2025 (5) TMI 382 - HC - GST

Cancellation of GST registration of petitioner without due application of mind - failure to furnish returns for a continuous period of six months - non-speaking order - violation of principles of natural justice - HELD THAT - Under the GST regime a registered assessee is required to pay the statutory dues under the CGST Act or the SGST Act as the case may be or both. These statutory dues are required to be paid by all the assessees who are registered under the GST regime mandatorily. Such payments of statutory dues contribute towards the State Exchequer. If a taxable person like the petitioner is not included within the GST regime then any statutory dues that may be required to be deposited by an assessee like the petitioner would not be deposited and properly accounted for and such a situation is albeit not in the interest of the revenue. It is pertinent to note that in the Statement Table in the Order dated 18.03.2023 no Central Tax/State Tax/Union Territory Tax/ Cess is shown as due. At the same time cancellation of GST registration would entail adverse civil consequences to the person affected as due to cancellation of her registration under the GST regime she would be outside it and it would be difficult for the person to carry on any business in a valid manner. It is not in doubt that the impugned Order dated 18.03.2023 whereby the petitioner s GST registration has been cancelled is an order which has the consequence of bringing adverse consequences to the petitioner - When the contents of the impugned Order dated 18.03.2023 are looked at it is found that in the impugned Order the Proper Officer has not assigned any reason as to why the petitioner s GST Registration has been cancelled. It is implicit in the principles of natural justice and fair play that an adjudicating authority should record reasons as it is part of fair procedure more particularly when the decision is likely to affect the right of the person concerned. Recording of reason is also prima facie suggestive of conscious application of mind on the part of the authority. The obligation to record reasons is a possible check against arbitrary action on the part of the adjudicating authority invested with the statutory power to take a decision which is likely to affect the right of the person concerned. When the statute itself contains a prescription to record reasons in the decision absence of reasons in the decision falls short of the prescription and would be in violation of the prescription and thus illegal. A look at FORM GST REG-19 also goes to substantiate that the Proper Officer is obligated to record his reason s for taking the action of cancellation of GST Registration. The impugned Order dated 18.03.2023 is not a speaking order. As such the impugned Order dated 18.03.2023 is found to be one which is passed without any application of mind. For the afore-stated reasons the impugned Order dated 18.03.2023 cannot stand the scrutiny of law and is liable to be set aside and quashed. Conclusion - The cancellation of GST registration must be preceded by a speaking order assigning valid reasons and following due procedure including proper service of notice and opportunity of hearing. Failure to comply with these requirements renders the cancellation order invalid and subject to judicial review and quashing. Petition allowed.

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

1. Whether the cancellation of GST Registration under the CGST Act, 2017 was carried out in accordance with the prescribed statutory procedure and principles of natural justice.

2. Whether the impugned Order of cancellation is a speaking order that assigns valid reasons for cancellation as mandated by the CGST Rules, particularly Rule 22.

3. Whether the petitioner was given a fair opportunity to respond to the Show Cause Notice and participate in the cancellation proceedings.

4. Whether the petitioner's failure to file GST returns for a continuous period of six months justifies cancellation of registration under Section 29(2)(c) of the CGST Act and Rule 21(h) of the CGST Rules.

5. Whether the delay in approaching the Court for relief militates against the petitioner's entitlement to challenge the cancellation order.

6. What relief and directions are appropriate in light of the procedural deficiencies identified in the cancellation process.

Issue-wise Detailed Analysis:

1. Validity of Cancellation Procedure and Compliance with Statutory Requirements

The Court examined the relevant legal framework under the CGST Act, 2017 and the CGST Rules, 2017. Section 29(2)(c) empowers the Proper Officer to cancel GST registration if a registered person fails to furnish returns for a continuous period of six months. Rule 21(h) prescribes non-filing of returns for six continuous months as a ground for cancellation. Rule 22 prescribes the detailed procedure for cancellation, including issuance of a Show Cause Notice in FORM GST REG-17, opportunity to reply in FORM REG-18, and issuance of a speaking order of cancellation in FORM GST REG-19.

The Court noted that the Show Cause Notice dated 14.01.2023 was issued suspending the petitioner's registration and directing the petitioner to reply within thirty days and appear for personal hearing. However, the Show Cause Notice failed to specify the exact period of non-filing of returns, which is a material omission. The petitioner contended that the Show Cause Notice was not served manually and was only uploaded on the common portal, which escaped her notice, resulting in no reply being filed and no personal hearing attended.

The impugned cancellation order dated 18.03.2023 was found to be non-compliant with Rule 22(3) as it was not issued in FORM GST REG-19 and did not assign any reasons for cancellation. The order merely stated that the petitioner's registration was liable to be cancelled but did not specify the grounds or reasons, nor did it mention the period of default. The Court emphasized that a speaking order is mandatory to demonstrate application of mind and to comply with principles of natural justice.

