2020 (3) TMI 477 - HC - GST

Court quashes cancellation order under Sec. 29(2)(c) of CGST Act due to insufficient default period

The court quashed the cancellation order under Sec. 29(2)(c) of the CGST Act due to the lack of a continuous six-month default at the time of the order. ... Cancellation of registration - continuous six months' default - furnishing of returns - show cause notice - jurisdictional fact - opportunity of being heard - natural justiceContinuous six months' default - jurisdictional fact - Cancellation of registration - show cause notice - furnishing of returns - Validity of the cancellation order where the statutory requirement of continuous six months' non-filing of returns existed at the show-cause stage but not at the stage of passing the final cancellation order. - HELD THAT: - The Court examined whether the essential jurisdictional fact of a continuous six months' default in filing returns under Sec. 29(2)(c) of the CGST Act was present when the final cancellation order (Ext.P-3) was passed. It was undisputed that on the date of issuance of the show-cause notice (Ext.P-1 dated 13.11.2019) there was a continuous six months' default, which justified issuance of the notice. However, the petitioner filed the return for May, 2019 on 10.12.2019 (Ext.P-2), the same date on which the 4th respondent passed the cancellation order. Consequently, as on 10.12.2019 the petitioner was in default for only five continuous months and not the mandatory six months required by Sec. 29(2)(c). The Court held that the requirement of six months' continuous default must be satisfied not only at the show-cause stage but also at the stage of passing the final order; absence of that jurisdictional fact when the final order is made renders the cancellation order illegal and ultra vires. The Court noted that the 4th respondent could not be faulted for being unaware of the return filed electronically on the same date, and that the petitioner had not informed the officer of the filing. The decision was confined to this limited jurisdictional question and did not preclude the competent officer from proceeding afresh in accordance with law, ensuring compliance with principles of fairness and natural justice. [Paras 7, 11, 12]The impugned cancellation order (Ext.P-3) dated 10.12.2019 is quashed because the statutory requirement of continuous six months' non-filing of returns under Sec. 29(2)(c) was not satisfied at the time the final order was passed; the assessing authority may proceed afresh in accordance with law after observing fairness and natural justice.Final Conclusion: Writ petition allowed in part; the cancellation order dated 10.12.2019 is quashed on the limited ground that the jurisdictional requirement of six months' continuous non-filing of returns was lacking on the date the final order was passed; the tax authority remains free to take further action consistent with law and with observance of fairness and natural justice. Issues Involved:1. Legality of the cancellation of GST registration under Sec. 29(2)(c) of the CGST Act.2. Compliance with procedural requirements for cancellation of registration.3. Jurisdictional facts for invoking the cancellation power.Detailed Analysis:1. Legality of the Cancellation of GST Registration under Sec. 29(2)(c) of the CGST Act:The petitioner, an assessee of goods and services tax, defaulted in filing returns from May 2019 onwards due to a financial crisis. The 4th respondent issued a notice (Ext.P-1) proposing to cancel the registration under Sec. 29(2)(c) of the CGST Act for non-filing of returns for a continuous six-month period. The petitioner contended that as of the date of the notice (13.11.2019), there was only a five-month continuous default, not the mandatory six months. The petitioner filed the return for May 2019 on 10.12.2019, the same day the cancellation order (Ext.P-3) was issued. The court found that as of 10.12.2019, the petitioner had only a five-month continuous default, not six months, making the cancellation order illegal and ultra vires.2. Compliance with Procedural Requirements for Cancellation of Registration:Sec. 29(2) of the CGST Act and Rule 22 of the CGST Rules outline the procedural requirements for cancelling registration. The proper officer must issue a notice requiring the assessee to show cause within seven working days. The petitioner argued that the cancellation order was issued without considering the return filed on 10.12.2019. The court noted that the proper officer could not have known about the return filed on the same day. However, since the petitioner had only a five-month default as of 10.12.2019, the procedural requirements were not met, and the cancellation was invalid.3. Jurisdictional Facts for Invoking the Cancellation Power:Sec. 29(2)(c) mandates a continuous six-month default for cancelling registration. The court emphasized that this requirement must be met both at the time of issuing the show cause notice and the final cancellation order. In this case, the jurisdictional fact of six months' continuous default was fulfilled at the time of the notice (13.11.2019) but not at the time of the cancellation order (10.12.2019). The court held that the absence of this jurisdictional fact at the time of the final order rendered the cancellation illegal.Conclusion:The court quashed the cancellation order (Ext.P-3) due to the lack of a continuous six-month default at the time of the order. The court clarified that it only decided on the jurisdictional fact for invoking Sec. 29(2)(c) and that the competent officer could proceed in accordance with the law if the petitioner subsequently defaulted for six continuous months. The writ petition was disposed of with these observations and directions.