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January 22, 2021

Cancellation of GST Registration without proper reason is illegal – HC

by CA Shivam Jaiswal in GST

Cancellation of GST registration without proper reason is illegal – HC

Registration of an entity is the initial basic step one has to follow to carry on supply or any other GST compliances. While one may find the registration process unnecessary and complicated, it is followed by a number of advantages, such as legal recognition as supplier of goods/services, availment of ITC, legal authorisation to collect tax from customers etc.

Can GST registration be cancelled?

According to Section 29 of CGST Act, the proper officer may, either on his own motion or on an application filed by the registered person or by his legal heirs, in case of death of such person, cancel the registration, in such manner and within such period as may be prescribed, having regard to the circumstances where:

  1. the business has been discontinued, transferred fully for any reason including death of the proprietor, amalgamated with other legal entity, demerged or otherwise disposed of; or
  2. there is any change in the constitution of the business; or
  3. the taxable person, other than the person registered under sub-section (3) of section 25, is no longer liable to be registered under section 22 or section 24.

The proper officer may cancel the registration of a person from such date, including any retrospective date, as he may deem fit, where:

  1. a registered person has contravened such provisions of the Act or the rules made thereunder as may be prescribed; or
  2. a person paying tax under section 10 has not furnished returns for three consecutive tax periods; or
  3. any registered person, other than a person specified in clause (b), has not furnished returns for a continuous period of six months; or
  4. any person who has taken voluntary registration under sub-section (3) of section 25 has not commenced business within six months from the date of registration; or
  5. registration has been obtained by means of fraud, willful misstatement or suppression of facts:

However, the proper officer shall not cancel the registration without giving the person an opportunity of being heard. Section 30 provided a remedy to the person whose registration was cancelled and in terms of the remedy so provided the petitioner approached the authority for revocation of the registration within the times specified therein. The exercise of powers under Section 30 are governed by Rule 23 of the GST Rules, 2017.

According to Rule 23, a registered person, whose registration is cancelled by the proper officer on his own motion, may submit an application for revocation of cancellation of registration, in FORM GST REG-21, to such proper officer, within 30 days from the date of the service of the order of cancellation of registration at the common portal, either directly or through a Facilitation Centre notified by the Commissioner.

However, no application for revocation shall be filed, if the registration has been cancelled for the failure of the registered person to furnish returns, unless such returns are furnished and any amount due as tax, in terms of such returns, has been paid along with any amount payable towards interest, penalty and late fee in respect of the said returns.

  • Where the proper officer is satisfied, for reasons to be recorded in writing, that there are sufficient grounds for revocation of cancellation of registration, he shall revoke the cancellation of registration by an order in FORM GST REG-22 within 30 days from the date of the receipt of the application and communicate the same to the applicant.
  • The proper officer may, for reasons to be recorded in writing, under circumstances other than those specified in clause (a), by an order in FORM GST REG-05, reject the application for revocation of cancellation of registration and communicate the same to the applicant.

The proper officer shall, before passing the order referred to in clause (b) of sub-rule (2), issue a notice in FORM GST REG–23 requiring the applicant to show cause as to why the application submitted for revocation under sub-rule (1) should not be rejected and the applicant shall furnish the reply within 7 working days from the date of the service of the notice in FORM GST REG-24.

Upon receipt of the information or clarification in FORM GST REG-24, the proper officer shall proceed to dispose of the application in the manner specified in sub-rule (2) within 30 days from the date of the receipt of such information or clarification from the applicant.

Let us refer to the case of Vimal Yashwantgiri Goswami vs State of Gujarat (HC), where it was held that cancellation of registration without proper reason is illegal

Facts of the Case:

  • The writ-applicant is a proprietor of a proprietary concern running in the name of Heugo Metal registered under GST
  • Respondent had issued a show-cause notice in the Form GST REG-17, calling upon the writ-applicant to show-cause as to why the registration under the GST should not be cancelled under Rule 22(1) of the CGST Rules, 2017
  • As the writ-applicant was not in receipt of any attachment along with the show-cause notice, he requested the authority to supply the attachment sheet to the show-cause notice
  • Despite the specific request for furnishing the attached sheet, the request was not paid heed to.
  • Commercial Tax Officer proceeded to pass an order, cancelling the registration.
  • Being dissatisfied with the order passed by the Commercial Tax Officer, the writ-applicant petitioned before the High Court

Observations of the High Court (HC)

  • Prima facie HC was convinced that the order could not be sustained for several reasons, some of them being:
  • It refers to the reply of the petitioner to the show cause notice but in the same continuation, it mentions that no reply has been received.
  • No reasons are recorded for cancellation
  • No facts are mentioned.
  • No discussion on the reply
  • Also, application for revocation of the said cancellation was filed within three days of the cancellation of the order but the same was still pending and the Officer concerned was sitting tight over the application for revocation which was a statutory application moved under Section 30 of the Act.
  • Therefore, HC quashed the impugned order passed by the Commercial Tax Officer on the short ground that the same was a non-speaking order passed without any application of mind.
  • HC was also very sad to note the manner in which the show-cause notices came to be issued.
  • The show-cause notices, were absolutely bereft of any material particulars or information, and it was but obvious that in the absence of the same, how did the authority expect the writ-applicant to respond to the same in an effective and meaningful manner.

Therefore, cancellation of GST registration without proper reason is illegal

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