Registration cancellation under Section 29(2)(c) for six months' non-filing permissible; Rule 22(4) allows restoration via FORM GST REG-20

HC upheld that registration cancellation under Section 29(2)(c) for non-furnishing of returns for six continuous months is permissible and that Rule 22 provides the cancellation procedure. The court noted the proviso to Rule 22(4) allows the empowered officer to drop proceedings and restore registration by passing Form GST REG-20 if the registrant furnishes all pending returns and pays tax, interest and late fees. The petition was disposed by directing the registrant to approach the authority within two months seeking restoration.

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ISSUES PRESENTED AND CONSIDERED

1. Whether registration cancelled under Section 29(2)(c) of the CGST Act, 2017 for non-filing of returns for six continuous months can be remedied by the taxpayer by furnishing pending returns and paying tax, interest and late fee under the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017.

2. Whether the proper officer has authority and jurisdiction to drop cancellation proceedings and restore registration pursuant to the proviso to sub-rule (4) of Rule 22 upon compliance by the taxpayer.

3. Whether, and on what terms, a court should direct the tax authority to consider restoration of GST registration when cancellation has already been effected under Section 29(2)(c) for non-furnishing of returns.

4. How the limitation period for assessment/recovery under Section 73(10) is to be computed following restoration, and the treatment of the financial year 2024-25 under Section 44.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Scope of Section 29(2)(c) and the proviso to sub-rule (4) of Rule 22 (legal framework)

Legal framework: Section 29(2)(c) empowers a duly empowered officer to cancel GST registration where a registered person has not furnished returns for a continuous period of six months; Rule 22 of the CGST Rules, 2017 prescribes procedure for cancellation, including show cause (Reg-17), reply (Reg-18), cancellation order (Reg-19) and dropping proceedings where reply is satisfactory (Reg-20). The proviso to sub-rule (4) of Rule 22 expressly provides that if, instead of replying to a show cause notice for contravention under Clause (b) or (c) of Section 29(2), the person furnishes all pending returns and makes full payment of tax, interest and late fee, the proper officer shall drop the proceedings and pass FORM GST REG-20.

Precedent treatment: The Court noted the parties' reference to a prior order in a similarly situated writ petition but did not purport to overrule or distinguish higher authority; the prior order was relied upon as analogous factual support rather than as binding precedent.

Interpretation and reasoning: The proviso creates a remedial, non-penal pathway for reinstatement if the taxpayer complies by filing pending returns and clearing dues. The Court reads the proviso as conferring a discretionary but mandatory power on the proper officer to drop cancellation proceedings upon full compliance with the specified conditions.

Ratio vs. Obiter: Ratio - the proviso to sub-rule (4) permits cancellation proceedings under Section 29(2)(c) to be dropped where the taxpayer furnishes pending returns and pays tax, interest and late fee; this is a binding interpretative conclusion of the Court. Obiter - reliance on a single earlier writ order as analogous authority is explanatory not central to the legal holding.

Conclusion: A taxpayer whose registration is cancelled under Section 29(2)(c) may remedy the cancellation by filing all pending returns and making full payment of tax, interest and late fee, thereby enabling the proper officer to drop proceedings under the proviso to sub-rule (4) of Rule 22.

Issue 2 - Authority and jurisdiction of the proper officer to drop proceedings and restore registration (legal framework)

Legal framework: Rule 22(4) and its proviso vest the proper officer with authority to drop proceedings and pass FORM GST REG-20 where the reply is satisfactory or where the person furnishes pending returns and clears dues; sub-rule (3) prescribes time limits for issuing cancellation orders and directions to pay arrears.

Precedent treatment: The Court treated prior administrative practice and a cited writ order as persuasive background but based its determination on the statutory text of Rule 22 and Section 29(2)(c).

