Unregistered Rental Agreement as a Ground for GST Cancellation – A Legally Unsustainable Practice
1. Introduction
In recent times, several taxpayers have been issued show cause notices in Form GST REG-17 proposing cancellation of GST registration on the ground that the rental agreement submitted as proof of principal place of business is unregistered or notarized.
Such notices often rely on internal instructions like CBIC Instruction No. 3/2025. This raises an important legal question:
Can GST registration be cancelled merely because the rent agreement is unregistered?
This article examines the legal validity of such action.
2. Legal Framework Governing Cancellation
Cancellation of GST registration is strictly governed by:
- Section 29 of the CGST Act, 2017
- Rule 21 of the CGST Rules, 2017
These provisions lay down specific and exhaustive grounds for cancellation, such as:
- Non-conduct of business
- Issue of invoices without supply
- Violation of provisions of the Act
- Non-filing of returns
- Registration obtained by fraud or misstatement
Importantly, defects in documentation such as an unregistered rent agreement are not listed as grounds for cancellation.
3. Nature of CBIC Instructions
Authorities often rely on CBIC Instruction No. 3/2025 to insist on registered rent agreements along with landlord KYC documents.
However, it is a settled legal principle that:
Administrative instructions and circulars are binding on departmental officers but not on taxpayers.
Further, such instructions cannot override or expand the scope of the Act or Rules.
Therefore, reliance on such instructions to cancel registration is legally flawed.
4. Issue of Proof of Principal Place of Business
The requirement of submitting a rent agreement arises only for establishing the principal place of business at the time of registration.
Even if the agreement is:
- unregistered, or
- notarized
it does not automatically imply:
- that the business is non-existent, or
- that registration was obtained fraudulently
At best, it may justify:
seeking additional documents such as electricity bill, property tax receipt, or landlord identity proof
But it cannot justify cancellation.
5. Practical Case Illustration
In a recent case handled in practice, a taxpayer received a show cause notice in Form GST REG-17 proposing cancellation of registration with the following specific remark:
“At the time of registration application, you have unregistered rental agreement i.e. affidavit/notary. As per CBIC guidelines and Instruction No. 3/2025, if the rental agreement is not registered, upload affidavit document along with landlord ID proofs such as Aadhaar card, PAN card, or passport.”
The notice alleged non-compliance with the above requirement.
However, notably:
- There was no allegation of fraud or misstatement
- The taxpayer was actively carrying on business
- The premises were genuinely occupied and used
- The issue raised was limited to non-submission of landlord KYC documents along with an unregistered agreement
This clearly demonstrates that:
The proposed action was based purely on a procedural deficiency relating to documentation, and not on any substantive violation under GST law.
6. Judicial Position
The issue is no longer res integra and has been considered by various High Courts, which have consistently protected taxpayers from arbitrary cancellation.
(i) Aggarwal Dyeing and Printing Works v. State of Gujarat (2022)
The Gujarat High Court held that:
- Cancellation of GST registration without proper reasoning and valid grounds is unsustainable
- Show cause notices must not be vague or mechanical
- Authorities must adhere strictly to statutory provisions
👉 The Court emphasized that registration cannot be cancelled on flimsy or non-statutory grounds.
(ii) Mahadev Trading Company v. Union of India (2023)
The Calcutta High Court observed that:
- GST registration is a valuable right of a taxpayer
- Cancellation must be based on specific allegations backed by law
- Mere procedural discrepancies do not justify cancellation
👉 The Court set aside cancellation where no substantive violation was established.
(iii) Riddhi Siddhi Enterprises v. Commissioner of GST (2023)
The Allahabad High Court held that:
- Cancellation orders passed without proper application of mind are invalid
- Authorities must consider reply and supporting documents
- Principles of natural justice must be strictly followed
👉 The Court reinstated registration where cancellation was based on technical grounds without substantive evidence.
7. Legal Defects in Such Notices
Notices proposing cancellation on this ground suffer from the following defects:
- × Lack of statutory backing under Section 29
- ×Reliance on administrative instructions beyond legal authority
- × Absence of allegation of fraud or misstatement
- × Treating non-submission of landlord ID proofs as a cancellation ground
- × Violation of proportionality (extreme action for minor defect)
Such notices are therefore liable to be challenged and quashed.
8. Practical Guidance for Taxpayers
Taxpayers receiving such notices should:
- File a detailed reply within time
- Assert that the ground is ultra vires the Act
- Submit supporting documents:
- Electricity bill
- Possession proof
- Landlord confirmation
- ID proofs (if required, without admitting legal necessity)
- Emphasize that business is genuinely conducted
If cancellation is still ordered, the same can be challenged through:
- Appeal, or
- Writ petition before High Court
9. Conclusion
The insistence on a registered rent agreement along with landlord KYC documents as a precondition for continuation of GST registration is not supported by law.
Cancellation of GST registration must be based strictly on statutory grounds and not on procedural irregularities or administrative instructions.
Such actions, if challenged, are unlikely to sustain in law.
Disclaimer: This article is for educational and informational purposes only and does not constitute legal advice. The views expressed are personal and based on interpretation of applicable law.
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