GST registration cancellation quashed for violating Rule 21A(2A) notice period and natural justice requirements in statutory procedure

The HC held that the cancellation of the petitioner's GST registration for alleged violation of Rule 10A read with Rule 21(d) of the CGST Rules, 2017 was vitiated by breach of statutory procedure and principles of natural justice. The Show-Cause Notice in Form GST REG-17 granted only seven working days to respond, contrary to Rule 21A(2A) which mandates a 30-day period. Further, the authority cancelled the registration before expiry of the 30-day period. As the statute prescribes a specific manner and timeframe for cancellation, non-compliance rendered the action illegal. The Show-Cause Notice and cancellation order were quashed and the writ petition was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether cancellation of registration on the ground of violation of Rule 10A read with Rule 21(d) of the Central Goods and Services Tax Rules, 2017, was vitiated for non-compliance with the procedure prescribed in Rule 21A(2A).

1.2 Whether denial of the statutory period of thirty days to reply to the show-cause notice and use of an incorrect prescribed form violated principles of natural justice and rendered the cancellation order unsustainable.

1.3 Consequential relief upon invalidation of the show-cause notice and cancellation order, including restoration of registration.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Procedural validity of show-cause notice and cancellation under Rule 10A, Rule 21(d) and Rule 21A(2A)

Legal framework:

2.1.1 Rule 10A mandates that, within thirty days from the date of grant of registration and assignment of GSTIN, the registered person must furnish bank account details on the common portal.

2.1.2 Rule 21(d) provides that registration is liable to be cancelled if a person violates Rule 10A.

2.1.3 Rule 21A(2A) prescribes that, on contravention of Rule 10A, registration shall be suspended and the person shall be intimated in Form GST REG-31, electronically or on the common portal or by email, highlighting non-compliance and calling upon the person to explain, within thirty days, why registration should not be cancelled. The show-cause notice under Rule 10A is specifically required to be in Form GST REG-31.

Interpretation and reasoning:

2.1.4 The Court examined the impugned show-cause notice and found that it was issued in Form GST REG-17 instead of the statutorily prescribed Form GST REG-31 for proceedings arising out of contravention of Rule 10A.

2.1.5 The show-cause notice granted only seven days' time to reply, whereas Rule 21A(2A) expressly contemplates a period of thirty days to explain non-compliance and to show cause why registration should not be cancelled.

2.1.6 The Court noted that suspension of registration was effected from the date of the show-cause notice and that the cancellation order was passed on 04.07.2024, i.e., even before expiry of thirty days from the date of the show-cause notice dated 10.06.2024.

2.1.7 Applying the settled principle that where a statute prescribes that a thing is to be done in a particular manner, it must be done in that manner and in no other manner, the Court held that deviation from the prescribed form (REG-31) and the mandated thirty-day period constituted non-compliance with the statutory procedure.

Conclusions:

2.1.8 The show-cause notice dated 10.06.2024 was held to be procedurally defective for: (i) being issued in Form GST REG-17 instead of Form GST REG-31; and (ii) granting only seven days to respond instead of the statutorily mandated thirty days under Rule 21A(2A).

2.1.9 The cancellation order dated 04.07.2024, having been founded on a defective show-cause notice and passed before the expiry of the statutory thirty-day period, was held to be unsustainable in law.

2.2 Violation of principles of natural justice and effect on cancellation order

Interpretation and reasoning:

2.2.1 The Court observed that by not affording the full thirty days' time contemplated in Rule 21A(2A), the authorities failed to provide a proper and reasonable opportunity of being heard to the noticee.

2.2.2 The denial of the statutorily prescribed response period and the use of an incorrect form were seen as a breach of both the mandatory procedure and the principles of natural justice embedded in that procedure.

Conclusions:

2.2.3 The proceedings culminating in the order of cancellation were vitiated by violation of the principles of natural justice and non-compliance with the mandatory statutory scheme, rendering the order of cancellation liable to be set aside.

2.3 Consequential relief and restoration of registration

Interpretation and reasoning:

2.3.1 In view of the irregularities in issuance of the show-cause notice and in passing the cancellation order, the Court held that both the notice and the order could not be sustained.

Conclusions:

2.3.2 The show-cause notice dated 10.06.2024 and the cancellation order dated 04.07.2024 were set aside and quashed.

2.3.3 As a consequence, the respondent authorities were directed to restore the petitioner's GST registration granted on 13.06.2023.

2.3.4 The writ petition was allowed to the extent indicated, with no order as to costs.

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