2025 (6) TMI 1068 - HC - GST

Cancellation of GST registration - non-filing of returns for a continuous period of six months - petitioner has submitted that the petitioner is ready and willing to comply with all the formalities required as per proviso to sub-rule (4) of Rule 22 of the CGST Rules 2017 - HELD THAT - As per Section 29(2)(c) an officer duly empowered may cancel the GST registration of a person from such date including any retrospective date as he deems fit where any registered person has not furnished returns for a continuous period of 6 (six) months. Rule 22 of the CGST Rules 2017 has laid down the procedure for cancellation of the registration. It is discernible from a reading of the proviso to sub-rule (4) of Rule 22 of the CGST Rules 2017 that if a person who has been served with a show cause notice under Section 29(2)(c) of the CGST Act 2017 is ready and willing to furnish all the pending returns and to make full payment of the tax itself along with applicable interest and late fee the officer duly empowered can drop the proceedings and pass an order in the prescribed Form i.e. Form GST REG-20. Having regard to the fact that the GST registration of the petitioner has been cancelled under Section 29(2)(c) of the CGST Act 2017 for the reason that the petitioner did not submit returns for a period of 6 (six) months and more and the provisions contained in the proviso to sub-rule (4) of Rule 22 of the CGST Rules 2017 and cancellation of registration entails serious civil consequences this Court is of the considered view that in the event the petitioner approaches the officer duly empowered by furnishing all the pending returns and make full payment of the tax dues along with applicable interest and late fee the officer duly empowered has the authority and jurisdiction to drop the proceedings and pass an order in the prescribed Form. This writ petition is disposed of by providing that the petitioner shall approach the concerned authority within a period of 2 (two) months from today seeking restoration of his GST registration. If the petitioner submits such an application and complies with all the requirements as provided in the proviso to sub-rule (4) of Rule 22 of the CGST Rules 2017 the concerned authority shall consider the application of the petitioner for restoration of her GST registration in accordance with law and shall take necessary steps for restoration of GST registration of the petitioner as expeditiously as possible. Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

• Whether the cancellation of GST registration under Section 29(2)(c) of the CGST Act, 2017, for non-filing of returns for a continuous period of six months, was validly effected in the present case.
• The procedural correctness and scope of Rule 22 of the CGST Rules, 2017, particularly the applicability of the proviso to sub-rule (4) regarding restoration of GST registration upon compliance by the assessee.
• The extent of the authority and jurisdiction of the proper officer to revoke or drop cancellation proceedings upon the taxpayer furnishing all pending returns and making full payment of tax dues, interest, and late fees.
• Whether the petitioner's inability to file returns and respond to the show cause notice due to financial hardship and unfamiliarity with the online procedure could be grounds for relief from cancellation.
• The applicability and interpretation of the time limits prescribed for filing an application for revocation of cancellation and the possibility of restoration beyond such time limits.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of GST Registration Cancellation under Section 29(2)(c) of the CGST Act, 2017

Relevant Legal Framework and Precedents: Section 29(2)(c) empowers a proper officer to cancel GST registration if a registered person fails to furnish returns continuously for six months. Rule 22 of the CGST Rules, 2017, prescribes the procedural safeguards and steps for cancellation, including issuance of a show cause notice (Form GST REG-17), opportunity to reply (Form GST REG-18), and issuance of cancellation order (Form GST REG-19).

Court's Interpretation and Reasoning: The Court noted that the cancellation order dated 16.02.2023 was passed by the Assistant Commissioner of State Tax after the petitioner failed to respond to the show cause notice issued on 15.01.2023. The cancellation was based on the petitioner's failure to file returns for six consecutive months, which is a clear statutory ground under Section 29(2)(c). The Court observed that the procedural requirements under Rule 22 were followed, including issuance of notice and opportunity to reply.

Key Evidence and Findings: The petitioner admitted non-filing of returns for six months and non-submission of reply to the show cause notice. The petitioner's explanation of financial hardship and unfamiliarity with the online system was noted but did not negate the statutory provisions.

Application of Law to Facts: The Court held that the cancellation was validly effected as per the statutory provisions and rules. The petitioner's failure to respond or file returns for the stipulated period justified the cancellation.

Treatment of Competing Arguments: The petitioner's plea of hardship and lack of knowledge of online procedures was acknowledged but held insufficient to invalidate the cancellation, which is a mandatory consequence under the law.

Conclusion: The cancellation under Section 29(2)(c) was valid and lawful.

Issue 2: Scope and Application of Proviso to Sub-rule (4) of Rule 22 of the CGST Rules, 2017 - Restoration of GST Registration

Relevant Legal Framework and Precedents: Rule 22(4) provides that if the person against whom a show cause notice is issued furnishes all pending returns and makes full payment of tax dues along with interest and late fees, the proper officer shall drop the cancellation proceedings and pass an order in Form GST REG-20.

The Court also referred to a precedent writ petition (WP(C) No. 6366/2023) where a similarly situated petitioner was granted relief on this basis.

Court's Interpretation and Reasoning: The Court emphasized that the proviso to sub-rule (4) creates a statutory mechanism for restoration of registration if the taxpayer complies with all pending obligations. This provision was described as a safeguard against the harsh consequences of cancellation, allowing the taxpayer to regularize their status by fulfilling all dues and filing returns.

