Gujarat HC quashes GST registration cancellation for violating natural justice despite six months non-filing of returns under section 29(2)(c)

Gujarat HC quashed GST registration cancellation order despite petitioner's non-filing of returns for six months. Court found violation of natural justice principles as authorities suspended registration without hearing opportunity or recording reasons. Though petitioner violated GST Act provisions warranting cancellation under section 29(2)(c), court considered petitioner's payment of GST with interest and penalty, willingness to comply with GST provisions, and readiness to file undertaking. Show cause notice and cancellation order were set aside, petition allowed.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

• Whether the impugned show-cause notice dated 09.11.2022, issued under section 29(2)(c) of the Gujarat Goods and Services Tax Act, 2017 ("GST Act") for cancellation of registration on account of non-filing of returns for a continuous period of six months, was validly issued without providing an opportunity of hearing or recording reasons;
• Whether the subsequent ex-parte order dated 16.02.2023 cancelling the petitioner's GST registration with effect from 31.03.2022 was legally sustainable;
• Whether the petitioner's failure to file GST returns was excusable due to the absence of communication from the Chartered Accountant and whether the petitioner's subsequent payment of outstanding GST dues, interest, and fees could entitle it to relief;
• Whether the repeated history of non-compliance by the petitioner with GST return filing and payment obligations justified the cancellation of registration without further consideration of the petitioner's revocation application;
• The extent of discretion available to the authorities and the Court in considering revocation of cancellation of GST registration under the GST Act and Rules, especially in light of the petitioner's willingness to comply with statutory requirements going forward.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of the Show-Cause Notice and Cancellation Order

The legal framework governing cancellation of GST registration for non-filing of returns is provided under section 29(2)(c) of the GST Act and Rule 22(1) of the GST Rules. Section 29(2)(c) empowers the proper officer to cancel registration if returns have not been filed for a continuous period of six months. The procedural safeguards require issuance of a show-cause notice and an opportunity of hearing before cancellation.

The Court noted that the impugned show-cause notice dated 09.11.2022 was system-generated and uploaded on the GST Portal, suspending the registration immediately without any recorded reasons or prior hearing opportunity. The petitioner was unaware of the notice due to the Chartered Accountant's absence and thus did not file a reply. Consequently, the cancellation order dated 16.02.2023 was passed ex-parte.

The Court observed that the impugned notice and order were cryptic, lacking detailed reasons. Reliance was placed on a precedent from this Court which condemned such stereotyped and mechanical orders in GST cancellation proceedings. The absence of a meaningful opportunity to be heard and failure to record reasons rendered the impugned show-cause notice and cancellation order legally infirm.

Petitioner's Non-Filing of Returns and Subsequent Payment of Dues

The petitioner contended that the non-filing of returns for the relevant period was due to the Chartered Accountant's departure from India without informing the petitioner, which prevented awareness of the show-cause notice. Although the petitioner failed to file returns from April 2022 onwards, it subsequently paid substantial GST dues amounting to Rs. 32,12,410/-, interest of Rs. 5,28,902/-, and late fees of Rs. 2,96,000/-.

The petitioner also submitted that further payments were made on 24.04.2024 and 28.01.2025 towards outstanding GST amounts, interest, and fees. The petitioner expressed willingness to comply with the GST Act and Rules going forward and offered to file an undertaking to that effect.

The Court recognized that the petitioner's failure to file returns was a breach of statutory obligations but noted the remedial payments made and the expressed commitment to future compliance. The petitioner's explanation for non-filing was accepted as a mitigating factor.

Respondent Authorities' Position on Repeated Non-Compliance

The respondent authorities, through affidavit-in-reply, emphasized the petitioner's repeated history of non-compliance. The affidavit detailed three prior occasions where show-cause notices were issued and registration cancelled for non-filing of returns for six months, but subsequently revoked upon filing of outstanding returns:

• First cancellation effective 31.03.2019, revoked on 21.01.2020;
• Second show-cause notice and cancellation proceedings in 2020, dropped after compliance;
• Third show-cause notice in 2022, again dropped after filing returns.

The authorities argued that despite repeated opportunities, the petitioner continued to default, necessitating the fourth cancellation notice and order. They contended that the petitioner's claim of ignorance was unfounded since the registered mobile number and email on the GST Portal belonged to the petitioner, negating the excuse of unawareness due to the Chartered Accountant's absence.

The respondent authorities submitted that the petitioner's conduct demonstrated a pattern of willful non-compliance, and therefore, the cancellation was justified and revocation should not be granted.

Discretion and Relief Under the GST Act

The Court acknowledged the statutory power of cancellation under section 29(2)(c) but also recognized the remedial provisions allowing revocation of cancellation upon fulfillment of conditions. The Court considered the petitioner's willingness to file an undertaking and comply with the law going forward as a relevant factor.

Balancing the petitioner's past defaults against the payments made and the expressed commitment to future compliance, the Court exercised its discretion to quash the impugned show-cause notice and cancellation order. The Court directed the petitioner to file an application for revocation of cancellation within four weeks, and mandated the respondent authorities to consider the application in accordance with law, explicitly ignoring prior litigation and conduct.

The Court also imposed a nominal cost of Rs. 5,000/- payable to the Gujarat State Legal Services Authority, reflecting the petitioner's partial responsibility for the litigation.

Treatment of Competing Arguments

The Court carefully weighed the respondent authorities' concerns regarding repeated non-compliance and the need to uphold the integrity of the GST system against the petitioner's arguments of inadvertent default and subsequent compliance. The Court found that while the petitioner's defaults were serious, the procedural irregularities in issuing the show-cause notice and passing the cancellation order without hearing or reasons warranted intervention.

The Court rejected the respondent's contention that the petitioner's excuse of unawareness was "absolutely incorrect" on the basis that the registered contact details were in the petitioner's name, instead focusing on the overall fairness and procedural propriety. The Court's approach balanced strict compliance with the GST Act against principles of natural justice and equitable relief.

3. SIGNIFICANT HOLDINGS

"The impugned show cause notice dated 09.11.2022 and impugned order dated 16.02.2023 are hereby quashed and set aside."

"The petitioner is directed to file application for revocation of the cancellation of the GST registration within a period of four weeks from today and on receipt of such application, the respondent-authorities are directed to consider the same in accordance with law ignoring the earlier litigation, orders and the conduct of the petitioner."

"The petitioner shall file an undertaking that henceforth, the petitioner shall be regular in filing GST return as per the provisions of the GST Act and the Rules and shall also regularly deposit the GST on the provisional income of the petitioner."

Core principles established include:

• The requirement that cancellation of GST registration under section 29(2)(c) must be preceded by a valid show-cause notice with reasons and an opportunity to be heard;
• System-generated notices without recorded reasons or hearing may be set aside as violative of principles of natural justice;
• Repeated non-compliance is a relevant factor but does not preclude consideration of revocation applications if the petitioner remedies defaults and undertakes future compliance;
• The Court's discretion to balance strict statutory compliance with equitable relief and procedural fairness, especially when the petitioner demonstrates willingness to comply;
• Respondent authorities must consider revocation applications on merits, ignoring past conduct if the petitioner fulfills conditions under the GST Act and Rules.

The final determination was that the impugned notice and order were quashed, and the petitioner was permitted to seek revocation of cancellation, subject to compliance and undertaking, with costs imposed on the petitioner.

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