2025 (10) TMI 1070 - HC - GST

GST registration cancelled under Section 29(2)(c) can be restored if pending returns filed and tax with interest paid

HC held that GST registration cancelled under Section 29(2)(c) for non-filing of returns for six months may be restored if the petitioner promptly ... Cancellation of GST registration of petiitoner - petitioners are 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 petitioners 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 petitioners approach 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 petitioners shall approach the concerned authority within a period of 2 (two) months from today seeking restoration of her GST registration. ISSUES PRESENTED AND CONSIDERED 1. Whether cancellation of GST registration under Section 29(2)(c) for non-filing of returns for six continuous months was lawfully susceptible to being set aside or reconsidered where no personal hearing date was communicated and order was passed ex parte. 2. Whether the proviso to sub-rule (4) of Rule 22, CGST Rules, 2017 obliges the proper officer to drop cancellation proceedings and pass FORM GST REG-20 where the taxpayer furnishes all pending returns and makes full payment of tax, interest and late fee after cancellation. 3. Whether the statutory timelines for filing application for revocation of cancellation (270 days) or other limitation bars relief where the taxpayer was unable to file revocation within the portal timeline but seeks to furnish pending returns and payment to the proper officer, and what relief the Court may grant by writ. 4. Whether computation of limitation for recovery under Section 73(10) of the CGST Act/SGST Act is to be adjusted when a court permits restoration of registration, and how Section 44 applies to the financial year 2024-25. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of cancellation under Section 29(2)(c) where no hearing date notified and order passed ex parte Legal framework: Section 29(2)(c) empowers an officer to cancel registration where returns not furnished for six continuous months; Rule 22 prescribes notice in FORM GST REG-17 and reply in FORM REG-18 with a seven working day period to show cause. Precedent Treatment: The Court noted an earlier order in WP(C) No.6366/2023 involving similar facts and referred to it in reasoning (followed as persuasive authority for analogous circumstances). Interpretation and reasoning: The Court examined Rule 22(1)-(4) and observed that where the proper officer has reasons to believe cancellation is liable, a show cause notice with a specified short period must be issued and the reply furnished. The absence of communicated hearing date and the passing of an ex parte cancellation order without assigning reasons weighed in favour of permitting reconsideration where statutory safeguards and procedural opportunities contemplated by Rule 22 had not been effectively available to the taxpayer. Ratio vs. Obiter: Ratio - Cancellation conducted without effective opportunity to respond under Rule 22 is amenable to reconsideration by the proper officer upon compliance with the proviso to Rule 22(4). Obiter - Observations on administrative difficulties faced by taxpayers unfamiliar with online procedures. Conclusions: The Court held that cancellation effected for non-filing under Section 29(2)(c) must be open to being dropped if the taxpayer subsequently furnishes pending returns and pays dues as per the proviso to Rule 22(4); procedural deficiencies in notice/hearing support equitable relief by directing the authority to consider restoration upon compliance. Issue 2 - Effect and operation of proviso to Rule 22(4): duty to drop proceedings upon filing of pending returns and payment of dues Legal framework: Proviso to Rule 22(4) states that where a person served with notice under sub-rule (1) furnishes all pending returns and makes full payment of tax along with interest and late fee, the proper officer shall drop proceedings and pass FORM GST REG-20. Precedent Treatment: The Court relied on comparable judicial treatment in the cited writ order (WP(C) No.6366/2023) as guiding, treating that order as supporting the practical application of the proviso (followed). Interpretation and reasoning: The Court construed the proviso as conferring an operative, mandatory course where the taxpayer meets its conditions - furnishing pending returns and making full payment - entitling the taxpayer to the officer dropping proceedings and passing FORM GST REG-20. The provision was read to permit restoration even after cancellation where requirements are satisfied, subject to administrative processes and officer's compliance with the prescribed formality. Ratio vs. Obiter: Ratio - The proviso creates a clear mechanism for ending cancellation proceedings upon compliance; the proper officer is to drop proceedings and issue FORM GST REG-20 when conditions are met. Obiter - Remarks on the serious civil consequences of cancellation and the Court's equitable approach to avoid disproportionate hardship. Conclusions: The Court directed that if the taxpayer approaches the proper officer within the period fixed by the Court and furnishes all pending returns plus payment of tax, interest and late fee, the officer shall consider the application and take steps for restoration by passing an appropriate order in FORM GST REG-20. Issue 3 - Effect of statutory timelines (270 days) and availability of writ relief when portal timeline for revocation has expired Legal framework: Rule 22 and statutory provisions contemplate an application for revocation within a prescribed period (portal indicating 'timeline of 270 days from the date of cancellation order provided to taxpayer to file application for revocation of cancellation is expired'). Precedent Treatment: The Court acknowledged similar judicial intervention in related matters; such precedents were adopted as grounds for permitting reconsideration despite expiry of portal timeline (followed in principle). Interpretation and reasoning: The Court recognized the administrative cutoff on the portal but held that where procedural non-compliance by the officer or practical difficulties prevented timely filing, writ relief may be appropriate to allow the taxpayer an opportunity to comply with the proviso to Rule 22(4). The remedy granted was prospective: a limited period (two months) to approach the authority to seek restoration, during which the authority must consider the submission in accordance with law. Ratio vs. Obiter: Ratio - A court may, by writ, grant a time-limited opportunity to approach the proper officer to comply with the proviso to Rule 22(4) where portal timelines have lapsed and the taxpayer evidences readiness to comply. Obiter - Observations on the portal message and administrative timelines as not being absolute where procedural fairness dictates relief. Conclusions: The Court disposed of the writ by directing the taxpayer to approach the concerned authority within two months for restoration; if the taxpayer complies with the proviso, the authority shall consider and take necessary steps expeditiously notwithstanding the portal's elapsed 270-day timeline. Issue 4 - Computation of limitation for recovery under Section 73(10) and application of Section 44 for financial year 2024-25 Legal framework: Section 73(10) prescribes limitation for recovery of tax not paid; Section 44 deals with annual return particulars. Restoration of registration may affect computation of limitation and recovery periods. Precedent Treatment: No contrary precedent was overruled; the Court applied statutory scheme to the facts. Interpretation and reasoning: The Court directed that the period stipulated under Section 73(10) shall be computed from the date of the instant order for purposes of recovery, thereby adjusting limitation timelines in light of judicially granted restoration opportunity. Exceptionally, for the financial year 2024-25, computation shall follow Section 44 as applicable to that year. Ratio vs. Obiter: Ratio - Where a court permits restoration under the proviso to Rule 22(4), the computation of limitation under Section 73(10) may be reset from the date of the court order; Section 44 governs the financial year 2024-25. Obiter - No additional commentary on detailed computation methodologies. Conclusions: The Court held that limitation for recovery under Section 73(10) will be reckoned from the date of the order (except FY 2024-25 governed by Section 44) and confirmed taxpayer liability for arrears of tax, penalty, interest and late fees upon restoration.