2025 (4) TMI 504 - HC - GST

Cancellation of GST registration of petitioner - manner in which the GST Registration has been cancelled is arbitrary and the impugned Order of cancellation has been passed without due application of mind - violation of principles of natural justice - HELD THAT - Section 39 1 of the CGST Act inter-alia requires a registered person to furnish a return for every calendar month or part thereof electronically of inward and outward supplies of goods or services or both input tax credit availed tax payable tax paid and such other particulars in such form and manner and within such time as may be prescribed. Rule 61 1 of the CGST Rules has prescribed the Form and manner of furnishing of return electronically through the common portal either directly or through a notified Facilitation Centre as specified under sub-section 1 of Section 39 of the CGST Act. 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 such continuous tax period as may be prescribed. As per Rule 21 h of the CGST Rules registration granted to a person is liable to be cancelled if the said person being a registered person required to file returns under sub-section 1 of Section 39 of the CGST Act for each month or part thereof has not furnished returns for a continuous period of six months. On perusal of the impugned Order it is evidently clear that the impugned Order is not in conformity with the procedure prescribed in FORM GST REG-19. A speaking order is one which expressly states the reasons for the decision. In other words a speaking order speaks for itself by assigning the reasons behind the conclusion. If an order is passed without giving a reason by the concerned authority then the order is a non-speaking one. Non-speaking order is one which does not provide a clear reason for its decision. The fact that the petitioner-assessee did not submit any Reply to the Show Cause Notice dated 14.11.2023 or did not appear before the Proper Officer when she was called upon to do so does not absolve the Proper Officer from the obligation of passing a speaking order as any order which brings adverse consequence to a person cannot be a mere paper formality. An adjudicating authority exercising statutory power of cancelling registration under the CGST Act must record reasons for its decision if such obligation is not expressly or impliedly dispensed with. It is implicit in the principles of natural justice or fair play that an adjudicating authority should record reasons as it is part of fair procedure more particularly when the decision is likely to affect the right of the person concerned. Recording of reason is also prima facie suggestive of conscious application of mind on the part of the authority. The obligation to record reasons is a possible check against arbitrary action on the part of the adjudicating authority invested with the statutory power to take a decision which is likely to affect the right of the person concerned - from every standpoint the impugned Order dated 20.12.2023 is not a speaking order. As such the impugned Order dated 20.12.2023 is found to be one which is passed without any application of mind. For the afore-stated reasons the impugned Order dated 20.12.2023 cannot stand the scrutiny of law and is liable to be set aside and quashed. In the fact situation obtaining in the case in hand it is open for the petitioner to submit a Reply to the Show Cause Notice dated 14.11.2023 showing reason s as to why the GST Registration should not be cancelled in terms of sub-rule 2 of Rule 22 of the CGST Rules read with Section 29 2 c of the CGST Act. In the alternative the petitioner-assessee at the time of and/or instead of replying to the Show Cause Notice served under sub-rule 1 of Rule 22 of the CGST Rules can furnish all the pending returns and make full payment of the tax dues along with the applicable interest late fee and penalty if any. It is therefore observed that it would be open for the petitioner-assessee to avail either of the two options. This Court for ends of justice deems it just and proper to grant a period of one month from today to the petitioner to avail either of the two permissible options. Conclusion - The cancellation order dated 20.12.2023 is quashed due to its non-compliance with statutory requirements. It directed that the petitioner be allowed to respond to the SCN or fulfill pending obligations within a specified period. The Proper Officer is required to proceed in accordance with the prescribed procedure ensuring that any subsequent order is reasoned and compliant with legal mandates. Petition allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary legal question addressed in this case is whether the cancellation of the petitioner's GST Registration under the Central Goods and Services Tax (CGST) Act, 2017, was carried out in a manner consistent with the statutory requirements and principles of natural justice. The Court considered whether the cancellation order was arbitrary, lacked due application of mind, and was issued without providing adequate reasons, thereby violating procedural norms.

ISSUE-WISE DETAILED ANALYSIS

Legal Framework and Precedents

The relevant legal framework includes Section 29(2)(c) of the CGST Act, which permits the cancellation of GST registration if a registered person fails to furnish returns for a continuous period of six months. Rule 21(h) of the CGST Rules mandates the cancellation of registration under such circumstances. Rule 22 outlines the procedure for cancellation, requiring the issuance of a show cause notice (SCN) and a reasoned order in Form GST REG-19.

Court's Interpretation and Reasoning

The Court emphasized the necessity for a "speaking order," which requires the Proper Officer to provide explicit reasons for the cancellation of registration. It highlighted that the absence of reasons in the cancellation order violates the principles of natural justice and fair play. The Court underscored that the statutory framework obligates the recording of reasons to ensure conscious application of mind and to prevent arbitrary actions.

Key Evidence and Findings

The petitioner failed to submit returns for a continuous period due to technical glitches and was unable to respond to the SCN within the stipulated time. The cancellation order did not specify the reasons for cancellation, merely referencing the SCN without detailing the grounds for the decision.

Application of Law to Facts

The Court applied the provisions of the CGST Act and Rules, noting that the cancellation order was not in compliance with the procedural requirements outlined in Rule 22 and Form GST REG-19. The absence of detailed reasons in the order rendered it non-compliant with the statutory mandate.

Treatment of Competing Arguments

The petitioner's argument centered on the lack of a reasoned order and the procedural lapses in the cancellation process. The respondent argued that the petitioner's failure to file returns justified the cancellation. However, the Court found merit in the petitioner's contention regarding the absence of a speaking order, which outweighed the procedural delay in filing the writ petition.

Conclusions

The Court concluded that the cancellation order was not a speaking order as required by law, thereby lacking legal validity. Consequently, the order was set aside, and the matter was reverted to the stage of issuance of the SCN, allowing the petitioner to respond or comply with pending requirements.

SIGNIFICANT HOLDINGS

The Court established that a cancellation order under the CGST Act must be a speaking order, explicitly stating the reasons for cancellation. The absence of reasons renders the order non-compliant with statutory requirements and principles of natural justice. The Court held that procedural lapses in issuing a reasoned order outweigh the delay in challenging the order.

Core Principles Established

The judgment reinforces the principle that statutory authorities must provide reasoned orders, particularly when such orders have adverse consequences. This ensures transparency, accountability, and adherence to the principles of natural justice.

Final Determinations on Each Issue

The Court quashed the cancellation order dated 20.12.2023 due to its non-compliance with statutory requirements. It directed that the petitioner be allowed to respond to the SCN or fulfill pending obligations within a specified period. The Proper Officer is required to proceed in accordance with the prescribed procedure, ensuring that any subsequent order is reasoned and compliant with legal mandates.