Interpretation and reasoning: The statutory language confers both a remedial opportunity on the registered person and a decision-making function on the proper officer. The officer's power is discretionary in exercise but obligatory in effect where the statutory preconditions (complete filing and payment) are met. Cancellation being capable of grave civil consequences reinforces the remedial intent of the proviso and supports administrative exercise of the power to drop proceedings where compliance occurs.

Ratio vs. Obiter: Ratio - the proper officer has both authority and jurisdiction under Rule 22 to drop cancellation proceedings and restore registration upon the taxpayer's full compliance with the proviso conditions.

Conclusion: The proper officer must consider and may exercise jurisdiction to drop proceedings and restore registration if the taxpayer files pending returns and makes full payment of tax, interest and late fee as required by the proviso to sub-rule (4).

Issue 3 - Appropriate judicial relief when cancellation has been effected and procedure to seek restoration (legal framework)

Legal framework: Writ jurisdiction enables the Court to issue directions consistent with statutory scheme; Rule 22 prescribes FORM REG-20 for dropping proceedings and FORM REG-19 for cancellation. Section 29(2)(c) permits retrospective cancellation as the officer deems fit. Section 73(10) (limitation for recovery) and Section 44 (annual return/related treatment for FY 2024-25) are relevant to computation of periods post-restoration.

Precedent treatment: The Court referenced an analogous writ order but fashioned relief on the statutory proviso rather than by quashing the cancellation outright.

Interpretation and reasoning: Rather than invalidate the cancellation order on procedural grounds, the Court directed an effective administrative remedy: the petitioner must approach the empowered officer within a specified period (two months) with compliance (all pending returns and full payment). The officer is to consider the application in accordance with law and, if statutory conditions are met, take necessary steps for restoration expeditiously. This balance respects the statutory framework and the officer's role while protecting the taxpayer's right to remedy and avoiding unnecessary quashing where statutory relief is available.

Ratio vs. Obiter: Ratio - where cancellation has been effected for non-furnishing of returns, the Court may direct the taxpayer to seek restoration under the statutory proviso and require the authority to consider and act on such application expeditiously; the direction is binding in the case and provides a practical remedy consistent with Rule 22. Obiter - the Court's characterization of cancellation as entailing "serious civil consequences" is descriptive and persuasive but not a standalone legal rule.

Conclusion: The proper judicial relief is to permit and direct administrative restoration under the proviso to sub-rule (4), by requiring the taxpayer to apply within a specified timeframe and directing the authority to consider and, if conditions are met, restore registration expeditiously.

Issue 4 - Computation of limitation periods after restoration and treatment of FY 2024-25 (legal framework)

Legal framework: Section 73(10) governs the period for completion of assessments/recovery of tax other than those under specified sections; Section 44 concerns annual return obligations and related temporal provisions for the financial year 2024-25.

Precedent treatment: The Court relied on statutory text to determine computation; no novel precedent alteration was undertaken.

Interpretation and reasoning: Upon restoration, the period for purposes of Section 73(10) is to be computed from the date of the Court's order (i.e., the date facilitating restoration), thereby providing clarity on temporal limits for recovery, except that the financial year 2024-25 will be governed by Section 44 as statutorily provided. This approach aligns limitation computation with the corrective administrative action ordered.

Ratio vs. Obiter: Ratio - the Court's direction that Section 73(10) periods be computed from the date of the instant order (with FY 2024-25 treated under Section 44) forms part of the operative relief and is a binding determination for the matter at hand.

Conclusion: Time-bar computations under Section 73(10) will be reckoned from the date of the Court's order following restoration proceedings; the financial year 2024-25 remains subject to Section 44's provisions.

Ancillary procedural observations

1. The Court observed that no personal hearing date was notified in the show cause notice, and that the impugned cancellation order was uploaded on the portal before the petitioner could reply. While these facts informed the Court's equitable disposition, the Court did not annul the cancellation solely on procedural grounds but directed restoration under the statutory remedial provision.

2. The petitioner remains liable for arrears-tax, penalty, interest and late fees-if restoration is sought and granted; compliance with the proviso entails full payment of such amounts.

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