2025 (8) TMI 859 - HC - GST

Cancellation of GST Registration for Non-Filing Returns Valid Under Section 29(2)(c) with Conditions

SRI DULAL BORGOHAIN Versus THE UNION OF INDIA AND ORS, THE PRINCIPAL COMMISSIONER CENTRAL GOODS AND SERVICES TAX, THE COMMISSIONER (APPEALS) CENTRAL GOODS AND SERVICES TAX, THE SUPERINTENDENT CENTRAL GOODS AND SERVICES TAX

SRI DULAL BORGOHAIN Versus THE UNION OF INDIA AND ORS, THE PRINCIPAL COMMISSIONER CENTRAL GOODS AND SERVICES TAX, THE COMMISSIONER (APPEALS) CENTRAL GOODS ... 1. ISSUES PRESENTED and CONSIDERED 1. 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, was validly effected in the absence of proper notice and opportunity to reply. 2. Whether the procedure prescribed under Rule 22 of the CGST Rules, 2017, particularly the issuance of show cause notice and the opportunity to furnish reply within seven working days, was complied with before cancellation of registration. 3. Whether the petitioner's inability to file reply due to unfamiliarity with online procedures constitutes sufficient cause to set aside or modify the cancellation order. 4. Whether the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017, allowing restoration of registration upon furnishing all pending returns and full payment of dues with interest and late fees, applies and can be invoked in the present case. 5. Whether the appeal dismissal against the cancellation order, which was not challenged further, bars the present writ petition. 6. The extent to which the Court can exercise discretion to restore GST registration despite non-challenge to the appellate order. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Validity of Cancellation of GST Registration and Compliance with Procedural Requirements under Rule 22 - Relevant Legal Framework and Precedents: Section 29(2)(c) of the CGST Act, 2017 empowers a proper officer to cancel GST registration where a registered person fails to furnish returns for a continuous period of six months. Rule 22 of the CGST Rules, 2017 prescribes the procedure for cancellation, mandating issuance of a show cause notice in FORM GST REG-17, requiring the person to show cause within seven working days as to why registration should not be cancelled, and furnishing reply in FORM REG-18 within the specified period. - Court's Interpretation and Reasoning: The Court noted that the impugned cancellation order was passed without assigning any reason and without notifying any hearing date, although the show cause notice mentioned a seven-day period to reply. The absence of a hearing date and failure to provide a meaningful opportunity to respond was found to be procedurally irregular. - Key Evidence and Findings: The petitioner was served with a show cause notice dated 08.01.2020 but did not file any reply within the stipulated time. The petitioner contended lack of familiarity with online procedures prevented timely response. The cancellation order was passed ex-parte on the same date as the notice, without hearing or consideration of any reply. - Application of Law to Facts: The Court emphasized that Rule 22 mandates a show cause notice and opportunity to reply. The absence of a hearing date and immediate passing of cancellation order contravened procedural safeguards. The cancellation order was therefore not in strict compliance with statutory procedure. - Treatment of Competing Arguments: The respondents relied on the dismissal of the appeal against the cancellation order and the statutory power to cancel registration for non-filing of returns. The Court acknowledged these but underscored the necessity of procedural fairness under Rule 22. - Conclusion: The cancellation order was procedurally flawed due to lack of proper notice and opportunity to be heard, rendering it liable to be reconsidered. Issue 3: Effect of Petitioner's Inability to File Reply Due to Unfamiliarity with Online Procedures - Relevant Legal Framework and Precedents: No explicit statutory provision excuses failure to respond due to unfamiliarity with online systems. However, principles of natural justice require reasonable opportunity to be heard. - Court's Interpretation and Reasoning: The Court accepted the petitioner's explanation of being not conversant with online procedures as a mitigating circumstance. It recognized that procedural requirements must be balanced with practical realities to avoid harsh consequences. - Key Evidence and Findings: The petitioner's inability to file a reply in time was not due to willful default but lack of technical knowledge. The petitioner expressed willingness to comply with all formalities if given opportunity. - Application of Law to Facts: The Court found that the petitioner's explanation justified allowing an opportunity to rectify defaults by filing pending returns and making payments as per Rule 22(4) proviso. - Treatment of Competing Arguments: The respondents did not dispute the petitioner's explanation but relied on statutory provisions for cancellation. The Court balanced both by providing a conditional opportunity for restoration. - Conclusion: The petitioner's inability to respond timely due to unfamiliarity with online procedures was a valid ground to allow reconsideration under Rule 22(4) proviso. Issue 4: Applicability of Proviso to Sub-Rule (4) of Rule 22 for Restoration of Registration - Relevant Legal Framework and Precedents: Proviso to sub-rule (4) of Rule 22 provides that if a person served with a show cause notice under Section 29(2)(c) furnishes all pending returns and makes full payment of tax dues along with interest and late fee, the proper officer shall drop proceedings and pass an order in FORM GST REG-20. - Court's Interpretation and Reasoning: The Court held that this proviso is designed to provide a remedial mechanism for registered persons who default in filing returns but are willing to comply subsequently. It constitutes a statutory right to seek restoration upon compliance. - Key Evidence and Findings: The petitioner expressed readiness to comply with all pending returns and payments. The Court noted that cancellation entails serious civil consequences, and the proviso serves as a safeguard against permanent loss of registration for procedural defaults. - Application of Law to Facts: The Court directed the petitioner to approach the proper officer within two months with an application for restoration, furnishing all pending returns and payments. The officer was mandated to consider the application expeditiously and pass appropriate orders. - Treatment of Competing Arguments: The respondents did not dispute the applicability of the proviso but emphasized dismissal of appeal. The Court clarified that the proviso operates independently and provides a statutory avenue for restoration. - Conclusion: The proviso to sub-rule (4) of Rule 22 applies and entitles the petitioner to seek restoration of GST registration upon compliance with pending returns and payments. Issue 5 & 6: Effect of Dismissal of Appeal and Court's Discretion to Restore Registration - Relevant Legal Framework and Precedents: The appeal against the cancellation order was dismissed and not challenged further. Generally, dismissal of appeal constitutes res judicata on the issue. However, writ jurisdiction is discretionary and can be exercised in the interest of justice. - Court's Interpretation and Reasoning: The Court acknowledged that the appellate order was not challenged but clarified that the present writ petition was disposed of in the interest of justice. The Court exercised its discretionary jurisdiction to provide an opportunity for restoration under Rule 22(4) proviso despite non-challenge to the appeal dismissal. - Key Evidence and Findings: The Court relied on the serious civil consequences of cancellation and the statutory scheme allowing restoration to justify its intervention. - Application of Law to Facts: The Court held that the petitioner could seek restoration notwithstanding the dismissal of appeal, as the proviso to Rule 22(4) provides a separate remedy. The Court's order was not to reopen the appeal but to enable statutory compliance and restoration. - Treatment of Competing Arguments: The respondents contended that the appeal dismissal barred further challenge. The Court distinguished the present remedy as separate and remedial, not a re-examination of appeal merits. - Conclusion: The Court exercised its discretion to permit restoration of registration under Rule 22(4) proviso despite non-challenge to appeal dismissal, emphasizing interest of justice.