2025 (8) TMI 988 - HC - GST

Registration cancellation set aside; under s.29(2)(c) and r.22 CGST, officer may restore registration upon compliance by issuing Form GST REG-20

HC set aside cancellation without reasons and held that under s.29(2)(c) and Rule 22 CGST Rules an empowered officer may cancel registration for failure ... Cancellation of petitioner’s GST registration without assigning any reason - petitioner is ready and willing to comply with all the formalities required as per proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017 - HELD THAT:- As per Section 29(2)(c) of the Act, an officer, duly empowered, may cancel the GST registration of a person from such date, including any retrospective date, as he deems fit, where any registered person, has not furnished returns for a continuous period of 6 (six) months. Rule 22 of the CGST Rules, 2017 has laid down the procedure for cancellation of the registration. It is discernible from a reading of 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. Having regard to the fact that the GST registration of the petitioner has been cancelled under Section 29(2)(c) of the Act, 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, may consider to drop the proceedings and pass an appropriate order in the prescribed Form. This writ petition is disposed of by providing that the petitioner shall approach the concerned authority within a period of 2 (two) months from today seeking restoration of her GST registration. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether cancellation of GST registration under Section 29(2)(c) for non-filing of returns for six continuous months, effected by an officer under Rule 22, is amenable to relief where the assessee subsequently tenders all pending returns and pays tax, interest and late fees. 2. Whether the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017 obliges the proper officer to drop cancellation proceedings and restore registration once the taxpayer furnishes pending returns and pays dues, and what is the scope of judicial intervention in such exercise of discretion. 3. Whether cancellation orders passed without assigning reasons or without notifying a hearing date (where the show cause notice provided a seven-day reply period but no hearing date) infringe procedural fairness warranting remedial directions. 4. Computation of limitation for recovery under Section 73(10) of the CGST Act where restoration is permitted, and the interplay with Section 44 for the financial year 2024-25. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of cancellation under Section 29(2)(c) and Rule 22 where returns were not filed for six months Legal framework: 1. Section 29(2)(c) permits cancellation of registration where a registered person has not furnished returns for a continuous period of six months; the proper officer may cancel registration from a date he deems fit. 2. Rule 22 (sub-rules (1)-(5)) prescribes the procedural steps for cancellation: service of FORM GST REG-17 requiring show cause within seven working days; reply in FORM REG-18; issuance of FORM GST REG-19 to cancel; and, if reply is satisfactory or pending returns + dues are furnished, dropping proceedings by FORM GST REG-20. Precedent Treatment: 3. The Court relied on a previous order in a similarly situated writ petition (referred order) as persuasive authority for directing consideration of restoration when the taxpayer complies with the proviso to Rule 22(4). Interpretation and reasoning: 4. The statutory scheme authorizes cancellation for non-filing but simultaneously provides a remedy by virtue of the proviso to Rule 22(4) - if the taxpayer furnishes pending returns and pays tax, interest and late fee, the officer 'shall drop the proceedings and pass an order in FORM GST REG-20.' 5. The Court construed the proviso as operative even after cancellation where the taxpayer subsequently seeks to comply and requests restoration; cancellation entails serious civil consequences, justifying remedial consideration where compliance is forthcoming. Ratio vs. Obiter: 6. Ratio: Where a registration was cancelled under Section 29(2)(c) for non-filing, if the taxpayer approaches the empowered officer and furnishes pending returns and pays full tax, interest and late fee, the officer may (and is to) consider dropping proceedings and restoring registration under Rule 22(4) proviso, subject to fulfillment of formalities. Conclusions: 7. The Court directed that the petitioner be permitted to apply for restoration within a specified period and that the empowered officer shall consider such application and take necessary steps for restoration if statutory conditions in the proviso are met. Issue 2 - Scope of discretion and judicial intervention where proviso