Facts of the Case

The petitioner, M/s Durga Raman Patnaik, a proprietorship concern registered under the Central Goods and Services Tax Act, 2017, challenged the appellate order dated 7 October 2021 passed by the Additional Commissioner, GST (Appeals), in Appeal No. 228/BBSR-GST/APPEAL/2021.

The underlying dispute arose from cancellation of the petitioner’s GST registration under Section 29(2)(c) of the CGST Act on account of failure to furnish returns for a continuous period of six months.

A show cause notice dated 21 August 2019 had been issued. The petitioner submitted a reply dated 31 August 2019. However, the registration was cancelled without assigning reasons for rejecting or disregarding that reply. The cancellation took effect from 15 October 2019.

Instead of applying for revocation of cancellation under Section 30 of the CGST Act read with Rule 23 of the CGST Rules, the petitioner preferred an appeal under Section 107 on 5 August 2021, after a delay of approximately 660 days. The Appellate Authority rejected the appeal on 7 October 2021 as barred by limitation.

The record further indicated that, despite cancellation of the GST registration, the petitioner had been permitted to deposit ₹3,09,360 together with late fee of ₹5,000 in relation to tax liability for October 2019, and the relevant return was allowed to be furnished on 22 April 2021.

The petitioner thereafter approached the High Court seeking relief against the appellate order and an effective opportunity to regularise GST compliance by filing returns, paying tax, interest, penalty and late fee, and seeking revocation of cancellation.

Issues Involved

  1. Whether cancellation of GST registration under Section 29(2)(c) of the CGST Act without assigning reasons, despite reference to the petitioner’s reply to the show cause notice, could be sustained.
  2. Whether the rejection of the petitioner’s delayed appeal under Section 107 of the CGST Act required reconsideration in light of the Supreme Court’s orders extending limitation during the COVID-19 pandemic.
  3. Whether a taxpayer whose registration was cancelled for non-filing of returns could be permitted to regularise defaults by filing pending returns and paying tax, interest, penalty and late fee.
  4. Whether, after such compliance, the petitioner could be permitted to seek revocation of cancellation under Section 30 read with Rule 23 along with condonation of delay.
  5. Whether the statutory framework governing cancellation and revocation should be applied in a manner that facilitates genuine taxpayers returning to GST compliance rather than permanently excluding them from the GST regime.
  6. Whether technical limitations of the GST portal could defeat the substantive relief granted to a taxpayer willing to comply with statutory obligations.

Petitioner’s Arguments

The petitioner contended that the Appellate Authority adopted an unduly technical and pedantic approach while rejecting the appeal on limitation.

It was argued that genuine difficulties faced by taxpayers during the initial implementation of GST, coupled with the extraordinary disruption caused by the COVID-19 pandemic, required a pragmatic approach.

The petitioner relied upon the statutory remedy under Section 30 of the CGST Act read with Rule 23 of the CGST Rules and submitted that an opportunity should be granted to:

  • file pending GST returns;
  • pay outstanding tax;
  • discharge applicable interest;
  • pay penalty and late fee; and
  • thereafter seek revocation of cancellation of registration.

Reliance was placed upon GST relief and amnesty measures, including:

  • Notification No. 19/2021–Central Tax dated 1 June 2021, concerning reduction or waiver of late fee for specified delayed GSTR-3B returns;
  • Notification No. 33/2021–Central Tax dated 29 August 2021, extending the relevant amnesty period; and
  • Notification No. 34/2021–Central Tax dated 29 August 2021, extending timelines in specified cases for filing applications for revocation of cancellation of registration.

The petitioner also relied upon the approach adopted in Nirmani Engineers and Constructions Pvt. Ltd. vs Commissioner of CT & GST, Odisha and Others, where relief had been granted subject to payment of dues and compliance with statutory requirements.

The petitioner maintained that, if granted an opportunity, all required returns would be furnished and tax, interest, penalty and late fee would be paid, after which an application for revocation could be considered.

Amicus Curiae’s Submissions

The learned Amicus Curiae highlighted the difficulties faced by taxpayers in transitioning to electronic GST compliance, particularly during the early years of GST implementation and the COVID-19 pandemic.

It was submitted that the object of GST registration is to facilitate lawful business activity, tax collection and compliance, rather than permanently exclude taxpayers who are willing to regularise their defaults.

The Court was requested to consider a practical mechanism allowing taxpayers whose registrations had been cancelled under Section 29(2)(b) or Section 29(2)(c) to seek revocation after satisfying statutory liabilities.

Reliance was also placed upon Tvl. Suguna Cutpiece Center vs The Appellate Authority and Another, 2022 (61) GSTL 515 (Mad), where the Madras High Court granted conditional relief to taxpayers whose registrations had been cancelled for failure to file returns and whose appeals had been rejected on limitation.

Respondents’ Arguments

The Revenue submitted, on instructions, that if the petitioner:

  • deposited the required tax;
  • paid applicable interest;
  • paid penalty and late fee; and
  • furnished all pending returns,

then, subject to verification by the competent authority, an application properly made under Section 30 of the CGST Act for revocation of cancellation could be considered by the Registering Authority.

