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February 11, 2021

Can Order cancelling GST registration be passed without issuing Show Cause Notice?

by CA Shivam Jaiswal in GST

Can Order cancelling GST registration be passed without issuing Show Cause Notice?

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 judgement of the High Court of Gujarat in Syed Jafar Abbas v. Commercial Tax Officer [2021] where the issue raised was whether the order of cancellation of registration under GST was valid or not.

Why was application filed by the petitioner?

The petitioner requested an order or direction be issued for quashing and setting aside the order dated 04.06.2020 of cancellation of registration of the petitioner and restore the registration of the petitioner with effect from 24.10.2018.

Observations of the High Court (HC)

  • HC observed that the Impugned order of cancelling the registration was not only bereft of any details but was also passed without issuing the show cause notice in Form GST REG-17.
  • HC further noted that no opportunity of hearing was provided to the Petitioner.
  • Therefore, HC quashed and set aside the Impugned order.
  • HC directed that, if the Commercial Tax Officer (Respondent) intended to cancel the registration of the Petitioner by issuing a fresh order then, he shall first issue show cause notice in Form GST REG-17 giving an opportunity of being heard to the Petitioner and thereafter, pass an appropriate order.
  • It was further directed that the above exercise must be completed within a period of four weeks from the date of presentation of this order before the authority.
  • It was further clarified that, if the Respondent was of the firm view that the registration deserved to be cancelled, only then fresh show cause notice should be issued and fresh order of cancellation of registration should be passed, otherwise, the original registration must be restore in accordance with law.

In simple words, Order cancelling GST registration cannot be passed without issuing Show Cause Notice and providing opportunity of being heard to the taxpayer.

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