2025 (7) TMI 394 - HC - GST

Cancellation of GST registration and consequent impugned endorsement - declining to entertain the revocation application - petitioner Firm is now ready and willing to file the pending returns and deposit the applicable taxes along with interest and penalty - HELD THAT - Today a detailed memo has been filed on behalf of the petitioner stating that the tax liability pertains only to the financial years 2017 18 and 2018 19. While the petitioner expresses readiness to comply with the assessment orders for the years 2021 22 2022 23 and 2024 25 it is submitted that no assessment orders have been passed yet for the financial years 2019 20 and 2020 21. In view of the above submission and the assurance extended by the learned counsel for the petitioner this Court is inclined to show indulgence by granting an opportunity to the petitioner to regularize the tax filings and deposits. The impugned order is set aside - matter is remitted to respondent No. 2 for reconsideration in accordance with law - petition allowed by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

• Whether the cancellation of the petitioner's GST registration on the ground of continuous default in filing returns for over six months was justified under the Goods and Services Tax Act, 2017.
• Whether the petitioner was entitled to an opportunity to regularize the pending GST returns and deposit applicable taxes, interest, and penalties before cancellation of registration.
• The scope of judicial intervention in administrative orders of cancellation of GST registration and the extent of relief that can be granted to a defaulting taxpayer under the GST regime.
• Whether the impugned orders cancelling the GST registration and refusing revocation were legally sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for Cancellation of GST Registration due to Non-filing of Returns

Relevant Legal Framework and Precedents: Under the GST Act, registration can be cancelled if a registered person fails to file returns continuously for a period exceeding six months. The statutory provisions mandate cancellation to ensure compliance and prevent tax evasion. Precedents have upheld cancellation where default is deliberate or persistent without reasonable cause.

Court's Interpretation and Reasoning: The Court recognized that the petitioner had defaulted in filing returns from 2017 onwards due to the demise of the previous auditor and consequent lack of awareness. The non-filing was not willful evasion but a consequence of bona fide ignorance. The Court noted that the petitioner had completed contracted work but faced financial hardship due to non-release of payments, which contributed to the delay in compliance.

Key Evidence and Findings: The petitioner's assertion that the previous auditor passed away in October 2017 and that the petitioner was unaware of non-compliance until recently was accepted. The petitioner's readiness to file all pending returns and pay due taxes, interest, and penalty was a significant factor.

Application of Law to Facts: While the GST Act mandates cancellation for continuous default, the Court emphasized the principle of proportionality and the need to provide an opportunity for compliance, especially where default is not deliberate. The Court balanced the statutory mandate with equitable considerations.

Treatment of Competing Arguments: The respondents relied on the strict statutory provisions for cancellation due to non-filing. The petitioner's plea for indulgence based on bona fide default and readiness to comply was weighed carefully. The Court favored the petitioner's arguments, given the circumstances.

Conclusion: The cancellation order was found to be premature and harsh without affording an opportunity to regularize compliance.

Issue 2: Entitlement to Opportunity for Regularization and Reconsideration

Relevant Legal Framework and Precedents: Principles of natural justice and statutory provisions under GST require that a registered person be given an opportunity to rectify defaults before cancellation. Courts have held that cancellation orders must be preceded by reasonable opportunity to comply.

Court's Interpretation and Reasoning: The Court observed that the petitioner had expressed willingness to file all pending returns and pay dues within a stipulated time. The Court found it just and proper to grant a limited time for compliance before confirming cancellation. The Court also noted the absence of any assessment orders for certain financial years, indicating ongoing proceedings.

Key Evidence and Findings: The petitioner filed a detailed memo specifying the tax liability years and readiness to comply. The assurance given by the petitioner's counsel was recorded.

Application of Law to Facts: The Court applied the principles of fairness and procedural propriety, directing restoration of registration subject to compliance within four weeks. It remitted the matter for reconsideration by the competent authority in accordance with law.

Treatment of Competing Arguments: The respondents' strict approach was moderated by the Court's intervention to ensure that cancellation is not mechanically applied without affording a chance for compliance.

Conclusion: The petitioner was entitled to an opportunity to regularize filings and deposits, and the impugned orders were set aside accordingly.

Issue 3: Scope of Judicial Intervention in GST Registration Cancellation

Relevant Legal Framework and Precedents: Judicial review of administrative orders under GST is limited to legality, procedural fairness, and reasonableness. Courts do not substitute their discretion but ensure compliance with statutory mandates and principles of natural justice.

Court's Interpretation and Reasoning: The Court exercised judicial discretion to temper the strict statutory provisions with equitable relief, emphasizing that cancellation should not be automatic or punitive without due process. The Court clarified that restoration is conditional and subject to strict compliance.

Key Evidence and Findings: The petitioner's financial hardship and bona fide default were critical in guiding judicial intervention.

Application of Law to Facts: The Court balanced the need for tax compliance with the petitioner's right to be heard and to rectify defaults.

Treatment of Competing Arguments: The Court rejected any argument for mechanical cancellation without procedural safeguards.

Conclusion: Judicial intervention was warranted and appropriately exercised to grant relief.

3. SIGNIFICANT HOLDINGS

The Court held:

"The writ petition is hereby allowed. The impugned order cancelling the petitioner's GST registration and the subsequent endorsement declining revocation are quashed and set aside."

"The petitioner is granted a period of four weeks from the date of receipt of this order to file all pending returns and deposit the tax dues along with applicable interest and penalty, in accordance with law."

"In the event the petitioner fails to comply with the above direction within the stipulated time, the order of cancellation of GST registration shall stand revived automatically without further reference to this Court."

"The petitioner's GST registration shall stand restored, subject to compliance with the above conditions."

Core principles established include:

• Cancellation of GST registration on account of non-filing of returns must be preceded by reasonable opportunity to comply.
• Bona fide default and financial hardship are relevant considerations in granting relief from cancellation.
• Judicial review ensures that administrative orders conform to principles of natural justice and proportionality.
• Restoration of registration is conditional and contingent on timely compliance with statutory obligations.