2025 (5) TMI 908 - HC - GST

Cancellation of GST registration due to non-filing of returns for a continuous period of six months - petitioner was not provided an effective opportunity of hearing - violation of principles of natural justice - HELD THAT - It is apparent that the petitioner has failed to comply with the provisions of the GST Act and as such the registration of the petitioner was liable to be cancelled as per section 29(2)(c) of the GST Act. However it is also pertinent to note that the petitioner has paid the GST along with interest and penalty and the petitioner is also ready and willing to abide by the provisions of the GST Act and the Rules as stated at bar by learned advocate for the petitioner and the petitioner has also showed willingness to file an undertaking to that effect. Impugned show cause notice dated 12.10.2022 and impugned orders dated 09.11.2022 and 18.09.2023 are hereby quashed and set aside - Petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

(a) Whether the impugned show-cause notice issued under section 29(2)(c) of the Gujarat Goods and Services Tax Act, 2017 (GST Act) for cancellation of GST registration due to non-filing of returns for a continuous period of six months was valid and in accordance with principles of natural justice, particularly when the petitioner was not provided an effective opportunity of hearing;

(b) Whether the impugned orders dated 09.11.2022 and 18.09.2023, which cancelled the petitioner's GST registration and rejected the revocation application, were legally sustainable given the petitioner's payment of outstanding GST dues along with interest and late fees;

(c) Whether the petitioner's failure to file returns was excusable on grounds of the Chartered Accountant's absence and lack of communication, and whether such grounds justify relief from cancellation of registration;

(d) Whether the respondent authorities were obliged to consider the petitioner's application for revocation of cancellation of registration despite the history of non-compliance;

(e) The extent to which the petitioner's conduct and compliance history impacts the entitlement to relief under the GST Act and Rules.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of the Show-Cause Notice and Opportunity of Hearing

The GST Act under section 29(2)(c) permits cancellation of registration if the registered person fails to file returns for a continuous period of six months. The procedural safeguards require issuance of a show-cause notice and an opportunity for personal hearing before cancellation.

The petitioner challenged the show-cause notice dated 12.10.2022 on the ground that it was system-generated, did not specify any date or time for personal hearing, and led to suspension and cancellation of registration without recording any reasons or granting an effective hearing opportunity.

The Court noted that the show-cause notice was issued under Rule 22(1) of the GST Rules read with section 29(2)(c) of the GST Act. The petitioner's grievance that the notice was cryptic and lacked particulars was supported by reliance on a precedent where similar mechanical issuance of notices was held to be improper.

The respondent's affidavit contended that the registered mobile number and email ID on the GST portal belonged to the petitioner, negating the claim of unawareness. However, the Court observed that the petitioner's inability to receive or respond to the notice due to the Chartered Accountant's absence and lack of communication was a relevant circumstance.

The Court found that the procedural lapse in not specifying hearing particulars and the ex-parte cancellation without recorded reasons violated principles of natural justice.

Issue (b): Sustainability of Cancellation Orders in Light of Payments Made

The petitioner had paid substantial GST dues amounting to Rs. 41,76,206/- along with interest and late fees. Additionally, further payments were made on subsequent dates as detailed in the petition.

The petitioner argued that since the outstanding amounts were discharged, the cancellation orders dated 09.11.2022 and 18.09.2023 were unsustainable and the revocation application deserved consideration.

The respondent contended that the petitioner's habitual non-compliance justified cancellation and refusal to revoke registration.

The Court noted that while payment of dues is a significant factor, the GST Act and Rules do not mandate automatic cancellation for non-payment if dues are subsequently paid. The Court emphasized the petitioner's willingness to comply henceforth and to file an undertaking regarding future compliance.

Thus, the Court held that the cancellation orders could not stand in the face of the petitioner's payments and willingness to comply.

Issue (c): Excusability of Non-Filing Due to Chartered Accountant's Absence

The petitioner explained that the Chartered Accountant, responsible for filing GST returns, left India without informing the petitioner, leading to non-filing of returns from April 2022 onwards.

The respondent disputed this, pointing out that the petitioner had access to the GST portal and contact details, and that certain compliances related to other companies were carried out by the petitioner, indicating awareness and capacity to comply.

The Court acknowledged the respondent's argument but found that the petitioner's explanation, combined with the payment of outstanding dues and undertaking to comply, warranted relief. The Court implicitly recognized that while ignorance or reliance on a third party is not an absolute excuse, it is a relevant mitigating factor in considering equitable relief.

Issue (d): Obligation to Consider Revocation Application Despite Past Non-Compliance

The petitioner filed an application for revocation of cancellation on 28.08.2023, which was rejected on 18.09.2023.

The Court observed that the GST Act allows for revocation of cancellation under certain conditions and that the petitioner's application deserved consideration on merits, ignoring the prior litigation and conduct.

The Court directed the respondent authorities to consider the revocation application if filed within four weeks, emphasizing adherence to statutory provisions and fair procedure.

Issue (e): Impact of Petitioner's Conduct and Compliance History on Relief

The respondent highlighted the petitioner's repeated non-compliance and argued that this justified cancellation and denial of relief.

The Court balanced this against the petitioner's payment of dues, undertaking to comply, and the procedural irregularities in cancellation.

The Court concluded that while compliance history is relevant, it does not preclude relief if the petitioner demonstrates willingness and ability to comply going forward and the cancellation was procedurally flawed.

3. SIGNIFICANT HOLDINGS

The Court's key legal reasoning and holdings include the following verbatim and paraphrased principles:

"It is apparent that the petitioner has failed to comply with the provisions of the GST Act and as such, the registration of the petitioner was liable to be cancelled as per section 29(2)(c) of the GST Act. However, it is also pertinent to note that the petitioner has paid the GST along with interest and penalty and the petitioner is also ready and willing to abide by the provisions of the GST Act and the Rules..."

"Impugned show cause notice dated 12.10.2022 and impugned orders dated 09.11.2022 and 18.09.2023 are hereby quashed and set aside."

"The petitioner is directed to file application for revocation of the cancellation of the GST registration within a period of four weeks from today and on receipt of such application, the respondent-authorities are directed to consider the same in accordance with law ignoring the earlier litigation, orders and the conduct of the petitioner."

"The petitioner is further directed to file an undertaking that henceforth, the petitioner shall be regular in filing GST return as per the provisions of the GST Act and the Rules and shall also regularly deposit the GST on the provisional income of the petitioner."

The Court established the core principle that cancellation of GST registration for non-filing of returns must comply with principles of natural justice including effective notice and hearing, and that subsequent payment of dues and willingness to comply are relevant factors in considering revocation applications.

The Court also clarified that procedural irregularities in cancellation orders can be grounds for quashing such orders, and that authorities must consider revocation applications on merits without being precluded by prior non-compliance or litigation history.