Facts of the Case

The petitioner, M/s. Pankaj Cottage, challenged the order cancelling its GST registration passed under Section 29 of the Central Goods and Services Tax Act, 2017 (CGST Act). The cancellation order was issued on 04.04.2022 on the ground of non-filing of GST returns.

The petitioner contended that although an electronic show cause notice was allegedly issued before cancellation, it never came to its notice. Upon learning about the cancellation, the petitioner applied for revocation under Section 30 of the CGST Act, but the application was rejected as time-barred. Thereafter, the petitioner filed an appeal under Section 107 of the CGST Act, which remained pending. Simultaneously, the petitioner approached the High Court challenging the legality of the cancellation proceedings themselves.

 

Issues Involved

  1. Whether a GST registration can be cancelled on the basis of a show cause notice issued in Form GST REG-31 instead of Form GST REG-17.
  2. Whether a vague and incomplete show cause notice satisfies the principles of natural justice.
  3. Whether cancellation proceedings initiated in an incorrect statutory form are legally sustainable.
  4. Whether the cancellation order deserves to be quashed despite the pendency of a statutory appeal.

 

Petitioner’s Arguments

The petitioner submitted that:

  • The show cause notice was illegally issued in Form GST REG-31, whereas Rule 22 of the CGST Rules specifically requires issuance of Form GST REG-17 for cancellation proceedings.
  • Form GST REG-31 is prescribed only for suspension of registration under Rule 21A and cannot be used for cancellation.
  • The notice failed to specify material facts, allegations or reasons justifying cancellation.
  • The notice was vague, incomplete and violated principles of natural justice.
  • Delay in filing GST returns occurred because of severe financial hardship and was never intentional.
  • Reliance was placed on:
    • Aggarwal Dyeing and Printing vs State of Gujarat
    • Sing Traders vs State of Gujarat

The petitioner argued that vague show cause notices and non-speaking cancellation orders have consistently been held invalid by the Gujarat High Court.

 

Respondent’s Arguments

The Revenue contended that:

  • Sections 29 and 30 of the CGST Act provide a complete statutory mechanism regarding cancellation and revocation of registration.
  • Since the petitioner admittedly failed to furnish GST returns, cancellation was legally justified.
  • The notices were system-generated and sufficiently conveyed the reason for proposed cancellation.
  • Fiscal statutes require strict interpretation in favour of revenue.
  • Reliance was placed upon:
    • Suguna Cutpiece Center vs Appellate Deputy Commissioner (ST) GST
    • M/s. M.S. Retail Private Limited vs Union of India
    • Rajdhanai Security Force Pvt. Ltd. vs Union of India

The respondents therefore requested dismissal of the writ petition.

 

Court Order / Findings

The Kerala High Court allowed the writ petition and quashed the cancellation order.

The Court held:

1. Wrong Statutory Form Used

The Court observed that Form GST REG-31 is prescribed only for proceedings relating to suspension of registration under Rule 21A.

For cancellation proceedings, the law specifically mandates issuance of Form GST REG-17 under Rule 22.

Since the proceedings were initiated using the wrong statutory form, the cancellation order suffered from lack of jurisdiction.

 

2. Mandatory Procedure Cannot Be Ignored

The Court reiterated the settled principle that when a statute prescribes a particular procedure, authorities must strictly follow that procedure.

Reliance was placed upon the Supreme Court judgment in:

  • Babu Verghese vs Bar Council of Kerala (1999) 3 SCC 422

which reiterates that if the law prescribes a manner of doing an act, it must be done only in that manner.

 

3. Show Cause Notice Was Vague

The Court observed that the notice merely stated:

"Failure to furnish returns for a continuous period of six months"

without furnishing complete particulars or specific allegations.

Such a vague notice failed to provide adequate opportunity of defence and therefore violated principles of natural justice.

 

4. Gujarat High Court Judgments Approved

The Court agreed with the reasoning adopted in:

  • Aggarwal Dyeing and Printing vs State of Gujarat
  • Sing Traders vs State of Gujarat

holding that vague show cause notices cannot sustain cancellation proceedings.

 

5. Fiscal Interpretation Argument Rejected

The Court rejected the argument that taxing statutes must always be interpreted in favour of the Revenue.

It observed that Sections 29 and 30 concern procedural safeguards relating to cancellation of registration and are not exemption provisions requiring strict interpretation in favour of Revenue.

The Court referred to:

  • Commissioner of Customs vs Dilip Kumar & Company
  • Government of Kerala vs Mother Superior Adoration Convent

to explain the correct principles governing interpretation of taxing statutes.

 

Final Directions

The High Court:

  • Quashed the GST cancellation order.
  • Directed restoration of the petitioner's registration.
  • Clarified that restoration would not absolve the petitioner from statutory liabilities.
  • Directed the petitioner to file all pending GST returns and pay applicable tax, interest, late fee and penalty within two weeks after restoration of registration.

 

Important Clarification

This judgment establishes that:

  • GST registration cannot be cancelled through proceedings initiated in the wrong statutory form.
  • Form GST REG-17 is mandatory for cancellation proceedings.
  • Form GST REG-31 cannot substitute Form GST REG-17.
  • Vague and non-speaking show cause notices violate natural justice.
  • Cancellation orders passed without following the prescribed statutory procedure are liable to be quashed.
  • Restoration of registration does not waive outstanding tax liabilities.

 

Sections Involved

  • Section 29, CGST Act, 2017 – Cancellation of Registration
  • Section 30, CGST Act, 2017 – Revocation of Cancellation
  • Section 107, CGST Act, 2017 – Appeals
  • Rule 22, CGST Rules, 2017
  • Rule 21A, CGST Rules, 2017
  • Form GST REG-17
  • Form GST REG-31

Link to Download the Order https://www.mytaxexpert.co.in/uploads/1782892293_64.pdf

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