to Rule 22(4) applies Legal framework: 1. Rule 22(4) provides a mandatory mechanism to drop proceedings where replies are satisfactory or where pending returns and full payment of dues are furnished; the proper officer's powers under Section 29 and Rule 22 include consideration of reply and exercise of discretion. Precedent Treatment: 2. The Court treated prior writ relief in similar facts as instructive, not as binding precedent overruling administrative discretion. Interpretation and reasoning: 3. The Court recognized the officer's statutory power but exercised supervisory jurisdiction to ensure compliance with the statutory scheme and to mitigate disproportionate consequences of cancellation where the taxpayer is prepared to comply. 4. The direction to the officer to 'consider' and 'take necessary steps for restoration' is a judicially crafted remedy that respects the statutory procedure while ensuring that the statutory safeguard (proviso) is meaningfully available. Ratio vs. Obiter: 5. Ratio: Judicial intervention is appropriate to the extent of directing the officer to consider and act upon an application for restoration where the taxpayer offers to fulfill the proviso conditions; the officer's discretion remains but must be exercised in accordance with law and the proviso. Conclusions: 6. The Court's order requires the officer to process a restoration application promptly and in accordance with Rule 22(4) if the taxpayer furnishes pending returns and pays dues; the direction is supervisory and procedural, not a substitution of merits determination. Issue 3 - Procedural fairness where show cause notice period elapsed, no hearing date was fixed and cancellation passed without reasons Legal framework: 1. Rule 22(1) mandates issuance of FORM GST REG-17 requiring show cause within seven working days from service; sub-rule (3) contemplates consideration of replies and issuance of FORM GST REG-19 with reasons and direction to pay arrears. Interpretation and reasoning: 2. The record indicated the show cause notice specified a seven-day reply period and threatened ex-parte decision if no reply or hearing attendance, but no specific hearing date was notified and the cancellation order contained no reasons. 3. The Court observed that absence of a notified hearing date and absence of reasons bear upon procedural fairness; however, given the statutory proviso allowing restoration upon compliance, the Court furnished a remedy without quashing on procedural grounds alone. Ratio vs. Obiter: 4. Obiter: While procedural deficiencies (no hearing date, no reasons) are relevant to fairness, the Court's remedial direction was driven by the availability of the proviso and the petitioner's willingness to comply; the order does not lay down a general doctrine beyond the facts. Conclusions: 5. The Court granted relief by way of enabling restoration rather than full annulment of cancellation for procedural defects; procedural irregularities inform the equitable disposition but are not separately adjudicated as dispositive. Issue 4 - Computation of limitation for recovery and interplay of Sections 73(10) and 44 upon restoration Legal framework: 1. Section 73(10) prescribes period for issuance of recovery notices for tax not paid; Section 44 relates to returns for the financial year and filing obligations. Interpretation and reasoning: 2. The Court clarified that, upon restoration, the period stipulated under Section 73(10) shall be computed from the date of the Court's order, except that the financial year 2024-25 shall be governed by Section 44 as applicable. Ratio vs. Obiter: 3. Obiter/Practical direction: The timing clarification constitutes a procedural direction to compute limitation from the date of the order for the purpose of assessing recoverability, and is ancillary to the main relief. Conclusions: 4. The petitioner remains liable to remit arrears (tax, interest, penalty, late fees); computation of limitation for recovery will follow the Court's clarification (Section 73(10) from date of order; financial year 2024-25 as per Section 44). Cross-references and final operative conclusion (ratio): 1. Issues 1 and 2 are interlinked: the statutory proviso in Rule 22(4) supplies the operative mechanism for curing cancellation under Section 29(2)(c) where a taxpayer furnishes pending returns and pays dues; judicial supervision may direct the officer to consider and effect restoration if statutory conditions are satisfied. 2. The Court disposed of the petition by directing the taxpayer to apply within a fixed timeframe and by directing the proper officer to consider and act expeditiously in accordance with Rule 22(4); clarifications on limitation and liability for arrears were given as ancillary directions (see Issue 4).