2025 (6) TMI 922 - HC - GST

Cancellation of GST registration - non-filing of GST returns for a continuous period of six months - case decided ex-parte - no date for personal hearing was ever notified - violation of principles of natural justice - 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. 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. 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

1. ISSUES PRESENTED and CONSIDERED

- Whether the cancellation of the petitioner's GST registration under Section 29(2)(c) of the CGST Act, 2017 for non-filing of returns for a continuous period of six months was valid and in accordance with law.

- Whether the procedure prescribed under Rule 22 of the CGST Rules, 2017, particularly the issuance of a show cause notice and opportunity for reply, was properly followed before cancellation.

- Whether the petitioner was entitled to seek restoration of GST registration despite the expiry of statutory limitation periods for revocation of cancellation under Section 30 and for filing appeal under Section 107 of the AGST Act, 2017.

- The scope and applicability of the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017, which allows dropping of cancellation proceedings upon compliance by the registered person.

- The authority and jurisdiction of the proper officer to restore GST registration upon fulfillment of prescribed conditions after cancellation.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of GST registration cancellation under Section 29(2)(c)

The legal framework under Section 29(2)(c) of the CGST Act, 2017 empowers a proper officer to cancel the registration of a person who has not furnished returns for a continuous period of six months or more. The petitioner's registration was cancelled on this ground by the Deputy Commissioner of State Tax, Dibrugarh-I, as per the impugned order dated 10.08.2021.

The Court noted that the petitioner admittedly failed to file GST returns for the stipulated period, which is a statutory ground for cancellation. The cancellation was thus prima facie in conformity with the statutory mandate. However, the Court examined whether procedural safeguards under the relevant rules were observed.

Issue 2: Compliance with procedural requirements under Rule 22 of the CGST Rules, 2017

Rule 22 prescribes the procedure for cancellation of registration. Sub-rule (1) mandates issuance of a show cause notice in FORM GST REG-17, requiring the registered person to show cause within seven working days why registration should not be cancelled. Sub-rule (2) requires the reply in FORM REG-18 within the specified period. Sub-rule (4) provides that if the reply is satisfactory or if the person furnishes all pending returns and pays dues, the proceedings shall be dropped by passing an order in FORM GST REG-20.

The petitioner argued that no date for personal hearing was notified and that he was not accustomed to online procedures, resulting in non-filing of reply within seven days. The Court observed that while the show cause notice mentioned a seven-day period to reply and warned of ex-parte decision, no personal hearing date was fixed. This procedural lapse was noted, but the Court did not invalidate the cancellation on this ground alone.

The Court emphasized that the petitioner's failure to respond and file returns was the root cause of cancellation. However, the procedural safeguards aim to afford opportunity to the registered person before cancellation.

Issue 3: Effect of expiry of limitation for revocation and appeal

Section 30 of the AGST Act, 2017 prescribes a 30-day period for filing an application for revocation of cancellation, and Section 107 prescribes a three-month period for filing appeal against cancellation orders. The petitioner admitted that these limitation periods had expired and no application or appeal was filed within time.

The Court noted that the appellate authority lacks jurisdiction to condone delay beyond one month after expiry of three months, effectively barring the petitioner from statutory remedies. Consequently, the petitioner resorted to filing the writ petition before the High Court.

Issue 4: Applicability of proviso to sub-rule (4) of Rule 22 and scope for restoration

The Court extensively analyzed the proviso to sub-rule (4) of Rule 22, which provides that if the person furnishes all pending returns and pays full tax dues along with interest and late fees, the proper officer shall drop the cancellation proceedings and pass an order in FORM GST REG-20.

This provision was held to be a significant safeguard that allows restoration of registration even after cancellation on grounds of non-filing, provided compliance is made. The Court relied on a recent order in a similar writ petition where restoration was granted on similar facts.

The Court interpreted this proviso as empowering the proper officer to consider restoration applications and drop cancellation proceedings, thereby providing a remedial mechanism beyond the strict limitation periods for revocation or appeal.

Issue 5: Authority and jurisdiction of the proper officer to restore registration

The Court held that the proper officer, duly empowered under the CGST Act and Rules, has the authority and jurisdiction to restore the GST registration upon the petitioner furnishing all pending returns and making full payment of tax dues with applicable interest and late fees.

The Court directed the petitioner to approach the concerned authority within two months from the date of the order for restoration, and mandated the authority to consider the application in accordance with law and take necessary steps expeditiously.

3. 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."

Core principles established include the recognition of procedural safeguards under Rule 22, the remedial opportunity for restoration despite expiration of statutory limitation periods for revocation and appeal, and the discretion of the proper officer to restore registration upon compliance by the registered person.

The final determination was that the cancellation was valid but not irreversible; the petitioner was entitled to approach the proper officer for restoration by fulfilling the conditions prescribed, and the authority was directed to consider such application expeditiously.