2025 (4) TMI 929 - HC - GST

Cancellation of GST registration under Section 29(2)(c) of the CGST Act 2017 - non-filing of returns for a continuous period of six months - 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. 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.

Summary

The core legal questions considered by the Court include:

1. Whether the cancellation of GST registration under Section 29(2)(c) of the CGST Act, 2017, on account of non-filing of returns for a continuous period of six months or more, was validly effected.

2. Whether the procedural requirements under Rule 22 of the CGST Rules, 2017, particularly the issuance of a show cause notice and opportunity for hearing, were complied with.

3. Whether the petitioner, despite the cancellation, retains the right or remedy to seek restoration of GST registration by furnishing pending returns and payment of dues as per the proviso to sub-rule (4) of Rule 22.

4. The applicability of the timelines and procedural safeguards under the CGST Act and Rules, including the limitation period for filing revocation applications and appeals.

5. The extent of the authority and jurisdiction of the proper officer to drop cancellation proceedings upon compliance by the taxpayer with pending returns and payment of dues.

Issue-wise Detailed Analysis

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

The legal framework under Section 29(2)(c) empowers a proper officer to cancel the GST registration of a person who has not furnished returns for a continuous period of six months. Rule 22 of the CGST Rules, 2017, prescribes the detailed procedure for such 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).

The Court examined whether the procedural steps were adhered to, noting that the petitioner was served with a show cause notice requiring a reply within seven working days but was not notified of any personal hearing date. The petitioner failed to file returns for over six months, which is a statutory ground for cancellation.

The Court observed that the absence of a personal hearing date notification, while noted, did not invalidate the cancellation since the show cause notice explicitly stated that failure to reply or appear would result in ex parte decision based on available records. The cancellation order was issued accordingly.

Thus, the Court upheld the validity of the cancellation under the statute and rules, subject to the procedural safeguards embedded in the show cause notice.

Issue 2: Procedural Compliance and Opportunity for Hearing

Rule 22(1) mandates issuance of a show cause notice with a seven-working-day period for reply. The petitioner contended that due to unfamiliarity with the online GST portal, he did not access the notice timely and missed the opportunity to reply or appear for hearing.

The Court noted that the show cause notice did not specify a hearing date, but the notice itself warned that non-response would lead to ex parte decision. The Court interpreted this as sufficient procedural compliance, given the statutory framework and the petitioner's responsibility to monitor communications.

Further, the Court emphasized that the petitioner's inability to file a revocation application within the prescribed 270-day timeline was a consequence of the elapsed limitation period, which is strictly enforced under the law.

Issue 3: Right to Seek Restoration of GST Registration under Proviso to Sub-rule (4) of Rule 22

The proviso to sub-rule (4) of Rule 22 provides that if a person served with a cancellation show cause notice furnishes all pending returns and makes full payment of tax dues, including interest and late fees, the proper officer shall drop the cancellation proceedings and pass an order in Form GST REG-20.

The petitioner expressed willingness to comply with these requirements despite the cancellation order having been passed. The Court recognized this proviso as a crucial remedial provision that enables restoration of registration even after cancellation, provided the taxpayer fulfills the conditions.

The Court relied on this provision to hold that the petitioner retains the right to approach the proper officer for restoration by submitting all pending returns and dues. The officer is empowered and obliged to consider such application and drop the cancellation proceedings accordingly.

Issue 4: Applicability of Timelines and Procedural Safeguards under the CGST Act and Rules

The petitioner's attempt to file a revocation application was rejected due to expiry of the 270-day timeline. The Court observed that such limitation periods are mandatory and cannot be extended beyond the statutory timeframe.

However, the Court clarified that the petitioner may still seek restoration under the proviso to Rule 22(4), which is a separate and distinct remedy from revocation of cancellation under Section 29.

Additionally, the Court directed that the period under Section 73(10) of the CGST Act for recovery of arrears shall be computed from the date of the judgment, except for the financial year 2024-25, which shall follow Section 44 of the Act.

Issue 5: Authority and Jurisdiction of the Proper Officer to Drop Cancellation Proceedings

The Court emphasized that the proper officer, upon receipt of all pending returns and full payment of tax dues with interest and late fees, has the authority to drop cancellation proceedings and restore registration by passing an order in Form GST REG-20.

This authority is mandatory and not discretionary once the taxpayer complies with the conditions. The Court underscored the serious civil consequences of cancellation and the importance of enabling taxpayers to regularize their status through this provision.

The Court accordingly directed the petitioner to approach the concerned authority within two months to seek restoration, which the authority must consider expeditiously and in accordance with law.

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."

"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 his GST registration in accordance with law and shall take necessary steps for restoration of GST registration of the petitioner as expeditiously as possible."

The Court thus established the principle that cancellation of GST registration for non-filing of returns is valid if procedural requirements are met, but the taxpayer is entitled to restore registration by complying with pending return filings and payment of dues within a reasonable timeframe. The authority is mandated to consider such restoration applications and drop cancellation proceedings accordingly.