Facts of the Case

  • The Petitioner, M/s. Solomon Adriel Sunder Raj (represented by its Proprietor, Mr. Solomon Adriel Sunder Raj), is a registered taxable entity carrying on business from Jubilee Hills, Hyderabad, under the Central Goods and Services Tax Act, 2017.
  • The Respondent, the Superintendent of Central Tax (Jubilee Hills - 1, Hyderabad GST Commissionerate), issued a Show Cause Notice (SCN) dated December 16, 2020, to the petitioner. The SCN required the petitioner to explain why its GST registration should not be cancelled under Section 29 of the CGST Act due to a failure to file statutory GST returns for a continuous period of six months.
  • The Petitioner timeously submitted a formal reply to the SCN on December 25, 2020, outlining the extenuating operational and financial challenges faced by the business.
  • Disregarding the explanation tendered by the taxpayer, the Respondent rejected the reply and passed an impugned suo motu Order for Cancellation of Registration Certificate (Ref. No. ZA361220052642Z) on December 28, 2020, effectively halting the petitioner's lawful business operations.
  • Agrieved by the summary termination of its tax registration, the Petitioner moved the High Court for the State of Telangana at Hyderabad under Article 226 of the Constitution via Writ Petition No. 36995 of 2022, praying for a Writ of Mandamus to quash the cancellation order.

Issues Involved

  1. Whether the suo motu order passed by the Respondent cancelling the Petitioner’s GST registration under Section 29 of the CGST Act, 2017, was arbitrary, illegal, and violative of the principles of natural justice given the disruptions caused by the COVID-19 pandemic?
  2. Whether the Revenue authority was justified in completely rejecting the petitioner’s explanations regarding its temporary inability to file returns without providing a meaningful opportunity for a personal hearing?
  3. Whether the case of the petitioner is directly governed and covered by the protective legal framework established by the division bench in M/s. Chenna Krishnama Charyulu Karampudi v. Additional Commissioner (Appeals-I).

Petitioner’s Arguments

  • The learned counsel for the petitioner, Sri S. Suri Babu, vehemently argued that the severe disruptions caused by the globally unprecedented COVID-19 pandemic and the resultant stringent lockdowns imposed by the government paralyzed regular business activities.
  • It was submitted that this severe operational and financial distress directly resulted in the involuntary, temporary non-filing of the statutory GST returns for the six-month period.
  • The petitioner maintained that the impugned order dated December 28, 2020, was passed in a highly mechanical and arbitrary manner without judicially considering the reply submitted on December 25, 2020, thereby rendering the state action contrary to the established rules of law.
  • The petitioner further relied upon the settled jurisprudence of the Telangana High Court, emphasizing that the underlying legal issue concerning mechanical cancellation during pandemic disruptions was no longer res integra (an undecided question of law).

Respondent’s Arguments

  • The Respondent was represented by Ms. Sapna Reddy (appearing on behalf of learned counsel Sri B. Narasimha Sarma).
  • The Revenue supported the validity of the impugned cancellation order by stating that the statutory mandate of Section 29 of the CGST Act, 2017, explicitly empowers the proper officer to cancel a registration where a regular taxpayer fails to furnish returns for a continuous period of six months.
  • While the respondent defended the strict administrative execution of the law, the order itself explicitly contained a clarification protecting public revenue, stating that the cancellation of the registration certificate would not absolve the petitioner from any underlying accrued GST liabilities or past tax obligations.

Court Order / Findings

  • The Hon'ble Division Bench, comprising Chief Justice Ujjal Bhuyan and Justice C.V. Bhaskar Reddy, observed that the core legal issue raised in the writ petition was no longer res integra.
  • The High Court highlighted that in a continuous series of similar decisions, most notably in the landmark case of M/s. Chenna Krishnama Charyulu Karampudi v. Additional Commissioner (Appeals-I) (W.P. No. 27071 of 2022, decided on 27.06.2022), the court had routinely quashed such mechanical orders and remanded the matters back to the revenue authorities to uphold procedural fairness.
  • Consequently, without expressing any conclusive opinion on the absolute merits of the tax defaults, the High Court set aside and quashed the impugned cancellation order dated December 28, 2020.
  • The Bench remanded the matter back to the file of the Respondent with a strict directive to conduct a fresh administrative and quasi-judicial review.
  • The court ordered the respondent to grant the petitioner a fair, reasonable personal hearing and pass a fresh, speaking order in strict accordance with the law.
  • The Court explicitly ruled that during the upcoming remanded proceedings, the petitioner shall be at complete liberty to physically or electronically submit all its pending statutory GST returns as prescribed under the law. The writ petition was disposed of with no orders as to costs.

Important Clarification

  • Survival of Tax Liability: The Court and the underlying record clarify that the setting aside of the cancellation order for procedural rectification does not absolve, exempt, or release the taxable person from any existing, accrued, or future GST liabilities, penalties, or interest leviable under the statute.
  • Procedural Right to Rectify: The judgment clarifies that taxpayers facing cancellation due to technical or pandemic-related defaults must be given an active procedural bridge to regularize their defaults by filing pending returns during the departmental hearing rather than being permanently ousted from the tax network.

Section Involved

  • Section 29 of the Central Goods and Services Tax (CGST) Act, 2017: Deals with the cancellation or suspension of Goods and Services Tax registration by the proper officer, specifically focusing on sub-sections relating to the continuous non-filing of statutory tax returns by a registered taxable person.
  • Article 226 of the Constitution of India: Invoked by the petitioner to seek a Writ of Mandamus against the arbitrary and illegal cancellation order passed by the Revenue authorities.
  • Section 151 of the Code of Civil Procedure (CPC), 1908: Invoked via an interlocutory application seeking interim suspension of the operation of the impugned cancellation order.

Link to download the order -https://mytaxexpert.co.in/uploads/1782891076_18compressed.pdf

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