CANCELLATION OF GST REGISTRATION CERTIFICATE – SOME ISSUES

[Mr. M. GOVINDARAJAN]

Cancellation of GST registration

Section 29 of the Central Goods and Services Tax Act, 2017 provides the procedure for cancellation of registration obtained under the provisions of Central Goods and Services Tax Act, 2017.  The said section provides that the proper officer may, either on his own motion or on an application filed by the registered person or by his legal heirs, in case of death of such person, cancel the registration, in such manner and within such period as may be prescribed, having regard to the circumstances where,–

• the business has been discontinued, transferred fully for any reason including death of the proprietor, amalgamated with other legal entity, demerged or otherwise disposed of; or
• there is any change in the constitution of the business; or
• the taxable person is no longer liable to be registered under section 22 or section 24 or intends to opt out of the registration voluntarily made under sub-section (3) of section 25.

During pendency of the proceedings relating to cancellation of registration filed by the registered person, the registration may be suspended for such period and in such manner as may be prescribed.

The proper officer may cancel the registration of a person from such date, including any retrospective date, as he may deem fit, where,–

• a registered person has contravened such provisions of the Act or the rules made there under as may be prescribed; or
• a person paying tax under composition scheme has not furnished the return for a financial year beyond three months from the due date of furnishing the said return; or
• any registered person, other than a person specified in clause (b), has not furnished returns for such continuous tax period as may be prescribed; or
•  any person who has taken voluntary registration under sub-section (3) of section 25 has not commenced business within six months from the date of registration; or
• registration has been obtained by means of fraud, willful misstatement or suppression of facts:

The proper officer shall not cancel the registration without giving the person an opportunity of being heard.  During pendency of the proceedings relating to cancellation of registration, the proper officer may suspend the registration for such period and in such manner as may be prescribed.

Some issues

Some issues in regard to the cancellation of GST registration are discussed with reference to the decided case laws as discussed below:

Non filing of returns

In TVL. GK DIGITAL PRINTING VERSUS THE ASSISTANT COMMISSIONER (CIRCLE) , TIRUPPUR CENTRAL – I, TIRUPPUR., THE APPELLATE DEPUTY COMMISSIONER (ST) (GST) , SALEM AND ERODE. [2022 (4) TMI 410 - MADRAS HIGH COURT] the petitioner has been issued with a Show Cause Notice dated 01.10.2019 for replying as to why the GST registration of the petitioner as the petitioner has failed to file returns for above six months.  The petitioner did not reply to the said show cause notice.  Therefore the certificate of registration was cancelled.  Instead of filing an application for revocation of cancellation of the registration, the petitioner preferred an appeal before the second respondent.  The said appeal was dismissed on the ground of limitation.  Against the dismissal order the petitioner filed the present writ petition before the High Court challenging the orders of both the Authorities.

The petitioner contended that even though the petitioner did not file any reply to the show cause notice the Authority ought not cancel the registration without giving proper opportunity of being heard. 

The High Court observed that by not bringing these petitioners within the GST fold, unintended privilege may be conferred on these petitioners unfairly to not to pay GST should they end supplying goods and/or services without registration.  If such a person is not allowed to revive the registration, the GST will not be paid, unless of course, the recipient is liable to pay tax on reverse charge basis. Otherwise, also there will be no payment of value added tax. The ultimate goal under the GST regime will stand defeated. Therefore, these petitioners deserve a right to come back into the GST fold and carry on their trade and business in a legitimate manner.

The High Court passed the following orders-

• The petitioners are directed to file their returns for the period prior to the cancellation of registration, if such returns have not been already filed, together with tax defaulted which has not been paid prior to cancellation along with interest for such belated payment of tax and fine and fee fixed for belated filing of returns for the defaulted period under the provisions of the Act, within a period of forty five days from the date of receipt of a copy of this order, if it has not been already paid.
•  It is made clear that such payment of Tax, Interest, fine / fee and etc. shall not be allowed to be made or adjusted from and out of any Input Tax Credit which may be lying unutilized or unclaimed in the hands of these petitioners.
•  If any Input Tax Credit has remained utilized, it shall not be utilized until it is scrutinized and approved by an appropriate or a competent officer of the Department.
• Only such approved Input Tax Credit shall be allowed for being utilized thereafter for discharging future tax liability under the Act and Rule.
• The petitioners shall also pay GST and file the returns for the period subsequent to the cancellation of the registration by declaring the correct value of supplies and payment of GST shall also be in cash
• If any Input Tax Credit was earned, it shall be allowed to be utilized only after scrutinizing and approving by the respondents or any other competent authority.
• The respondents may also impose such restrictions / limitation on petitioners as may be warranted to ensure that there is no undue passing of Input Tax Credit pending such exercise and to ensure that there is no violation or an attempt to do bill trading by taking advantage of this order.
• On payment of tax, penalty and uploading of returns, the registration shall stand revived forthwith.
• The respondents shall take suitable steps by instructing GST Network, New Delhi to make suitable changes in the architecture of the GST Web portal to allow these petitioners to file their returns and to pay the tax/penalty/fine. x. The above exercise shall be carried out by the respondents within a period of thirty (30) days from the date of receipt of a copy of this order.

