GST registration cancellation under s.29(2)(c) reconsidered when returns filed, dues paid, applying proviso to r.22(4)

HC held that cancellation of petitioner's GST registration under s.29(2)(c) CGST Act for non-filing of returns for over six months, though attributable to the tax consultant's negligence, entails serious civil consequences and must be considered in light of the proviso to r.22(4) CGST Rules. Relying on its coordinate Bench decision in a similar matter, HC directed that if petitioner files all pending GST returns and makes full payment of tax, interest and late fees, the competent authority shall consider dropping cancellation proceedings and pass orders accordingly. Petition was disposed of on these terms.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether cancellation of GST registration for non-filing of returns for six months under Section 29(2)(c) of the Central/State GST Acts, read with Rule 22 of the CGST Rules, 2017, could be revisited in light of the proviso to Rule 22(4) when the registered person expresses willingness to file pending returns and pay dues.

1.2 Whether the case is covered by an earlier decision of a Coordinate Bench on identical facts and law, warranting grant of similar relief.

1.3 Manner in which the period under Section 73(10) of the Central/State GST Acts is to be computed in the event of restoration of registration, and the assessee's liability for arrears of tax, interest, penalty and late fees.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Cancellation of GST registration for non-filing of returns and applicability of proviso to Rule 22(4)

Legal framework (as discussed)

2.1 The Court referred to Section 29(2)(c) of the GST Acts, which empowers the proper officer to cancel registration where a registered person has not furnished returns for a continuous period of six months.

2.2 The Court extracted and relied upon Rule 22 of the CGST Rules, 2017, particularly:

(a) Sub-rule (1): issuance of show-cause notice in Form GST REG-17 where registration is liable to be cancelled under Section 29.

(b) Sub-rule (2): reply in Form GST REG-18 within the stipulated period.

(c) Sub-rule (3): order of cancellation in Form GST REG-19, directing payment of arrears of tax, interest and penalty.

(d) Sub-rule (4) and its proviso: dropping of cancellation proceedings and passing of order in Form GST REG-20 where the person, instead of replying, furnishes all pending returns and makes full payment of tax dues along with applicable interest and late fee in cases covered by Section 29(2)(b) or (c).

Interpretation and reasoning

2.3 The Court noted that the petitioner's registration was cancelled for non-filing of returns for six months, squarely falling under Section 29(2)(c), and that cancellation of registration entails serious civil consequences.

2.4 Relying on the interpretation adopted in the earlier Coordinate Bench decision, the Court read the proviso to Rule 22(4) to mean that if a person, whose registration is proposed to be cancelled under Section 29(2)(c), is ready and willing to furnish all pending returns and make full payment of tax dues along with applicable interest and late fee, the proper officer may drop the cancellation proceedings and pass an appropriate order in Form GST REG-20.

2.5 The Court accepted the statement that the petitioner was ready and willing to comply with all the formalities under the proviso to Rule 22(4), and that GST returns had been updated up to a specified period.

Conclusions

2.6 The Court held that, notwithstanding the earlier cancellation and the expiry of the statutory time limit for a revocation application, the petitioner is entitled to seek restoration of registration by invoking the mechanism contemplated in the proviso to Rule 22(4), subject to furnishing all pending returns and paying all tax dues with applicable interest, penalty and late fee.

Issue 2: Applicability of a Coordinate Bench decision on identical facts and law

Interpretation and reasoning

2.7 The Court perused the earlier judgment of a Coordinate Bench dealing with cancellation of GST registration under Section 29(2)(c) for non-filing of returns for six months, where the same provisions of Section 29 and Rule 22, including the proviso to Rule 22(4), were examined.

2.8 The Court observed that the earlier decision directed the authority to consider restoration of registration if the assessee approached within a stipulated time, furnished all pending returns and made full payment of tax dues, interest and late fees, and further clarified computation of limitation under Section 73(10) post such order.

2.9 The Court recorded the concession by the respondent that the facts and law in the present case are similar to those considered in the earlier decision, and held that the said judgment "squarely covers" the present matter.

Conclusions

2.10 The Court concluded that the petitioner is entitled to be granted relief in terms identical to that awarded in the earlier Coordinate Bench judgment and accordingly extended similar directions for restoration of registration, subject to compliance with the statutory conditions.

Issue 3: Computation of limitation under Section 73(10) and liability for arrears upon restoration

Legal framework (as discussed)

3.1 The Court referred to Section 73(10) of the Central/State GST Acts in relation to the period of limitation for passing adjudication orders and to Section 44 in respect of the financial year 2024-25.

Interpretation and reasoning

3.2 Following the Coordinate Bench's approach, the Court held that, in view of the intended restoration of registration, it is necessary to clarify how the limitation period under Section 73(10) is to be reckoned so as to avoid prejudice to the revenue.

Conclusions

3.3 The Court directed that the period stipulated under Section 73(10) of the Central/State GST Acts shall be computed from the date of the present order, except for the financial year 2024-25, which shall be governed by Section 44 of the Central/State GST Acts.

3.4 The Court further held that the petitioner shall make payment of all arrears, namely tax, penalty, interest and late fees, as a condition for restoration of GST registration.

Operative directions (arising from all issues)

4.1 The petitioner shall approach the concerned authority within 60 days from the date of the order, seeking restoration of GST registration.

4.2 If such application is filed and the petitioner complies with all requirements of the proviso to Rule 22(4) of the CGST Rules, 2017, the concerned authority shall consider the application in accordance with law and take necessary steps to restore the GST registration as expeditiously as possible.

4.3 Computation of limitation under Section 73(10) and the petitioner's obligation to pay all arrears, including tax, interest, penalty and late fees, shall be as specified above.

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