The Court held that the absence of a speaking order and failure to specify the period of default rendered the cancellation order illegal and arbitrary. The Court further observed that the petitioner's assertion that no reply was filed and no personal hearing was attended was not controverted by the respondents, indicating a procedural lapse on the part of the Proper Officer.

2. Requirement of a Speaking Order and Application of Mind

The Court analyzed the concept of a speaking order and its significance in administrative adjudications. A speaking order must explicitly state the reasons for the decision, reflecting conscious application of mind and ensuring transparency and fairness. The Court found that the impugned order was a non-speaking order as it failed to assign any reasons for cancellation, contrary to the mandatory requirement under Rule 22(3) and FORM GST REG-19.

The Court underscored that even if the petitioner did not respond to the Show Cause Notice or attend the hearing, the Proper Officer is still obligated to pass a reasoned order. The absence of reasons amounted to non-application of mind and arbitrariness, violating the principles of natural justice and rendering the order liable to be quashed.

3. Opportunity to Respond and Personal Hearing

The Court found that the petitioner was directed to reply and appear for personal hearing but was unable to do so due to non-receipt of the Show Cause Notice by any means other than the common portal. The petitioner's claim of ignorance of the Show Cause Notice was supported by the lack of any reply or appearance on record and was not disputed by the respondents. The Court noted that the statutory procedure requires proper service of notice to enable the registered person to exercise the right to be heard effectively.

Given the procedural irregularities and absence of evidence of the petitioner's participation, the Court held that the petitioner was denied a fair opportunity of hearing, which vitiates the cancellation order.

4. Justification for Cancellation Based on Non-filing of Returns

The statutory provisions under Section 29(2)(c) and Rule 21(h) clearly provide for cancellation of registration if returns are not filed for six continuous months. The respondents submitted that the petitioner failed to file returns, justifying cancellation. The petitioner explained that the non-filing was during the Covid-19 pandemic period when the business was adversely affected and returns were nil.

The Court acknowledged the statutory power to cancel registration for non-filing but emphasized that such power must be exercised following due procedure and after affording opportunity to the registered person to explain and rectify the default. The Court found that the impugned order was silent on these aspects and that the petitioner's explanation was not considered in a reasoned manner.

5. Delay in Filing Writ Petition

The respondents contended that the writ petition was filed with delay of about one year from the date of cancellation. The Court considered this objection but held that the procedural infirmity of passing a non-speaking order with no reasons and denial of opportunity to be heard outweighed the delay. The Court reasoned that the adverse consequences of cancellation on the petitioner's business and rights necessitated judicial intervention despite the delay.

6. Relief and Directions

In view of the procedural defects, the Court set aside and quashed the impugned cancellation order dated 18.03.2023. The matter was remanded to the stage of issuance of the Show Cause Notice in FORM GST REG-17.

The Court directed that the petitioner be granted one month to either submit a reply to the Show Cause Notice showing cause why registration should not be cancelled or furnish all pending returns along with payment of tax dues, interest, late fees, and penalties, if any.

The Proper Officer was directed to provide the petitioner with details of outstanding dues upon request and thereafter proceed in accordance with the statutory procedure under Section 29 of the CGST Act and Rule 22 of the CGST Rules to pass an appropriate reasoned order either in FORM GST REG-19 (cancellation) or FORM GST REG-20 (dropping proceedings), within one month of receipt of the petitioner's response.

Significant Holdings:

"An adjudicating authority exercising statutory power of cancelling registration under the CGST Act must record reasons for its decision, unless such obligation is expressly or impliedly dispensed with. It is implicit in the principles of natural justice and fair play that an adjudicating authority should record reasons as it is part of fair procedure, more particularly, when the decision is likely to affect the right of the person concerned."

"If an order is passed without giving a reason by the concerned authority, then the order is a non-speaking one. Non-speaking order is one which does not provide a clear reason for its decision... any order which brings adverse consequence to a person cannot be a mere paper formality."

"The absence of reasons in the decision falls short of the prescription and would be in violation of the prescription and thus, illegal."

"The impugned Order dated 18.03.2023 is found to be one which is passed without any application of mind... cannot stand the scrutiny of law and is liable to be set aside and quashed."

"When the extent of vulnerability of the order of cancellation of registration is due to not meeting the statutory prescription of recording reasons is pitted against the delayed approach, the vulnerability of the order of cancellation of registration, due to statutory breaches, would far outweigh the delayed approach because of its likely adverse affect on a registered person."

The Court thus established the core principle that cancellation of GST registration must be preceded by a speaking order assigning valid reasons and following due procedure, including proper service of notice and opportunity of hearing. Failure to comply with these requirements renders the cancellation order invalid and subject to judicial review and quashing. The Court also emphasized the importance of balancing procedural compliance and substantive justice, especially in cases where cancellation has severe adverse consequences on the business and rights of the registered person.

← Previous Next →