GST registration cancellation quashed for non-filing returns, matter remanded to show-cause stage under Section 39

Gujarat HC quashed GST registration cancellation order dated 14.07.2022 and subsequent appellate/rejection orders in case involving non-filing of returns for continuous six months period. Matter remanded to respondent authority at show-cause notice stage. Petitioner directed to file belated returns from April 2020 onwards under Section 39 GST Act. Authority must consider returns if petitioner pays outstanding tax with interest and penalty. Respondent can take appropriate legal proceedings except for non-filing returns exceeding six months ground.

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1. ISSUES PRESENTED and CONSIDERED

- Whether the order of cancellation of GST registration under Section 29 of the GST Act on account of non-filing of returns for a continuous period of six months is valid, particularly when the petitioner failed to file returns due to Covid-19 pandemic-related business disruptions.

- Whether the Appeal preferred under Section 107 of the GST Act against the cancellation order can be rejected solely on the ground of delay in filing the Appeal.

- Whether the revocation application of the cancelled GST registration can be rejected without providing the petitioner an opportunity of hearing and without considering the petitioner's submissions and ability to file belated returns with applicable late fees and penalties.

- Whether the procedural requirements and principles of natural justice were complied with in issuing the show-cause notice, passing the cancellation order, and rejecting the revocation application, especially in light of guidelines laid down by the Court in prior decisions.

- Whether the petitioner is liable to pay outstanding tax dues, interest, and penalties for the period of non-filing of returns, and the manner in which such dues should be computed and recovered.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Cancellation of GST Registration under Section 29 for Non-filing of Returns Due to Covid-19 Pandemic

Relevant legal framework includes Section 29 of the GST Act which empowers cancellation of registration if a registered person fails to file returns for a continuous period of six months. The petitioner admitted non-filing of returns for over six months during 2020-2021 due to the Covid-19 pandemic which caused business losses and standstill.

The Court noted that the cancellation order dated 14.07.2022 was passed on the ground of continuous non-filing of returns. However, the petitioner contended that the failure was due to extraordinary circumstances (pandemic) and that there were no outstanding dues mentioned in the cancellation order.

The Court emphasized that while the statutory provision mandates cancellation for non-filing, the circumstances such as pandemic-related disruptions must be considered, and the petitioner should be given an opportunity to file belated returns with applicable late fees and penalties.

The respondent-Authority's reliance on data indicating dealings with non-existing firms and fake invoices was also scrutinized, but the Court observed that such grounds were not part of the original show-cause notice and thus violated principles of natural justice.

Issue 2: Rejection of Appeal on Ground of Delay

The petitioner's Appeal under Section 107 was rejected on 24.01.2024 citing delay in filing. The Court considered whether such rejection was justified without examining the merits.

It was held that procedural lapses or delay should not lead to outright dismissal without considering the substantive rights of the petitioner, especially when the delay may be attributable to pandemic-related hardships. The Court allowed amendment of the petition and did not uphold the rejection solely on delay.

Issue 3: Rejection of Revocation Application Without Opportunity of Hearing

The petitioner filed applications for revocation of cancellation, which were rejected by respondent No. 2 on 15.03.2024 based on GSTN portal data alleging involvement with fake invoices. The petitioner argued that this rejection was on grounds different from the original show-cause notice and without any opportunity of hearing.

The Court relied heavily on the precedent established in the decision of this Court in the case of Aggrawal Dyeing & Printing, which laid down clear guidelines for authorities to issue show-cause notices and final orders containing all necessary particulars and to provide physical notices to the dealer by RPAD. The Court emphasized that reliance on evidence not disclosed to the petitioner violates natural justice.

The Court found that the rejection of revocation without affording a hearing and without allowing the petitioner to file belated returns and pay dues was contrary to these principles. It directed that the petitioner be given a fair opportunity to respond and comply with statutory requirements.

Issue 4: Compliance with Procedural and Natural Justice Requirements

The Court underscored the importance of strict adherence to procedural safeguards to prevent unnecessary litigation. It noted that impugned orders often went beyond the scope of the show-cause notice, surprising the dealer by relying on inspection or documentary evidence not previously disclosed.

By referencing the guidelines from the Aggrawal Dyeing & Printing decision, the Court stressed the duty of the authority to provide detailed show-cause notices and final orders in physical form with all particulars and to allow the dealer to respond to all evidence relied upon.

The Court found that the respondent-Authorities failed in this duty in the present case, thereby violating principles of natural justice and necessitating quashing of the impugned orders and remand for fresh proceedings.

Issue 5: Liability to Pay Outstanding Tax, Interest, and Penalty

The respondents contended that the petitioner had a total tax liability of Rs. 9,94,478.68/- based on returns filed for April to June 2020 and was liable to pay outstanding tax, interest, and penalty as per Section 39 of the GST Act.

The Court acknowledged this liability but clarified that the petitioner should be allowed to file belated returns from April 2020 onwards and pay outstanding dues with interest and penalty. The respondent-Authorities were directed to process such returns without rejecting them on the ground of delay.

The Court further directed the petitioner to file an undertaking to file all outstanding returns with dues within four weeks, ensuring compliance with the GST Act.

3. SIGNIFICANT HOLDINGS

- "Until the Department is able to develop and upload an appropriate software in the portal which would enable the Department to feed all the necessary information and material particulars in the show cause notice as well as in the final order of cancellation of registration that may be passed, the authority concerned shall issue an appropriate show cause notice containing all the necessary details and information in a physical form and forward the same to the dealer by RPAD."

- "If the authority wants to rely upon any particular piece of evidence then it owes a duty to first bring it to the notice of the dealer so that if the dealer has anything to say in that regard, he may do so. Even if the authority wants to rely on any documentary evidence, the dealer should be first put to the notice of such documentary evidence and only thereafter, it may be looked into."

- The impugned cancellation order, appellate order rejecting the appeal on delay grounds, and the order rejecting revocation application were quashed and set aside for failure to comply with principles of natural justice and procedural safeguards.

- The matter was remanded to the respondent-Authority at the show-cause notice stage to provide the petitioner an opportunity to file belated returns from April 2020 onwards and pay outstanding tax, interest, and penalty, with the direction not to reject returns on the ground of delay.

- The petitioner was directed to file an undertaking to comply with filing of all outstanding returns and payment of dues within four weeks.

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