Thus, the respondents did not dispute that revocation could be considered after substantive statutory compliance, subject to verification and a duly constituted application.

Court Findings / Order

The High Court examined the statutory scheme governing GST registration, cancellation, revocation and appeal, including Sections 29, 30 and 107 of the CGST Act and Rules 22 and 23 of the CGST Rules.

1. Cancellation Order Lacked Reasons

The Court noticed that the cancellation order referred to the petitioner’s reply dated 31 August 2019 but did not assign reasons for rejecting or disregarding that reply.

The Court emphasised the importance of reasoned orders and adherence to principles of natural justice in GST cancellation proceedings.

2. Petitioner Chose the Wrong Remedy

The Court observed that, apparently due to confusion concerning the newly introduced GST procedure, the petitioner preferred an appeal under Section 107 instead of availing the remedy of revocation under Section 30 read with Rule 23.

3. COVID-19 Limitation Extension Was Material

The High Court found that when the Appellate Authority rejected the appeals of 32 taxpayers by common order dated 7 October 2021, it could not have considered the Supreme Court’s subsequent order dated 10 January 2022 concerning extension of limitation in view of the third COVID-19 surge.

The Court held that this subsequent development had a bearing on the matter and that the appellate order deserved to be set aside.

4. GST Law Should Facilitate Genuine Compliance

The Court adopted a pragmatic approach toward a taxpayer willing to:

  • furnish pending returns;
  • pay tax;
  • discharge interest;
  • pay penalty;
  • pay late fee; and
  • seek revocation of cancellation.

The judgment recognised that keeping willing taxpayers outside the GST regime may not serve revenue interests where statutory compliance can still be secured.

5. Conditional Relief Granted

The Court granted relief subject to compliance. The petitioner was directed to file returns for the period prior to cancellation, where not already filed, together with unpaid tax, interest for belated payment, penalty and statutory fine or fee for delayed filing within the period specified by the Court.

The judgment further made it clear that payment of tax, interest, penalty, fine or fee could not be adjusted from unutilised or unclaimed Input Tax Credit lying with the petitioner.

After payment of tax, interest, penalty and late fee, if any, and uploading of returns, the petitioner was permitted to file an application for revocation of cancellation of registration within seven days, together with an application for condonation of delay.

The proper officer, registering authority or competent authority was directed to consider such request favourably, condone the delay and revoke the cancellation of registration.

The opposite parties were also directed to take suitable steps through the GST Network or other agency maintaining the GST portal so that the petitioner could file returns and pay statutory dues without technical obstruction.

The exercise was directed to be completed within 90 days from receipt of the judgment. The competent authority retained liberty to verify the correctness of claims made in the returns and take lawful action where necessary.

Important Clarification / Legal Principle Established

This judgment establishes several important principles concerning GST registration cancellation and revocation:

First, cancellation of GST registration has serious civil and commercial consequences, and an order referring to a taxpayer’s reply should not disregard that reply without assigning reasons.

Second, where registration is cancelled for non-filing of returns under Section 29(2)(c), a genuine taxpayer willing to clear statutory defaults may, in appropriate circumstances, receive conditional relief enabling regularisation and revocation.

Third, payment of tax, interest, penalty, fine and fee under the relief granted by the Court cannot be adjusted against unutilised or unclaimed Input Tax Credit; compliance must be made in accordance with the conditions imposed by the judgment.

Fourth, after filing returns and paying the prescribed dues, the taxpayer may seek revocation under Section 30 read with Rule 23, accompanied by a request for condonation of delay.

Fifth, technical limitations in the GST portal should not render judicial relief ineffective. The tax administration may be required to ensure portal functionality enabling filing of returns and payment of dues.

Sixth, restoration or revocation of registration does not prevent the competent authority from verifying the returns, examining the correctness of claims, or initiating lawful proceedings where discrepancies are found.

Seventh, the judgment does not grant an unconditional waiver of tax liability or statutory compliance. The relief is expressly conditional upon filing returns, paying dues and satisfying the prescribed procedural requirements.

Sections and Rules Involved

  • Section 29(2)(c), CGST Act, 2017 – Cancellation of registration for continuous failure to furnish returns.
  • Section 30, CGST Act, 2017 – Revocation of cancellation of registration.
  • Section 39, CGST Act, 2017 – Furnishing of returns.
  • Section 47, CGST Act, 2017 – Levy of late fee.
  • Section 107, CGST Act, 2017 – Appeals to the Appellate Authority.
  • Section 128, CGST Act, 2017 – Power to waive penalty or late fee or both.
  • Section 168A, CGST Act, 2017 – Power to extend time limits in special circumstances.
  • Rule 22, CGST Rules, 2017 – Procedure for cancellation of registration.
  • Rule 23, CGST Rules, 2017 – Revocation of cancellation of registration.
  • Rule 61, CGST Rules, 2017 – Form and manner of submission of returns.
  • Articles 226 and 227 of the Constitution of India – Writ and supervisory jurisdiction of the High Court.

Link to download the order - https://mytaxexpert.co.in/uploads/1783504155_1531compressed.pdf

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