2025 (6) TMI 1663 - HC - GST

Cancellation of the petitioner s GST registration - 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 or 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 her 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 the GST registration and passed necessary orders in accordance with law. Petition disposed off.

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 is valid and sustainable.

- Whether the petitioner, having failed to respond to the show cause notice within the stipulated time and having subsequently filed all pending returns along with payment of dues, can seek restoration of GST registration despite the lapse of the prescribed time limit for revocation of cancellation.

- 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 submission of pending returns and full payment of dues.

- The authority and jurisdiction of the proper officer to restore GST registration after cancellation where the taxpayer complies with the conditions laid down in the proviso to sub-rule (4) of Rule 22.

- The procedural safeguards and timelines involved in cancellation, revocation, and restoration of GST registration under the CGST Act and Rules.

2. ISSUE-WISE DETAILED ANALYSIS

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

The legal framework governing cancellation of GST registration is primarily Section 29(2)(c) of the CGST Act, 2017, which empowers the proper officer to cancel registration where a registered person has not furnished returns for a continuous period of six months. Rule 22 of the CGST Rules, 2017 prescribes the procedural safeguards for such cancellation, including issuance of a show cause notice (Form GST REG-17), opportunity to reply (Form GST REG-18), and passing of cancellation order (Form GST REG-19).

The Court noted that the petitioner's registration was cancelled by the Assistant Commissioner of State Tax for non-filing of returns for over six months, following issuance of the requisite show cause notice. The petitioner failed to reply within the stipulated 30 days and did not appear for personal hearing, resulting in an ex-parte order of cancellation.

The Court observed that the cancellation was in accordance with the statutory provisions and procedural requirements, and hence validly passed. The petitioner's inability to respond timely was attributed to unfamiliarity with the online portal, which does not constitute a legally sufficient ground to invalidate the cancellation.

Issue 2: Effect of Subsequent Compliance by the Petitioner and the Time Bar on Revocation of Cancellation

After cancellation, the petitioner updated all pending returns and discharged the tax dues with interest and late fees. However, the petitioner was unable to file an application for revocation of cancellation as the prescribed time limit of 270 days from the date of cancellation order had expired, and an appeal preferred against the cancellation was dismissed.

The Court examined the provisions relating to revocation and restoration of registration post cancellation. While the statutory time limit for filing revocation application had elapsed, the Court considered whether the petitioner's subsequent compliance could nonetheless be entertained under the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017.

Issue 3: Interpretation and Applicability of the Proviso to Sub-rule (4) of Rule 22 of the CGST Rules, 2017

The proviso to sub-rule (4) of Rule 22 stipulates that if a person served with a show cause notice under Section 29(2)(c) furnishes all pending returns and makes full payment of 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.

The Court interpreted this proviso as a substantive safeguard designed to protect taxpayers from harsh consequences of cancellation where they are willing to comply with statutory obligations. The proviso confers discretion on the proper officer to drop proceedings and restore registration upon fulfillment of conditions, even if initial procedural lapses occurred.

The Court found that this provision was directly applicable to the petitioner's case, given her subsequent compliance with all pending returns and dues.

Issue 4: Authority and Jurisdiction of the Proper Officer to Restore GST Registration

The Court held that the proper officer, being duly empowered under the CGST Act and Rules, has the authority and jurisdiction to consider an application for restoration of GST registration upon compliance with the proviso to sub-rule (4) of Rule 22. The officer is mandated to drop cancellation proceedings and pass an order in Form GST REG-20 if all pending returns and dues are submitted.

The Court emphasized that cancellation entails serious civil consequences, and the law provides a remedial mechanism to enable restoration upon compliance, which must be given effect to.

Issue 5: Procedural Directions and Timelines for Restoration

Recognizing the petitioner's predicament, the Court directed that the petitioner shall approach the concerned authority within two months from the date of the order, submitting an application for restoration of GST registration along with all pending returns and full payment of dues including interest and late fees.

The authority was directed to consider the application expeditiously and pass necessary orders preferably within 60 days of receipt of the certified copy of the Court's order.

The Court clarified that the period for computation of tax liability under Section 73(10) of the CGST Act shall commence from the date of the instant order, except for the financial year 2024-25 where Section 44 shall apply.

The petitioner remains liable to pay arrears of tax, penalty, interest, and late fees as applicable.

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 or 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 statutory scheme under the CGST Act and Rules provides for cancellation of GST registration for continuous non-filing of returns for six months, subject to procedural safeguards.

- The proviso to sub-rule (4) of Rule 22 serves as a protective provision allowing restoration of registration upon compliance by the taxpayer with pending returns and dues.

- The proper officer has the jurisdiction and obligation to drop cancellation proceedings and restore registration upon fulfillment of the conditions specified.

- Time limits for revocation applications are subject to the overriding principle of compliance and restoration under the proviso, which can operate even after initial cancellation and dismissal of appeals.

- Courts can direct restoration of registration where the taxpayer demonstrates willingness and ability to comply with statutory obligations, balancing procedural rigor with substantive justice.

The final determination was that the petitioner's GST registration cancellation was validly effected but she is entitled to seek restoration by complying with the conditions in the proviso to sub-rule (4) of Rule 22 within the stipulated time frame directed by the Court, and the proper officer is obliged to consider and decide the application accordingly.