Key Evidence and Findings: The petitioner expressed willingness to comply with all formalities and pay outstanding dues. However, the petitioner failed to file a revocation application within the prescribed 270-day period, as indicated by the GST portal message.

Application of Law to Facts: The Court held that despite the lapse of the prescribed time limit for filing the revocation application, the proper officer retains the jurisdiction to consider restoration if the petitioner approaches them with full compliance, as per the proviso to Rule 22(4). The Court interpreted this as a discretionary power vested in the officer to drop proceedings and restore registration upon compliance.

Treatment of Competing Arguments: The respondent argued that the time limit for revocation had expired and the cancellation order was final. The Court, however, balanced this with the principle of equity and the statutory provision allowing restoration upon compliance, directing the petitioner to approach the proper officer within two months.

Conclusion: The proviso to Rule 22(4) permits restoration of GST registration upon compliance, and the proper officer has the authority to drop cancellation proceedings even after the expiry of the standard revocation period, subject to the petitioner's application and fulfillment of conditions.

Issue 3: Authority and Jurisdiction of the Proper Officer to Drop Cancellation Proceedings and Restore Registration

Relevant Legal Framework: Section 29(2)(c) and Rule 22(4) together empower the proper officer to cancel registration and also to drop cancellation proceedings if the taxpayer complies with pending returns and dues.

Court's Interpretation and Reasoning: The Court clarified that the proper officer's power to drop proceedings and restore registration is not merely procedural but substantive, aimed at balancing enforcement with fairness. The power is exercisable upon the taxpayer's compliance with all statutory requirements, including payment of arrears, interest, and late fees.

Application of Law to Facts: The Court directed the petitioner to approach the proper officer within two months for restoration, making clear that the officer must consider the application in accordance with law and act expeditiously.

Conclusion: The proper officer has the jurisdiction and authority to restore GST registration by dropping cancellation proceedings upon compliance by the taxpayer.

Issue 4: Effect of Financial Hardship and Unfamiliarity with Online Procedures on Cancellation and Restoration

Court's Reasoning: While the petitioner cited financial hardship and difficulty with the online system as reasons for non-compliance, the Court observed that such factors do not absolve statutory obligations. However, these circumstances justify the opportunity for restoration under the proviso to Rule 22(4), enabling the petitioner to regularize the status by fulfilling pending returns and dues.

Conclusion: Hardship and procedural unfamiliarity do not invalidate cancellation but support the remedial mechanism for restoration.

Issue 5: Interpretation of Time Limits for Filing Revocation Application and Restoration Beyond Expiry

Relevant Legal Framework: The GST portal indicated a 270-day time limit for filing an application for revocation of cancellation.

Court's Interpretation and Reasoning: The Court acknowledged the time limit but held that the statutory proviso to Rule 22(4) allows the proper officer discretion to consider restoration applications even after the expiry of the prescribed period, provided the taxpayer complies with pending obligations.

Conclusion: The time limit for revocation application is not an absolute bar to restoration under Rule 22(4) proviso, which confers discretionary power on the proper officer.

3. SIGNIFICANT HOLDINGS

"It is discernible from a reading of the proviso to sub-rule (4) of Rule 22 of the CGST Rules 2017 that if a person, who has been served with a show cause notice under Section 29(2)(c) of the CGST Act, 2017, is ready and willing to furnish all the pending returns and to make full payment of the tax itself along with applicable interest and late fee, the officer, duly empowered, can drop the proceedings and pass an order in the prescribed Form i.e. Form GST REG-20."

"Having regard to the fact that the GST registration of the petitioner has been cancelled under Section 29(2)(c) of the CGST Act, 2017 for the reason that the petitioner did not submit returns for a period of 6 (six) months and more and the provisions contained in the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017 and cancellation of registration entails serious civil consequences, this Court is of the considered view that in the event the petitioner approaches the officer, duly empowered, by furnishing all the pending returns and make full payment of the tax dues, along with applicable interest and late fee, the officer duly empowered, has the authority and jurisdiction to drop the proceedings and pass an order in the prescribed Form."

"In such view of the matter, this writ petition is disposed of by providing that the petitioner shall approach the concerned authority within a period of 2 (two) months from today seeking restoration of his GST registration. If the petitioner submits such an application and complies with all the requirements as provided in the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017, the concerned authority shall consider the application of the petitioner for restoration of her GST registration in accordance with law and shall take necessary steps for restoration of GST registration of the petitioner as expeditiously as possible."

Core principles established include:

• Cancellation of GST registration for non-filing of returns for six continuous months is valid and lawful under Section 29(2)(c) and Rule 22 of the CGST Rules, 2017.
• The proviso to sub-rule (4) of Rule 22 provides a statutory remedy for restoration of registration upon compliance by the taxpayer.
• The proper officer has discretionary power and jurisdiction to drop cancellation proceedings and restore registration even after expiry of the usual revocation period, subject to compliance.
• Financial hardship and unfamiliarity with online procedures do not invalidate cancellation but justify consideration for restoration.

Final determinations:

• The cancellation order stands valid but is subject to restoration if the petitioner complies with all pending returns and payments.
• The petitioner is directed to apply for restoration within two months, and the proper officer must consider and decide the application expeditiously and in accordance with law.
• The petitioner remains liable to pay arrears, interest, penalty, and late fees as applicable.