2025 (8) TMI 1130 - HC - GST

GST registration cancelled under s.29(2)(c) held valid; R.22(4) proviso allows restoration on filing returns and dues

M/s S.D. ENTERPRISE Versus UNION OF INDIA AND 3 ORS, HE PRINCIPAL COMMISSIONER OF CENTRAL GOODS AND SERVICE TAX, THE ASSISTANT COMMISSIONER CENTRAL GOODS AND SERVICE TAX, THE SUPERINTENDENT CENTRAL GOODS AND SERVICE TAX

M/s S.D. ENTERPRISE Versus UNION OF INDIA AND 3 ORS, HE PRINCIPAL COMMISSIONER OF CENTRAL GOODS AND SERVICE TAX, THE ASSISTANT COMMISSIONER CENTRAL GOODS ... ISSUES PRESENTED AND CONSIDERED 1. Whether cancellation of GST registration under Section 29(2)(c) for non-furnishing of returns for a continuous period of six months can be set aside or restored by the proper officer if the assesseee furnishes all pending returns and makes full payment of tax dues with applicable interest and late fee as per the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017. 2. Whether failure of the proper officer to notify a date for personal hearing affects the validity of the show cause notice and consequential cancellation order issued under Rule 22/Section 29(2)(c). 3. What is the scope of the proper officer's authority and jurisdiction to drop proceedings and restore/cancel registration including retrospective effect, and the civil consequences arising therefrom. 4. Procedure and temporal consequences relating to computation of limitation for recovery under Section 73(10) and applicability of Section 44 for the financial year 2024-25 where registration is restored. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Power to drop proceedings and restore registration on compliance with proviso to Rule 22(4) Legal framework: Section 29(2)(c) authorizes cancellation of registration where a registered person has not furnished returns for a continuous period of six months; Rule 22 of the CGST Rules prescribes procedure for cancellation, including sub-rule (1) (show cause notice in FORM GST REG-17), sub-rule (2) (reply in FORM REG-18), sub-rule (3) (order in FORM GST REG-19) and sub-rule (4) which provides that if the reply is satisfactory or if the person furnishes all pending returns and pays tax dues with interest and late fee, the proper officer shall drop proceedings and pass order in FORM GST REG-20. Precedent treatment: The Court referred to a recent order in a writ petition where similar facts prevailed and treated that order as persuasive for the exercise of restorative power; that order was relied upon and followed in principle for analogous relief (Ansari Construction order referenced). Interpretation and reasoning: The proviso to Rule 22(4) is interpreted to confer a discretionary but plenary power on the proper officer to drop cancellation proceedings where the registered person complies by filing all pending returns and making full payment of dues including interest and late fee. Given the civil consequences of cancellation, the Court treats the proviso as a mechanism to enable restoration and to avoid disproportionate hardship where statutory conditions for relief are met. The Court reasons that when the assesseee approaches the proper officer within a reasonable period and complies with the proviso, the officer 'has the authority and jurisdiction to drop the proceedings and pass an order in the prescribed Form.' Ratio vs. Obiter: Ratio - The proper officer must consider and may exercise the power under the proviso to Rule 22(4) to drop proceedings and restore registration upon full compliance with pending returns and payments; writ relief may be limited to directing opportunity to apply for restoration and consideration by the authority in accordance with law. Obiter - Observations on the seriousness of civil consequences and policy considerations underlying restoration are explanatory. Conclusions: Where the assesseee files all pending returns and makes full payment of tax, interest and late fee in accordance with the proviso to Rule 22(4), the proper officer is entitled and obliged to consider dropping proceedings and restoring registration by passing FORM GST REG-20, and courts may direct the assesseee to seek such restorative action from the authority within a stipulated time with obligation on the authority to act expeditiously. Issue 2 - Validity of show cause notice and requirement of personal hearing Legal framework: Rule 22(1) requires issuance of show cause notice in FORM GST REG-17 requiring show cause within seven working days from service; Rule 22(2) requires reply in FORM REG-18. Section 29(2)(c) empowers cancellation for non-furnishing of returns. Precedent treatment: No express authority overruled; the