GST Registration Cancellation Allowed with Option to Restore by Filing Pending Returns and Clearing Outstanding Tax Dues

The HC upheld GST registration cancellation under Section 29(2)(c) for non-filing of returns, but provided a remedial pathway. The court directed the petitioner can seek restoration within two months by submitting all pending returns and paying full tax dues with interest. The proper officer must expeditiously consider the restoration application, balancing statutory compliance with procedural fairness.

---

---

1. ISSUES PRESENTED and CONSIDERED

- Whether the cancellation of GST registration under Section 29(2)(c) of the CGST Act, 2017, for non-filing of returns for a continuous period of six months or more, was valid in the present case.

- Whether the procedure prescribed under Rule 22 of the CGST Rules, 2017, particularly the issuance of a show cause notice and opportunity of personal hearing, was complied with before cancellation of the registration.

- Whether the petitioner, despite non-filing of returns, can seek restoration of GST registration by furnishing all pending returns and making full payment of tax dues along with interest and late fees as per the proviso to sub-rule (4) of Rule 22.

- The extent of authority and jurisdiction of the proper officer to drop cancellation proceedings and restore registration upon compliance with statutory requirements.

- The applicability of limitation periods under Section 73(10) and Section 44 of the CGST Act in the context of restoration and arrears payment.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Cancellation of GST Registration under Section 29(2)(c) for Non-Filing of Returns

The legal framework mandates that a registered person who fails to furnish returns for a continuous period of six months is liable to have their registration cancelled under Section 29(2)(c) of the CGST Act, 2017. The Court noted that the petitioner had not submitted GST returns for over six months, which is a statutory ground for cancellation.

The Court observed that the impugned order dated 23.01.2023 was issued by the Superintendent, cancelling the petitioner's registration on this ground. The petitioner admitted non-compliance due to reasons beyond control but expressed willingness to comply forthwith.

Hence, the cancellation was legally permissible under the statute, subject to procedural safeguards.

Issue 2: Compliance with Procedural Requirements under Rule 22 of the CGST Rules, 2017

Rule 22 prescribes the procedure for cancellation of registration, including issuance of a show cause notice in FORM GST REG-17 with a seven working day period to respond, submission of reply in FORM REG-18, and issuance of cancellation order in FORM GST REG-19. The Rule also provides for dropping proceedings if the reply is satisfactory or if the person furnishes all pending returns and pays dues (proviso to sub-rule (4)).

The petitioner contended that although a show cause notice was issued, no date for personal hearing was notified, raising procedural irregularity concerns. However, the Court did not find this omission fatal, given the statutory provisions do not explicitly mandate personal hearing but require an opportunity to show cause.

The Court emphasized that the proper officer must follow the procedure laid down in Rule 22, including issuing notices and considering replies before cancellation.

Issue 3: Authority of Proper Officer to Drop Proceedings and Restore Registration upon Compliance

The proviso to sub-rule (4) of Rule 22 is pivotal. It states that if the person furnishes all pending returns and makes full payment of tax dues with applicable interest and late fees, the proper officer "shall drop the proceedings and pass an order in FORM GST REG-20."

The Court interpreted this proviso as conferring authority on the officer to restore registration if the petitioner complies with these conditions, even after cancellation under Section 29(2)(c).

This interpretation aligns with the remedial purpose of GST laws to encourage compliance rather than impose harsh penalties without recourse.

Issue 4: Restoration of GST Registration and Time Limit for Filing Revocation Application

The petitioner was unable to file an application for revocation of cancellation within the prescribed time limit. The Court acknowledged this but held that the petitioner could still approach the proper officer within two months from the date of the judgment to seek restoration by furnishing all pending returns and making payment of dues.

The Court directed the concerned authority to consider such application expeditiously and in accordance with law, thereby providing a practical remedy despite the lapse of the original time limit.

Issue 5: Computation of Limitation Periods under Sections 73(10) and 44 of the CGST Act

The Court clarified that the limitation period under Section 73(10) for recovery of tax dues shall be computed from the date of this judgment, except for the financial year 2024-25, for which Section 44 applies. This ensures clarity on the timeline for assessment and recovery proceedings post-restoration.

The petitioner remains liable to pay arrears including tax, penalty, interest, and late fees, consistent with the statutory provisions.

Treatment of Competing Arguments

The petitioner argued for leniency and restoration based on willingness to comply and procedural lapses, while the respondent relied on strict statutory provisions for cancellation due to non-filing. The Court balanced these by upholding the statutory cancellation but allowing restoration upon compliance, emphasizing procedural fairness and statutory authority.

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 and 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."

"The petitioner shall approach the concerned authority within a period of 2 (two) months from today seeking restoration of his 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 his GST registration in accordance with law and shall take necessary steps for restoration of GST registration of the petitioner as expeditiously as possible."

Core principles established include the mandatory procedural safeguards under Rule 22 before cancellation, the remedial power of the proper officer to restore registration upon compliance, and the recognition of serious civil consequences entailed by cancellation, mandating fair opportunity for restoration.

Final determinations are that the cancellation under Section 29(2)(c) was valid but not irrevocable; the petitioner has a statutory right to seek restoration by fulfilling pending compliance; and the proper officer is obliged to consider such restoration applications expeditiously and lawfully.

---