GST registration cancellation under Section 29(2)(c) violated natural justice principles requiring personal hearing notification

HC disposed of petition challenging GST registration cancellation under Section 29(2)(c) for non-filing of returns for six months. Court found violation of natural justice as no personal hearing date was notified. HC directed petitioner to approach authorities within two months for restoration by submitting pending returns and paying tax dues with interest and late fees. If petitioner complies with Rule 22(4) proviso requirements, authorities must expeditiously consider restoration application in accordance with law.

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1. ISSUES PRESENTED and CONSIDERED

- Whether the cancellation of the petitioner's GST registration under Section 29(2)(c) of the CGST Act, 2017 for non-filing of returns for a continuous period of six months is valid and in accordance with the prescribed procedure under Rule 22 of the CGST Rules, 2017.

- Whether the petitioner was afforded adequate opportunity to reply to the show cause notice and to appear for personal hearing before cancellation of registration.

- Whether the petitioner's inability to file returns and respond to the show cause notice due to lack of internet facilities and absence of tax professionals in a remote area constitutes sufficient cause for relief from cancellation.

- Whether the petitioner's subsequent compliance by filing all pending returns, discharging tax dues with interest and late fees, and willingness to comply with formalities under the proviso to sub-rule (4) of Rule 22 entitles her to restoration of GST registration.

- Whether the limitation period for filing revocation of cancellation application under the CGST Act can be extended or waived in the petitioner's circumstances.

2. ISSUE-WISE DETAILED ANALYSIS

Validity and Procedure of Cancellation under Section 29(2)(c) and Rule 22 of CGST Rules

The legal framework governing cancellation of GST registration for non-filing of returns is Section 29(2)(c) of the CGST Act, 2017, which empowers an authorized officer to cancel registration where a registered person has not furnished returns for a continuous period of six months. Rule 22 of the CGST Rules, 2017 prescribes the procedural safeguards, including issuance of a show cause notice in FORM GST REG-17, opportunity to reply within seven working days in FORM REG-18, and issuance of cancellation order in FORM GST REG-19.

The Court examined whether the procedural requirements were complied with. The petitioner received a show cause notice dated 06.02.2024 requiring a reply within 30 days, with a warning that failure to reply or appear for hearing would result in ex-parte decision. However, no date for personal hearing was notified. The cancellation order was passed on 17.05.2024. The Court noted that the prescribed procedure mandates issuance of a show cause notice and an opportunity to reply within seven working days, which the petitioner did not avail due to lack of awareness and infrastructural constraints.

The Court emphasized that the procedural safeguards under Rule 22 are mandatory to ensure natural justice. The absence of a personal hearing date and the petitioner's inability to respond due to infrastructural limitations raised concerns about compliance with principles of fair procedure.

Impact of Remote Location and Lack of Facilities on Compliance

The petitioner resides in a remote area of Karbi Anglong with poor internet connectivity and no access to tax professionals. This fact was taken as a significant contextual factor affecting her ability to access the GST portal and respond timely. The Court recognized that such infrastructural deficiencies can impede compliance and justified the petitioner's failure to file returns and respond to the show cause notice within the stipulated time.

This consideration aligns with the principle that procedural requirements must be applied reasonably, especially when non-compliance results from genuine hardship rather than willful default.

Petitioner's Subsequent Compliance and Proviso to Sub-rule (4) of Rule 22

The petitioner updated all pending returns up to March 2024 and discharged all GST dues along with late fees and interest. The proviso to sub-rule (4) of Rule 22 states that if a person who has been served a show cause notice furnishes all pending returns and makes full payment of tax dues with interest and late fee, the proper officer shall drop the proceedings and pass an order in FORM GST REG-20, effectively restoring registration.

The Court observed that the petitioner expressed readiness and willingness to comply with these requirements and requested restoration of registration. The Court held that the proper officer, upon receipt of such compliance, is empowered to drop cancellation proceedings and restore registration.

Limitation for Filing Revocation Application and Its Effect

The petitioner attempted to file an application for revocation of cancellation but was unable to do so as the prescribed timeline of 270 days from the date of cancellation had expired. The Court noted this procedural bar but did not extend or waive the limitation period. Instead, it directed the petitioner to approach the concerned authority within two months for restoration of registration by complying with the proviso to Rule 22(4).

The Court's approach balances adherence to statutory timelines with equitable relief by providing an opportunity to cure defaults and seek restoration despite the elapsed limitation for revocation.

Precedent and Comparative Orders

The Court referred to a recent order dated 11.10.2023 in a similar writ petition where restoration of GST registration was allowed upon compliance with pending returns and payment of dues. This precedent reinforced the principle that cancellation for non-filing of returns can be remedied by subsequent compliance, especially where cancellation causes serious civil consequences.

3. SIGNIFICANT HOLDINGS

"The proviso to sub-rule (4) of Rule 22 of the Rules of 2017 that if a person, who has been served with a show cause notice under Section 29(2)(c) of the Act, 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."

"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, may consider to drop the proceedings and pass an appropriate order in the prescribed Form."

"Cancellation of registration entails serious civil consequences and therefore, where the petitioner complies with the requirements, restoration of GST registration is warranted."

"The period as stipulated under Section 73 (10) of the Central GST Act/State GST Act shall be computed from the date of the instant order, except for the financial year 2024-25, which shall be as per Section 44 of the Central GST Act/State GST Act."

The Court's final determination was to dispose of the writ petition by directing the petitioner to approach the concerned authority within two months for restoration of GST registration upon compliance with the proviso to Rule 22(4). The authority is mandated to consider the application expeditiously and restore registration if compliance is complete. The petitioner remains liable to pay all arrears including tax, penalty, interest, and late fees. No costs were imposed.

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