FILING ‘NIL’ RETURN FOR A CONTINUOUS PERIOD OF 6 MONTHS - GROUND FOR CANCELLATION?

[Mr. M. GOVINDARAJAN]

Cancellation of certificate

Section 29 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) provides the procedure for cancellation of certificate of registration either by the proper officer on his own or by the registered persons for the reasons enumerated under Section 29(1) of the Act. Section 29(2) of the Act provides on which grounds the proper officer may cancel the certificate of registration. The said grounds are as detailed below-

1. a registered person has contravened such provisions of the Act or the rules made there under as may be prescribed; or
2. a person paying tax under section 10 (composition tax) has not furnished the return for a financial year beyond three months from the due date of furnishing the said return; or
3. 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
4. any person who has taken voluntary registration under section 25(3) has not commenced business within six months from the date of registration; or
5.  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.

Rule 22 of GST Rules, 2017 provides the procedure for cancellation of certificate of registration by the proper officer, the procedure of which is furnished as below-

• The proper officer, who is of the view that the certificate of registration is to be cancelled under Section 29(2), shall issue a show cause notice to the registered person in Form GST REG - 17, directing the registered person to file reply to the notice within seven days from the date of receipt of the notice.
• The registered person shall file a reply to the show cause notice in Form GST REG - 18 within the period stipulated in the notice.
• If the reply filed by the registered person is satisfactory then the Proper Officer may drop the show cause notice.
• If the reply filed by registered person is not satisfactory then the proper officer shall issue an order in Form GST REG - 19, cancelling the certificate of registration.
• Such order shall be issued within thirty days from the date of receipt of reply to the show cause notice by the registered person with effect from a date to be determined by him and notified the same and direct the registered person to pay arrears of tax, if any, along with interest or penalty.

Issue

As per Section 29(2) (b) a certificate of registration may be cancelled if the registered person does not file for a financial year beyond three months from the due date of furnishing the said return. A ‘Nil’ return can be filed by you for a particular tax period, if the registered person has not made any outward supply (commonly known as sale) and have NOT received any inward supply (commonly known as purchase) of any goods/ services and do not have any tax liability for that particular tax period. The issue to be discussed in this article as to whether certificate of registration can be cancelled by the Department even NIL return is filed continuously with reference to decided case law.

Case law

In ‘Kali Shankar Enterprises v. Additional Commissioner’ - 2024 (1) TMI 430 - ANDHRA PRADESH HIGH COURT, a show cause notice was issued to the petitioner on 25.01.2022 indicating the proposal of the Department to cancel the registration of the petitioner on the ground - filing NIL returns continuously for a period of more than 6 months. The petitioner did not file reply to the said show cause notice. The proper officer cancelled the registration on 13.12.2023. In the order it has been shown that the petitioner filed reply to the show cause notice on 04.02.2022 whereas the reply has not been filed by the petitioner.

Against this order the registered person filed an appeal before the Appellate Authority. The appeal was dismissed by the Appellate Authority since the petitioner has filed the appeal belatedly. Since the Appellate Authority could not condone the delay for a period allowed by the Act. Therefore the petitioners filed a writ petition before the High Court. The petitioner submitted the following before the High Court-

• In the impugned order the ground for cancellation of the registration certificate is not mentioned.
• The ground mentioned in the show cause notice for cancellation of registration is - filing NIL return continuously for a period more than 6 months which does not fall under Section 29(2).

The Revenue contended that since the appeal was filed belatedly that cannot be condoned by the Appellate Authority the dismissal of the appeal on the ground of delay cannot be faulted.

The High Court considered the submissions of both the parties. The High Court analyzed the provisions of Section 29 of the Act and Rule 22. The High Court observed that from the bare reading of Section 29(2) it is evident that the registration could be cancelled by proper officer on any of the grounds mentioned under Section 29(2). Section 29(2) does not contain any such clause. It is not the case of Department that the NIL returns were filed incorrectly contravening any of the provisions of the GST Act or rules made there under.

The High Court held that the impugned order of cancellation is without jurisdiction and without any valid statutory ground and therefore the same cannot be sustained. The High Court considered the contentions of the Department there the appellate order did not suffer from any illegality because after the condonable period of delay the appellate authority has no jurisdiction to condone the delay and therefore the appellate authority dismissed the appeal. The High Court held that the order of the proper officer and the appellate authority are under challenge. When the first order is issued without jurisdiction the appellate order dismissing the appeal may be on any ground, cannot also be sustained. The High Court allowed the writ petition. However the High Court granted liberty to the Department to initiate fresh proceedings if so required as per law.