2025 (12) TMI 815 - HC - GST

GST registration cancellation u/s 29(2)(c); restoration allowed via Rule 22(4) proviso on filing returns, dues cleared

HC upheld the cancellation of the petitioner's GST registration under Section 29(2)(c) of the CGST Act for non-filing of returns for more than six months ... Cancellation of petitioner's GST registration - failure to furnish a reply within the stipulated date or failure to appear for personal hearing on the appointed date and time - HELD THAT:- As per Section 29(2)(c), 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 CGST Rules 2017 that if a person, who has been served with a show cause notice under Section 29(2)(c) of the CGST Act, 2017, 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 CGST Act, 2017 for the reason that the petitioner did not submit returns for a period of 6 (six) months or 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 petitioner approaches 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, has the authority and jurisdiction to drop the proceedings and pass an order in the prescribed Form. This writ petition is disposed of by providing that the petitioner shall approach the concerned authority within a period of 2 (two) months from today seeking restoration of its GST registration. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether, upon cancellation of registration under Section 29(2)(c) of the CGST Act for non-filing of returns, the proper officer retains jurisdiction under the proviso to Rule 22(4) of the CGST Rules to drop cancellation proceedings and restore registration when the registered person furnishes all pending returns and clears tax dues with interest and late fee. 1.2 Whether the expiry of the statutory timelines for filing an application for revocation of cancellation and for filing appeal bars consideration of restoration/continuation of registration in terms of the proviso to Rule 22(4) of the CGST Rules. 1.3 From which point of time the limitation under Section 73(10) of the CGST/SGST Acts is to be computed where registration is permitted to be restored in the circumstances of cancellation for non-filing of returns, and what are the consequences regarding liability for arrears of tax, interest, penalty and late fees. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Scope of power under Section 29(2)(c) read with Rule 22(4) proviso; effect of elapsed timelines for revocation/appeal Legal framework 2.1 The Court referred to Section 29(2)(c) of the CGST Act, which empowers the proper officer to cancel registration, including with retrospective effect, where a registered person has not furnished returns for a continuous period of six months. 2.2 The Court extracted and considered Rule 22 of the CGST Rules, 2017, particularly: (a) Sub-rule (1) requiring issue of show cause notice in FORM GST REG-17 when the officer has reasons to believe registration is liable to be cancelled under Section 29. (b) Sub-rule (2) providing for reply in FORM GST REG-18. (c) Sub-rule (3) providing for cancellation order in FORM GST REG-19. (d) Sub-rule (4) providing that if the reply is satisfactory, the officer shall drop the proceedings and pass order in FORM GST REG-20. (e) The proviso to sub-rule (4), under which, if the person, instead of replying to the show cause notice issued under Section 29(2)(b) or (c), furnishes all pending returns and makes full payment of tax dues with interest and late fee, the proper officer shall drop the proceedings and pass an order in FORM GST REG-20. Interpretation and reasoning 2.3 The Court noted that the petitioner's registration had been cancelled under Section 29(2)(c) on account of non-filing of returns for more than six months, after a show cause notice had been issued, and that the petitioner had subsequently: (a) filed all pending returns up to September 2024 as permitted by the portal; and (b) discharged all GST dues along with late fee and interest. 2.4 The Court observed that, in terms of the proviso to Rule 22(4), where a person served with a notice under Section 29(2)(c) expresses readiness and willingness to furnish all pending returns and make full payment of tax dues with applicable interest and late fee, the empowered officer has the authority to drop the cancellation proceedings and pass an order in FORM GST REG-20. 2.5 The Court emphasised that cancellation of GST registration entails serious civil consequences, and that this consequence is relevant while construing the scope of the authority and jurisdiction preserved in the proviso to Rule 22(4) for dropping cancellation proceedings when substantial compliance (filing of pending returns and payment of dues) is made. 2.6 The Court took note that the petitioner could not file an application for revocation of cancellation because the prescribed time limit (270 days from date of cancellation order as per portal message) had expired, and that the statutory appeal against the cancellation order had also been dismissed as barred by limitation. Nonetheless, the Court held that, having regard to Section 29(2)(c), Rule 22 and its proviso, and the nature of civil consequences involved, the empowered officer continues to have authority and jurisdiction to drop the proceedings and effectively restore the registration if the conditions in the proviso to Rule 22(4) are complied with. Conclusions 2.7 The Court concluded that: (a) Notwithstanding the fact that the petitioner's registration had already been cancelled under Section 29(2)(c) for non-filing of returns, and notwithstanding the expiry of the period for filing revocation application and the dismissal of appeal as time-barred, the proviso to Rule 22(4) permits the proper officer, duly empowered, to drop the cancellation proceedings when the registered person furnishes all pending returns and pays all tax dues with applicable interest and late fee. (b) The officer duly empowered has the authority and jurisdiction, in such circumstances, to drop the cancellation proceedings and pass an order in the prescribed form (FORM GST REG-20), thereby enabling restoration/continuation of registration. (c) The petitioner is entitled to approach the concerned authority seeking restoration of its GST registration by complying with the requirements of the proviso to Rule 22(4) of the CGST Rules, 2017. 2.8 On that basis, the Court disposed of the writ petition with directions that: (a) The petitioner shall approach the concerned authority within two months from the date of the order, seeking restoration of its GST registration. (b) On such application, if the petitioner complies with all requirements under the proviso to Rule 22(4) (furnishing all pending returns and making full payment of tax dues with applicable interest and late fee), the concerned authority shall consider the application for restoration of registration and pass necessary orders in accordance with law. (c) The said process shall be completed expeditiously and preferably within an outer limit of 60 days from the date of receipt of the certified copy of the Court's order. Issue 3: Computation of limitation under Section 73(10) and liability for arrears upon restoration Legal framework 2.9 The Court referred to Section 73(10) of the CGST/State GST Acts regarding the time limit for issuance of orders determining tax not paid or short paid in non-fraud cases, and to Section 44 of the CGST/State GST Acts in relation to the financial year 2024-25. Interpretation and reasoning 2.10 The Court, while directing the mechanism for possible restoration of registration, found it necessary to clarify the point of commencement for computation of limitation under Section 73(10) in these circumstances, so as to align the limitation framework with the restoration arrangement being permitted. 2.11 The Court further clarified that, irrespective of restoration, the petitioner remains liable to make payment of all arrears of tax, penalty, interest and late fees. Conclusions 2.12 The Court held that: (a) The period prescribed under Section 73(10) of the Central GST Act/State GST Act shall be computed from the date of the Court's order, except for the financial year 2024-25, for which computation shall be as per Section 44 of the Central GST Act/State GST Act. (b) The petitioner shall be liable to make payment of all arrears, including tax, penalty, interest and late fees, in order to avail the benefit of restoration as contemplated under the proviso to Rule 22(4) and the directions issued by the Court.