Arbitrary Cancellation of GST Registration across India

[K Balasubramanian]

1. Section 29(2) of the CGST Act has specifically provided five circumstances which may warrant cancellation of registration. At least any one of the five requirements must be present to invoke this section. The process of law on issuing the SCN, granting a personal hearing are the basic requirements and if the proper officer is satisfied that strong grounds exist for cancellation, the Act empowers the proper officer to proceed further for cancellation of the registration.

2. We are coming across various cases at various High Courts all over India where registration has been cancelled for the reason that the GST Returns were not filed for a consecutive period of six months. This is acceptable as this is covered under 29(2)(c ). However, cases are there where Section 29(2) is invoked in March 2025 for non filing of GSTR 3B for the month of February 2025. It appears that proper officers have started this invocation of Section 29(2) as a tool to threat the taxpayer to ensure that in future the taxpayers file all the returns in time.

3. A V Trades Case: The judgement of the Madras High Court rendered on 29/10/2024 in the case of TVL. A.V. TRADERS, REPRESENTED BY ITS PROPRIETOR MR. AJITH KUMAR VERSUS THE COMMERCIAL TAX OFFICER, CHENNAI - 2024 (11) TMI 657 - MADRAS HIGH COURT has analysed the issue and held that cancellation of registration severely affects the taxpayer from running his business which is his fundamental right. Relevant extracts of Para 5 of the order is REPRODUCED in para 04 of this article as this contents require wide publicity.

4. Admittedly, it is the right of the petitioner to carry on his business and it is the bounden duty of the respondent to provide the GST registration in the manner known to law. Even if the petitioner company indulged in allegedly obtaining registration by means of fraud or not conducting the business from declared place in violation of the provisions of the Act, the respondent can very well initiate legal action by invoking civil and penal provisions. The respondent deprived the petitioner from carrying on the business which amounts to violation of fundamental right of the petitioner and prevented the petitioner, which cannot be sustained.

5. Vide para 7 of the order the High Court has set aside the cancellation order and directed respondent to restore the registration by considering the reply to SCN in accordance with law.

6. The Gauhati High Court has ruled on 18/03/2025 in the case of SRI MOHAN MECH VERSUS UNION OF INDIA, THE PRINCIPAL COMMISSIONER OF CENTRAL GOODS AND SERVICE TAX ASSAM, THE ASSISTANT COMMISSIONER CENTRAL GOODS AND SERVICE TAX GUWAHATI, THE SUPERINTENDENT CENTRAL GOODS AND SERVICES TAX DIBRUGARH - 2025 (3) TMI 1335 - GAUHATI HIGH COURT that cancellation is arbitrary and without application of mind by the officer. Para 26 of the order dated 18/03/2025 is CRUCIAL portion and it is reproduced in para 07 below.

7. It is discernible from a reading of the proviso to sub rule (4) of Rule 22 of 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 is ready and willing to furnish all the returns  and makes full payment of the tax dues along with applicable interest, the proper officer shall drop the proceedings and pass an order in FORM GST REG -20.

8. Only the cases where there is a contravention by a taxpayer as specified in Rule 21 of the CGST Rules or not filing Quarterly return for two tax period or not filing monthly returns for 6 months or has not commenced business within 6 months from registration or registration was obtained by fraud, willful misstatement or suppression of facts attracts cancellation. Instances of cases are there where Section 29(2) is ARBITRARILY INVOKED even for non-filing of GSTR for just one month which is a contravention of law by the officer.

9. The date of cancellation must be one that is subsequent to the date of personal hearing. Similarly, the personal hearing should be at least one week after issuing the GST REG 17. Moreover, the date of filing reply to SCN should be minimum after one week from the date of SCN. These are generally to be followed even though the law has not prescribed the days. However, in reality date of SCN and date of suspension of registration are one and the same. Only 3 days are granted  for personal hearing and 7 days for submitting the reply.

10. Though there are orders being passed on cases which are hit under section 29 of the CGST Act by almost all the High Courts in India, observations are made as arbitrary,non application of mind by officer etc. in most of the cases, the writs are generally allowed with no costs.

11. It is high time that the proper officers should invoke section 29 in the most appropriate manner as the PRECIOUIS time of the High Courts across the country are being wasted in deciding whether the Section 29 was rightly invoked rather than on interpretation of a complex provision of law. It is HIGHLY a cause of CONCERN that GSTAT is not function even during the eighth year of GST.

12. CBIC may instruct the field formation to be MORE cautious in exercising their powers under Section 29(2) as the role of the proper officer is that of a quasi-judicial officer and not that of a TAX COLLECTOR.

13. Whenever any taxpayer finds it difficult to pay the applicable taxes on the due date, he may be required to do a COST BENEFIT ANALYSIS on this aspect as non-payment of tax in time not only attracts an interest @18%, but any delay in filing the GSTR is also subject to applicable late fee. Over and above, it really makes sense to buy peace from GST Authorities which gives more time to the taxpayer to focus on his business activities.

14. When the ultimate objective of the GST officer is to improve  the REVENUE, it should be always kept in mind by the TAX OFFICER that cancellation of registration in arbitrary manner may have the consequences of shortfall in revenue.