Non-payment of tax

In M/S VETERAN FACILITY MANAGEMENT SERVICES PVT LTD VERSUS THE UNION OF INDIA AND 5 ORS, THE UNDER SECRETARY TO THE GOVT. OF INDIA, DESIGNATED COMMITTEE, THE CHIEF COMMISSIONER CENTRAL GOODS AND SERVICE TAX, THE ASSISTANT COMMISSIONER CENTRAL GOODS AND SERVICE TAX, THE SUPERINTENDENT CENTRAL GOODS AND SERVICE TAX [2022 (4) TMI 349 - GAUHATI HIGH COURT] the petitioner was in a default amounting to ₹ 2,25,09,077/- for the period of April, 2018 upto September, 2021 along with applicable interest payable under Section 50(1) and penalty under Section 125 of the CGST Act, 2017.   Since the said amount had not been paid, the order of cancellation of registration dated 30.12.2020 was issued by the Superintendent, Guwahati-C-5 as per the provisions of Section 29 of the CGST Act, 2017.  Being aggrieved by the order of cancellation of registration, the petitioner submitted an application for revocation of cancellation but the same was also rejected by the order dated 15.04.2021. Being aggrieved, this writ petition is instituted.

The petitioner firm express their willingness to pay the defaulted tax amount plus the interest and the penalty as may be assessed by the department but because of the precarious financial condition they are unable to pay it in one go and therefore, makes a request that the petitioner be allowed to make the necessary payments in 48 (forty eight) installments.   The departmental authorities are fair enough to agree to such proposition.   An apprehension is raised that the past conduct of the petitioner is such that it is not confidence inspiring.

The High Court directed that the determination of the equal monthly installments to be paid by the petitioner firm be determined by the Assistant Commissioner.  In doing do, the petitioner firm may also be given a hearing and the petitioner firm shall cooperate with the authority. Upon such determination, the requirement of payment shall start from 1st of March, 2022.   On the installments being determined and the petitioner firm continuing to pay the installments, the order of cancellation of the registration would have no effect, subject to any default if made by petitioner.

Inadvertent mistake by CA

In M/S. DILIPKUMAR CHANDULAL & 1 OTHER (S) VERSUS STATE OF GUJARAT & 1 OTHER (S) [2022 (4) TMI 54 - GUJARAT HIGH COURT], the Chartered Accountant of the writ applicants wanted the HUF registration to be cancelled. Instead of inserting the registration number of the HUF, inadvertently, the CA inserted the registration number of the proprietorship. In such circumstances, the registration of the proprietary firm under the GST got cancelled. However, despite the fact that the registration of the firm got cancelled, the returns filed by the writ applicants were being accepted.

The High Court observed that it was an inadvertent mistake committed by the Chartered Accountant which led to cancellation of the registration number of the proprietary ship.  The High Court directed that the Department should immediately look into the matter and see to it that the order cancelling the registration is recalled and the original registration under the CGST is restored. For a mistake said to have been committed by the Chartered Accountant, the dealer under the Act should not be made to pay a very heavy price like cancellation of the registration itself.

ex-parte order

In M/S J.K INFRATECH VERSUS ADDITIONAL COMMISSIONER AND ANOTHER [2022 (3) TMI 909 - ALLAHABAD HIGH COURT] the registration cancellation order dated 17.9.2019 was passed ex-parte pursuant to a notice claimed to be served through the common portal. The petitioner could not reply to the same as he claimed lack of knowledge. Thereby, ex-parte order was passed on 17.9.2019 cancelling the petitioner's registration. The said order is claimed to have been served to the petitioner again through the common portal on 17.9.2019 itself. The physical copy of the order dated 17.9.2019 was never served on the petitioner.    Government of U.P. issued Government Order no. 792 dated 29.7.2020 providing, in cases involving facts such as those obtaining in the present case, the service of the orders would be deemed to have been made on 31.8.2020. Then the period of limitation to institute appeal etc., stood suspended by various orders passed by the Supreme Court as also this Court. Thus the period of limitation from 15.3.2020 to 14.3.2021 stood suspended.

The High Court was of the view that the present petition deserves to be allowed as the limitation to file first appeal under Section 107 of the U.P. GST Act, 2017, was three months with delay condonable for a period of one month. Once the order dated 17.9.2019 is taken to have been served on the petitioner on 31.8.2020, then in view of the suspension of limitation from 15.3.2020 to 14.3.2021 the limitation to file the appeal would start running from 15.3.2021.  The High Court set aside the order of Appellate Authority.   The matter is remitted to the appeal authority by the High Court to proceed to hear and decide the appeal filed by the petitioner dated 19.3.2021, on merits, treating the same to have been filed within time.

Non speaking order

In GALAXY MECHANICAL ENGINEERING EQUIPMENTS PRIVATE LIMITED & ANR. VERSUS ASSISTANT COMMISSIONER, BALLY, WEST BENGAL GOODS AND SERVICES TAX & ORS. [2022 (3) TMI 855 - CALCUTTA HIGH COURT]  petitioner has challenged the impugned show-cause notice for cancellation of registration of the petitioner and suspending the registration of the petitioner by the same impugned show-cause notice itself.  The petitioner has further challenged the impugned show cause notice for cancellation of registration on the ground that the same was passed without providing any opportunity of hearing to the petitioner.  The impugned order of cancellation of registration is a nonspeaking order and also on the ground of non-application of mind by recording in the said impugned order of cancellation that the respondent has considered the reply in response to the impugned show-cause notice while in fact, no such reply was given. 

The High Court observed that the allegation of the petitioner is correct since no reason has been given in the impugned order of cancellation and is non-speaking order and is not sustainable in law and accordingly the impugned order of cancellation of registration of the petitioner is set aside and all legal consequences will follow.

Since the allegation in the impugned show-cause notice is very vague and one line allegation without any basis and for the ends of justice a person against whom a show-cause notice has been issued, he should be at least provided in brief the basis of such allegation so that the person can meet the allegations in show-cause notice. Impugned order of suspension will remain suspended till the reply to the impugned show cause notice is given and hearing is given on the same and is disposed of by passing a reasoned and speaking order in accordance with law.