2025 (7) TMI 271 - HC - GST

Challenge to order of cancellation of registration of the petitioner - appeal belatedly filed by the petitioners - HELD THAT - Admittedly it is found that the registration of the petitioner had been cancelled on the ground of non-filing of returns. It is not the case of the respondents that the petitioner had been adopting dubious process to evade tax. Taking note of the fact that the suspension/revocation of license would be counterproductive and works against the interest of the revenue since the petitioner in such a case would not be able to carry on his business in the sense that no invoice can be raised by the petitioner and ultimately would impact recovery of tax the respondents should take a pragmatic view in the matter and permit the petitioner to carry on its business. It is found from the submissions made by the respondents that unless the petitioner files its returns the respondents cannot determine the final liability. Having regard to the aforesaid and taking note of the direction issued by the Hon ble Division Bench of this Court in the case of Subhankar Golder 2024 (5) TMI 1262 - CALCUTTA HIGH COURT it is proposed to set aside the order dated 6th August 2024 cancelling the registration of the petitioner subject to the condition that the petitioner files its returns for the entire period of default and pays requisite amount of tax and interest and fine and penalty. As a sequel thereto the order passed by the Appellate Authority on 21st March 2025 is also set aside. Application disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

• Whether the cancellation of the petitioner's registration under the West Bengal Goods and Services Tax Act, 2017 ("WBGST Act") on the ground of non-filing of returns for a continuous period of six months was valid and justified.
• Whether the petitioner's failure to file returns and respond to the show cause notice warranted cancellation of registration without considering the petitioner's willingness to comply subsequently.
• Whether the authorities' decision to cancel registration without granting adequate opportunity or considering the petitioner's compliance efforts was legally sustainable.
• Whether the registration cancellation order and the subsequent dismissal of the appeal by the Appellate Authority were liable to be set aside, and on what conditions the registration could be restored.
• The appropriate legal and procedural approach to be adopted when a registered person defaults in filing returns under the WBGST Act but expresses willingness to comply and pay due taxes, interest, fines, and penalties.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Cancellation of Registration on Ground of Non-Filing of Returns

Relevant legal framework and precedents: The WBGST Act, 2017, mandates registered persons to file periodic returns. Failure to do so for a continuous period of six months authorizes the tax authorities to cancel registration. The Court relied on a recent Division Bench decision in Subhakar Golder v. Assistant Commissioner of State Tax, which dealt with similar facts and circumstances and held that cancellation orders in such cases could be set aside subject to compliance conditions.

Court's interpretation and reasoning: The Court acknowledged that the petitioner had failed to file returns for the prescribed period, which prima facie justified cancellation under the statutory scheme. However, the Court emphasized that the cancellation of registration has far-reaching consequences, including the inability of the petitioner to raise invoices and conduct business, which ultimately harms the revenue collection process.

Key evidence and findings: The petitioner was served with a show cause notice but did not file a reply. The authorities cancelled the registration after the petitioner's failure to respond and dismissed the belated appeal. There was no allegation or evidence of fraudulent or evasive conduct by the petitioner.

Application of law to facts: The Court balanced the strict statutory mandate against the practical implications of cancellation. It noted that while non-filing justified cancellation, the absence of evasion or mala fide conduct and the petitioner's expressed willingness to comply warranted a pragmatic approach.

Treatment of competing arguments: The State argued that the cancellation was lawful and procedurally proper, given the petitioner's non-compliance and failure to respond to the show cause notice. The petitioner contended that it was willing to comply and that the cancellation order should be set aside in light of the precedent.

Conclusion: The Court concluded that the cancellation order could be set aside subject to the petitioner filing all outstanding returns and paying the requisite tax, interest, fines, and penalties, thereby allowing the petitioner to continue business and ensuring revenue recovery.

Issue 2: Procedural Fairness and Opportunity to Comply

Relevant legal framework and precedents: The principles of natural justice require that a registered person be given an opportunity to show cause before cancellation of registration. The Court referred to the procedural history indicating that a show cause notice was issued and the petitioner failed to respond.

Court's interpretation and reasoning: The Court observed that the petitioner's non-response to the show cause notice was a procedural lapse. However, it also noted that the authorities had provided the opportunity to respond, and the petitioner's failure to do so was not disputed. The Court emphasized that despite this, the authorities should adopt a pragmatic approach to avoid counterproductive consequences.

Key evidence and findings: The petitioner did not file any reply to the show cause notice, and the appeal was dismissed as belated. The Court found no procedural irregularity on the part of the authorities but recognized the petitioner's subsequent willingness to comply.

Application of law to facts: The Court balanced the procedural requirements with the practical need to allow the petitioner to regularize its position, thus preventing undue hardship and ensuring tax recovery.

Treatment of competing arguments: The State maintained that the petitioner had adequate opportunity and that the cancellation was justified. The petitioner requested leniency and restoration of registration on compliance.

Conclusion: The Court held that while procedural requirements were met, a conditional restoration of registration was appropriate to serve the interests of justice and revenue.

Issue 3: Conditions for Restoration of Registration and Compliance

Relevant legal framework and precedents: The Court relied on the precedent set in Subhakar Golder, which allowed restoration of registration subject to filing of returns, payment of taxes, interest, fines, and penalties within a stipulated time frame.

Court's interpretation and reasoning: The Court emphasized that restoration would be conditional and time-bound, ensuring that the petitioner complies fully with statutory obligations. It underscored that failure to comply would result in automatic dismissal of the writ petition and non-restoration.

Key evidence and findings: The petitioner expressed readiness to comply. The Court noted that the authorities cannot determine tax liability without the returns being filed.

Application of law to facts: The Court directed that the petitioner must file all returns for the default period and pay all dues within four weeks from receipt of the order. The jurisdictional officer was directed to restore registration upon compliance.

Treatment of competing arguments: The petitioner sought restoration on compliance; the State did not oppose conditional restoration but insisted on strict adherence to timelines and payment of dues.

Conclusion: The Court ordered conditional restoration of registration, setting out clear compliance requirements and timelines to balance the interests of the petitioner and the revenue authorities.

3. SIGNIFICANT HOLDINGS

The Court held:

"Taking note of the fact that the suspension/revocation of license would be counterproductive and works against the interest of the revenue since, the petitioner in such a case would not be able to carry on his business in the sense that no invoice can be raised by the petitioner and ultimately would impact recovery of tax, I am of the view that the respondents should take a pragmatic view in the matter and permit the petitioner to carry on its business."

"I propose to set aside the order dated 6th August 2024 cancelling the registration of the petitioner subject to the condition that the petitioner files its returns for the entire period of default and pays requisite amount of tax and interest and fine and penalty."

"If the petitioners comply with the directions / conditions noted above, within 4 weeks from the date of receipt of the server copy of this order, the petitioner's registration under the said Act shall be restored by the Jurisdictional Officer. However, if the petitioners fail to comply with the directions as aforesaid, the benefit of this order will not enure to the petitioners and the writ petition would stand automatically dismissed."

Core principles established include:

• Cancellation of registration for non-filing of returns is valid but not absolute; courts may set aside such orders subject to compliance conditions.
• Pragmatism and revenue interest require allowing defaulting taxpayers to regularize their position to enable business continuity and tax recovery.
• Strict timelines and conditions for filing returns and payment of dues must be imposed to balance fairness and statutory compliance.
• Failure to comply with conditions results in automatic