the GST authorities, after an investigation revealed them not paying taxes on Online Information and Database Access or Retrieval (OIDAR) supplies, official sources said.

The new registrations may lead to an increase in GST revenue to the tune of a few hundred crores, the sources said.

OIDAR is a category of services provided through the medium of internet and received by the recipient online without having any physical interface with the supplier of such services. Examples include online advertising, cloud services, e-books, movie, music, digital data storage, and online gaming are all part of the OIDAR.

“The Directorate General of GST Intelligence (DGGI) has been making continuous efforts to make off-shore entities (who provide OIDAR services) aware of India’s domestic taxation laws, so that they pay the required tax amount,” an official said. “In several cases, we find that such entities are genuinely unaware of the law…so they take registration and pay tax.”

Under GST provisions, when overseas entities offer digital services to the end users in India, the tax obligation lies with the overseas service provider in a non-taxable territory. These entities are mandated to register for GST and submit monthly returns detailing their Indian sales while remitting applicable taxes. However, many fail to comply, which often results in significant financial penalties and legal repercussions for undisclosed transactions and tax remittance failures, say experts.

The DGGI in its annual report for FY24 had said that since the introduction of GST in July 2017, a total of 574 offshore entities have registered with the GST department. As a result, revenue collection from this sector rose from Rs 80 crore in FY18 to Rs 2,675 crore in FY24.

On dealing with such offshore suppliers, it has also dawned that several such suppliers are “ignorant of the law, and upon conveying the legal position clearly, such suppliers agree to comply with the GST mandate,” the DGGI stated in the report.

Sandeep Sehgal, partner-tax, AKM Global said the DGGI is making several efforts like sending emails to such service providers to make them aware and telling them to register. “The approach is commendable since they are not taking hard steps in the initial instances and are focussing more in creating awareness,” he added.

Shareen Gupta, Partner, JSA Advocates and Solicitors said that the OIDAR provisions requiring offshore companies to pay tax in India also recognises “intermediaries” as persons liable to pay GST in India. “But owing to complex business models for services rendered through online medium, the correct taxability and valuation for the same often does not get identified, hence it’s important that the government issues clarifications to help overseas entities to be compliant with the requirements of the Indian law,” she said.

In its annual report, the DGGI had highlighted that many offshore providers of OIDAR services represent a “relatively untapped” sector with “tremendous” revenue potential; hence, innovative solutions to prevent revenue leakages are essential.

Some experts say that the non-compliance of GST by offshore OIDAR service providers is more pronounced in the online gaming sector. For offshore platforms offering online money gaming services, it is therefore imperative to understand and comply with the updated GST regulations, effective from October 1, 2023, they say. “The penalties for evasion are steep, and platforms that fail to meet their obligations risk not only fines but also the potential loss of access to one of the world’s largest gaming markets,” said Ankur Gupta, practice leader-indirect tax at SW India.

Financial Express

Police in Pune’s Koregaon Park registered a case involving criminal conspiracy, cheating, and forgery against eight individuals, including alleged mastermind Asraf Ibrahim Kalawadiya (50) from Surat. The group is accused of setting up 246 fake companies across 13 states to evade Goods and Services Tax (GST) worth between Rs 5,000 crore and Rs 8,000 crore, reported The Times of India.

The events allegedly took place between September 2018 and March 2024. The case was filed by the GST department after discovering that Pathan Enterprises, a non-existing firm at Shiv Chaitanya Colony in Hadapsar, evaded Rs 20.25 crore in taxes.

Kalawadiya is currently in judicial custody at Yerawada Central Prison following his arrest on March 13, 2024, by the Directorate General of GST Intelligence (DGGI), Pune zonal unit. His seven associates are still at large.

Senior intelligence officer Rishi Prakash from the DGGI told ToI, “GST officials found that the cellphone number and the email address used for registering Pathan Enterprises with them were used to register multiple bogus firms, but none of them paid taxes ranging from Rs 5,000 crore to Rs 8,000 crore for the above-mentioned period.”

Senior inspector Runal Mulla, from Koregaon Park police, mentioned that a preliminary inquiry was conducted based on the GST official’s complaint, and an FIR was registered post-verification. The investigation has now been handed over to the Economic Offences Wing.

Rs 8,000 GST scam shocker

Prakash, who filed the complainant, said, “Pathan Enterprises was registered in the name of Pathan Shabbir Khan Anwar Khan. His PAN card helped the investigators in tracing his address to Khumbarwada locality in Bhavnagar in Gujarat. Khan told investigators that he was an autorickshaw driver and claimed to be clueless about the enterprises run in his name.”

Further investigation revealed a bank account in Rajkot, Gujarat, under the name of Jeet Kukadiya, who claimed to be a security guard and unaware of the account’s operations. Prakash added that Kalawadiya was identified as the mastermind after analyzing bank statements and call records. He was tracked to a hotel in Mira Bhayander in Mumbai, where a search led to the recovery of multiple cellphones, laptops, SIM cards, cheque books, debit cards, and rubber stamps.

Kalawadiya admitted to opening numerous fake firms and bank accounts using forged documents for fraudulent transactions to evade taxes. He falsely claimed to run a scrap material business. However, the investigation showed that fake invoices were issued to 246 bogus entities, enabling them to avail input tax credits without paying GST. He had previously been arrested by the DGGI in Surat in 2022.