Allahabad HC Revokes Order of Cancellation of Registration and condemns the harassment of taxpayer under GST Regime

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.

The Allahabad High Court in the matter of Ansari Construction vs. Additional Commissioner, CGST (Appeals) & Ors set aside ex-parte order seeking to cancel assessee’s registration for failure to file return for continuous 6 months as well as the order dismissing revocation application and affirming cancellation of registration. Let us learn more about this case in this article.

Facts of the Case:

• The petitioner was a proprietorship firm and was registered for providing constructions services.
• The petitioner was served show cause notice by the respondent proposing to cancel the registration certificate of the petitioner mainly on the ground that the petitioner had failed to file the return for a continuous period of six months.
• In pursuance of the said notice, an ex-parteorder was passed cancelling the registration of the petitioner by invoking the powers under Section 29(2)(5) of UP GST Act 2017.
• The petitioner filed an application under Section 13 for revocation of cancellation of registration on the ground that the petitioner had submitted all the pending returns under GSTR-3B and GSTR-1 and, thus, the entire tax liability stood clear with the late fees.
• In response to the application filed by the petitioner, the respondent issued a show cause notice calling upon the petitioner to show cause, failing which the application of the petitioner shall be decided on ex-parte on the basis of the available records on merits.
• Aggrieved against the said order, the petitioner preferred an appeal before the appellate authority.

Order of Appellate Authority

• In the memo of appeal, it was specifically pleaded that the application for revocation of cancellation of registration was wrongly rejected despite of the Challan present on the portal, along with the said appeal, the petitioner once again filed all the requisite documents evidencing the filing of returns as well as the tax and late fees.
• The Appellate Authority, dismissed the appeal and affirmed the order to the effect that tax payer did not upload any documents online while replying to the query.
• As the petitioner had simply stated that all the liabilities were cleared by them, even they had not disclosed as to on what date they filed return and did not enclose the copy filed by them and the tax payer simply made claims without producing proper evidence which could not be verified by the division office at this stage.
• The Appellate Authority further recorded that the proper Officer was not satisfied under Rule 23 and in the absence of statutory returns, the facts could not be verified at that level and, thus, proceeded to dismiss the appeal.

Observations of High Court on arbitrary orders passed by Revenue

• According to HC, this case highlighted the callous manner in which the assessee was harassed by the respondents.
• It was relevant to note that under the statutory scheme the registration could be cancelled only as provided under Section 29 of U.P. GST 2017 on the grounds as enumerated in sub-section 1 or sub-section 2.
• Section 29 (2)(c) clearly provided for cancellation of registration if the assessee failed to furnish the returns for a continuous period of six months and invoking the said clause the registration of the petitioner was cancelled.
• In terms of the proviso to Rule 23(1) a burden is cast upon the assessee to furnish returns and to ensure that the tax due is paid along with any due interest penalty and late fees no further burden is cast upon the assessee or the persons seeking revocation.
• In the present case along with the application, the petitioner had filed a statement to the effect that all the requisite returns have been filed and the dues are cleared and thus it was incumbent upon the Department to have verified the correctness of averments made in the application.
• HC was sorry to observe that the Department miserably failed to verify the facts from their own records and proceeded to issue a show cause notice which was contained in Annexure 4 to the writ petition.
• The manner in which the show cause notice was issued was wholly unacceptable as it did not record any shortcoming on the part of the assessee.

• It was not conceivable as to what was required in the show cause notice.
• A perusal of the said show cause notice clearly highlighted the fact that serious quasi-adjudicatory functionaries were being discharged by persons who did not have a legally trained mind and were entrusted in discharging functions affecting huge revenues.
• The order passed by the Assistant Commissioner rejecting the application of the petitioner was wholly arbitrary and demonstrated the lack of legally trained mind as there appeared to be no effort to verify the correctness of the assertions made by the petitioner at the end of the Department.
• The appellate authority has also committed the same manifest arbitrariness in deciding the appeal.
• The recording of the reason that facts could not be verified at the appellate level was wholly arbitrary and went against the whole purpose of statutory appeal under an enactment.

Conclusion by HC

HC could not overlook the mutually contradictory stands taken by the Department before the Appellate Authority on one hand and the instructions given to HC which was:

• The taxpayer has filed GSTR-3B up to November 2019.
• Further, there are no dues pending towards tax, late, fee interest up to November 2019.

It was surprising to HC, that as to why these instructions could not be obtained or given at the level of the adjudication or appellate level and the callous attitude of the Department has resulted in the assessee being harassed by approaching one forum after the other and wasting his considerable financial resources as well as time.

Considering the fact that now the Department had accepted that the returns were filed within time and no dues remain payable, a direction was given to allow the application for revocation of registration filed by the petitioner.

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