Court considered analogous writ relief decisions where show cause/ hearing procedures were central to adjudication. Interpretation and reasoning: The petitioner asserted that no personal hearing date was notified despite the show cause notice stating failure to appear would lead to ex-parte decision. The Court did not set aside the cancellation solely on procedural lapse but instead provided a remedy under Rule 22(4) proviso by directing the petitioner to approach the authority to furnish returns and payments for restoration. The Court's approach recognizes procedural safeguards but emphasizes restoration through statutory proviso rather than automatic invalidation of the order for lack of a hearing date where remedial statutory mechanism exists. Ratio vs. Obiter: Obiter - The Court did not make a definitive pronouncement that absence of a notified personal hearing date invalidates the cancellation; instead, remedial route under Rule 22(4) was preferred. Ratio - Procedural irregularity does not preclude the authority from considering restoration where the assesseee complies with the proviso; relief by way of restoration is appropriate when statutory conditions are satisfied. Conclusions: Failure to notify a personal hearing date in the show cause process does not necessarily mandate quashing of the cancellation; the assesseee's statutory right to secure dropping of proceedings by complying with the proviso to Rule 22(4) remains the operative remedial course, subject to consideration by the proper officer. Issue 3 - Scope of the proper officer's authority to cancel with retrospective effect and civil consequences Legal framework: Section 29(2)(c) permits cancellation from such date, including any retrospective date, as deemed fit by the empowered officer; Rule 22(3) prescribes issuance of FORM GST REG-19 and directions for payment of arrears, tax, interest and penalties; sub-rule (4) contemplates dropping proceedings in specified circumstances. Precedent treatment: Court relied on statutory text; prior writ order referenced as persuasive precedent for restoration power. Interpretation and reasoning: The Court highlights that cancellation can have serious civil consequences and that the statutory scheme balances cancellation power with a remedial proviso allowing dropping of proceedings upon compliance. The existence of retrospective cancellation power underscores need for a fair opportunity to avail the proviso. The Court directs expeditious consideration by the authority when the assesseee seeks restoration, implicitly recognizing limits on unfettered retrospective cancellation where statutory relief is available. Ratio vs. Obiter: Ratio - The proper officer's power to cancel (including retrospectively) must be exercised in conjunction with procedural safeguards and the available remedial proviso; where the assesseee satisfies the proviso, the authority should drop proceedings and restore registration. Obiter - Comments on gravity of civil consequences and policy balance between revenue protection and fairness. Conclusions: The officer may cancel registration retrospectively but must also respect the statutory remedial mechanism; upon compliance with the proviso, the officer should drop proceedings and restore registration, taking steps to mitigate disproportionate civil consequences. Issue 4 - Computation of limitation and liability for arrears upon restoration Legal framework: Section 73(10) governs computation of the limitation period for recovery of tax, and Section 44 applies to annual return/financial year specific provisions including treatment of the financial year 2024-25. Precedent treatment: Court applied statutory provisions as governing principles without citing contrary precedent. Interpretation and reasoning: The Court directed that the period under Section 73(10) shall be computed from the date of the judgment for purposes of recovery, except the financial year 2024-25 which shall be governed by Section 44. The petitioner remains liable to make payment of arrears including tax, penalty, interest and late fees as part of restoration compliance. Ratio vs. Obiter: Ratio - Upon restoration, computation for limitation for recovery will run from the date of the judgment (subject to the special rule for FY 2024-25 under Section 44), and arrears remain payable. Obiter - None significant beyond statutory application. Conclusions: Restoration does not absolve liability; limitation for recovery is directed to be computed from the judgment date (with Section 44 applicable to FY 2024-25), and the assesseee must pay arrears, penalty, interest and late fees as required.