NON SUBMITION OF REPLY TO SHOW CAUSE NOTICE - NOT A GROUND TO CANCEL REGISTRATION

[Mr. M. GOVINDARAJAN]

Cancellation of registration

Section 29(2) of the Central Goods and Services Tax Act, 2017 provides that the proper officer may cancel the registration of a person from such date, including any retrospective date, as he may deem fit, if-

• 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 section 10 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 above 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.

Rule 21 specifically provides specific violations of the provisions of the Act or rules made there under for the cancellation of registration.  The registration granted to a person is liable to be cancelled, if the said person-

• does not conduct any business from the declared place of business; or
•  issues invoice or bill without supply of goods or services or both in violation of the provisions of the Act, or the rules made there under; or
•  violates the provisions of section 171 of the Act or the rules made there under;
•  violates the provision of rule 10A;
• avails input tax credit in violation of the provisions of section 16 of the Act or the rules made there under; or
• furnishes the details of outward supplies in FORM GSTR-1 under section 37 for one or more tax periods which is in excess of the outward supplies declared by him in his valid return under section 39 for the said tax periods; or
• violates the provision of rule 86B;or
• being a registered person required to file return under sub-section (1) of section 39 for each month or part thereof, has not furnished returns for a continuous period of 6 months; or
• being a registered person required to file return under proviso to sub-section (1) of section 39 for each quarter or part thereof, has not furnished returns for a continuous period of 2  tax periods.

Show cause notice

The proper officer shall not cancel the registration without giving the person an opportunity of being heard.  Where the proper officer has reasons to believe that the registration of a person is liable to be cancelled, he shall issue a notice to such person in FORM GST REG-17, requiring him to show cause, within a period of 7 working days from the date of the service of such notice, as to why his registration shall not be cancelled.  The reply to the show cause notice issued shall be furnished in FORM REG–18 within the period specified in the said sub-rule.

Where the reply furnished under sub-rule (2) or in response to the notice issued under sub-rule (2A) of rule 21A is found to be satisfactory, the proper officer shall drop the proceedings and pass an order in FORM GST REG –20.  Where the person instead of replying to the notice served for contravention of the provisions contained in clause (b) or clause (c) of sub-section (2) of section 29, furnishes all the pending returns and makes full payment of the tax dues along with applicable interest and late fee, the proper officer shall drop the proceedings and pass an order in FORM GST-REG 20.

Non reply to show cause notice

If the registered person does not give reply to the show cause notice, whether the proper office can cancel the registration without giving an opportunity to the registered person?  The Allahabad High Court held that non filing of reply to the show cause notice is not a ground for cancellation of registration in M/S AGARWAL CONSTRUCTION COMPANY THRU. SOLE PROPRIETOR NARESH KUMAR AGARWAL VERSUS COMMISSIONER STATE TAX AND 2 OTHERS - 2023 (3) TMI 790 - ALLAHABAD HIGH COURT. 

In the above said case the petitioner is the sole proprietary of the firm engaged in the business of civil construction work.  The petitioner did not file GST returns.  Therefore a show cause notice was issued by the proper officer on 18.07.2022 to the petitioner directing the petitioner to give a reply to the notice within 7 days from the date of service of the notice.  The petitioner did not file reply to the said show cause notice.  Therefore the proper officer passed order on 30.07.2022 cancelling the registration. 

The petitioner filed an appeal before the Appellate Authority against the order of Adjudicating Authority.  The Appellate Authority dismissed the appeal on the ground that no reply has been filed by the registered person for the show cause notice issued to him.

Therefore the petitioner, in the absence of appellate tribunal, filed a writ petition before the High Court.  The petitioner contended that the order dated 30.07.2022 is self contradictory as in one line it is stated that the petitioner has submitted his reply to the show cause notice dated 18.07.2022 while in the very next line it is noted that the petitioner has not submitted the reply to the show cause notice.

The petitioner relied on the following judgments-

• In M/S CHANDRA SAIN, SHARDA NAGAR, LUCKNOW THRU. ITS PROPRIETOR MR. CHANDRA SAIN VERSUS U.O.I. THRU. SECY. MINISTRY OF FINANCE, NEW DELHI AND 5 OTHERS - 2022 (9) TMI 1047 - ALLAHABAD HIGH COURT the High Court held the order of cancellation of registration without prima facie is without application of mind and therefore the same does not stand the test of scrutiny of Article 14 of the Constitution of India.
• In TECHNOSUN INDIA PVT. LTD. LUCKNOW THRU. ITS DIRECTOR AMIT KUMAR GAUTAM VERSUS UNION OF INDIA THRU. PRIN. COMMISSIONER, CENTRAL G.S.T., LKO. U.P. AND 2 OTHERS - 2022 (9) TMI 1412 - ALLAHABAD HIGH COURT the High Court held that the impugned order does not assign any reason whatsoever for cancelling the registration of the petitioner and is passed only on the ground that reply to the show cause notice is given.  The non submission of the reply to the show cause notice cannot be a ground for cancellation of the registration. 

The petitioner contended that since the petitioner has not been heard while passing the order dated 30.07.2022 the petitioner is entitled for the benefit of the orders passed in the above two cases.

The High Court extended the benefit of the judgments in the cases relied on by the petitioner, to the petitioner.  The High Court set aside the order dated 30.07.20222 as well as the Appellate order dated 12.01.2023.  The petitioner is permitted to appear before the Adjudicating Authority along with a reply to the show cause notice and the certified order of the present petition and on the event of this the Adjudicating Authority shall proceed to pass a fresh order in accordance with law.