HC Sets Aside GST Registration Cancellation Order: Tax Payer to File Returns, Pay Dues

Kanaklal Sutradhar Vs State of We st Bengal & Ors. (Calcutta High Court)

The Calcutta High Court recently delivered a significant judgment in the case of Kanaklal Sutradhar vs State of West Bengal & Ors., which addressed critical issues regarding the cancellation of GST registration. The case revolved around the petitioner’s inability to respond to a show-cause notice and subsequent cancellation of his GST registration due to his incarceration. This judgment sheds light on the procedural aspects and the court’s approach towards restoring GST registration under exceptional circumstances.

Background

Kanaklal Sutradhar, engaged in the business of selling medicines, faced legal troubles when he was apprehended on 31st January 2022 in connection with a case under the Narcotic Drugs and Psychotropic Substances (NDPS) Act, 1985. His subsequent bail pleas were rejected, leading to his prolonged incarceration until his eventual acquittal on 20th July 2023. During his custody, a show-cause notice dated 27th July 2022 and an order of cancellation of his GST registration dated 23rd August 2022 were issued.

Petitioner’s Argument

The petitioner, represented by Advocate Roy, contended that due to his incarceration, he had no opportunity to respond to the show-cause notice or apply for the revocation of his GST registration cancellation. He highlighted the fact that the appellate authority’s rejection of his appeal was mechanical and lacked consideration of his unique situation. The petitioner sought the restoration of his GST registration, emphasizing that his inability to comply with procedural requirements was due to circumstances beyond his control.

Court’s Observations

The court, after hearing both parties, noted several key points:

1. Incarceration Period: It was undisputed that the petitioner was in jail from 3rd February 2022 to 20th July 2023, thereby missing the opportunity to respond to the show-cause notice and cancellation order.

2. Appellate Authority’s Decision: The appellate authority’s decision to uphold the cancellation was deemed mechanical, failing to consider the petitioner’s inability to respond due to his incarceration.

3. Precedent Consideration: The court referenced the case of Subhankar Golder v. Assistant Commissioner of State Tax, where similar issues of GST registration cancellation were addressed, and restoration was granted subject to certain conditions.

Judgment

The court decided to set aside the cancellation order dated 23rd August 2022 and the appellate authority’s order dated 13th March 2024, provided the petitioner fulfilled the following conditions:

• Filing of all pending returns.
• Payment of all due taxes, interest, fines, late fees, and penalties.

The court directed the respondents to activate the GST portal within one week to facilitate the petitioner’s compliance with these conditions. Failure to comply within four weeks would result in the dismissal of the writ petition.

FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT

1. Affidavit of service filed in Court today is taken on record.

2. The present writ petition has been filed, inter alia, challenging the show-cause notice dated 27t^h July, 2022, as also the order of cancellation of registration of the petitioner dated 23^rd August, 2022, passed by the appellate authority under the Central Goods and Services Tax Act, 2017/West Bengal Goods and Services Tax Act, 2017 (hereinafter referred to as the “said Act”).

3. It is the petitioner’s case that at all material point of time the petitioner was a registered tax payer and was engaged in business of selling medicines. Incidentally, on 31^st January, 2022, the petitioner was apprehended by the police authorities in connection with Chakulia Police Station Case No. 260 of 2021 dated 2nd September, 2021 under Section 21(C) of the Narcotic Drugs and Psychotropic Substances (NDPS) Act, 1985. Since then, the petitioner could not secure his release, as his prayer for bail was rejected up to the Hon’ble Supreme Court. Ultimately, after conclusion of the trial, by a judgment and order dated 20^th July, 2023 passed by the Additional District and Sessions Judge, 1st Court, Raiganj, Uttar Dinajpur in NDPS Case No. 67 of 2021, the petitioner, was found not guilty of the offences punishable under Section 21(C) of the NDPS Act and was accordingly acquitted under Section 235(1) of the Code of Criminal Procedure with a further direction that the petitioner be released on furnishing a fresh bail bond of Rs.2000/- with one surety in terms of Section 437A of the Code of Criminal Procedure 1973.

4. Consequent thereon the petitioner could secure his release on 20t^h July, 2023. Subsequently the petitioner had filed an appeal under Section 107 of the said Act. The same was, however, rejected by an order dated 13t^h March, 2024 passed by the appellate authority under Section 107 of the said Act, inter alia, on the ground that the petitioner having not filed any application for revocation of cancellation of his registration, the appellate authority has no option but to uphold the order passed by the proper officer and consequentially the appeal was rejected.

5. Being aggrieved, the present writ petition has been filed.

6. Roy, learned advocate representing the petitioner by drawing attention of this Court to the discharge certificate issued by the Superintendent, Raiganj District Correctional Home, submits that the petitioner was in jail custody in the Raiganj District Correctional Home for a period of one year seven months and seventeen days from 3^rd February, 2022 till 20^th July, 2023.

7. The petitioner was arrested on 30t^h January, 2022 and since then he could not secure bail, until the time mentioned hereinabove. For reasons aforesaid, the petitioner did not have any opportunity to apply for revocation of the order of cancellation of his registration. The petitioner was otherwise prevented from operating his business. This aspect was not taken into consideration by the appellate authority. The appellate authority had mechanically rejected the petitioner’s appeal.

8. In the facts as noted above, he submits that the order passed by the appellate authority should be set aside and the registration of the petitioner be restored.

9. Siddiqui, learned advocate enters appearance on behalf of the respondents. He does not dispute the fact that the petitioner was in jail custody between 3^rd February, 2022 till 20^th July, 2023.

10. Heard the learned advocates appearing for the respective parties and considered the materials on record.

11. Admittedly, during the period between 3^rd February, 2022 and 30^th July, 2023 the petitioner was in jail custody. The show-cause was issued on 27^th July, 2023 and order of cancellation of petitioner’s registration was passed on 23^rd August, 2022. The petitioner had no opportunity either, to respond to the show-cause or to prefer an application for revocation of the order of cancellation. From the certificate issued by the Superintendent, Raiganj District Correctional Home dated 27t^h July, 2023 it would appear that the petitioner had been released pursuant to his acquittal on 20^th July, 2023. Thereafter, the petitioner had preferred an appeal. I find that the appellate authority under Section 107 of the said Act had purported to reject the said appeal on the ground that the petitioner did not apply for revocation of the cancellation of his registration. The aforesaid order, to that extent, appears to be mechanical, without application of mind.

12. I may note that it is not the case of the respondents’ that the petitioner had evaded tax, rather the show-cause notice would show that the allegation was that the tax payer was not functioning. For reasons noted above since the petitioner could not respond to the show-cause the order of cancellation was passed.

13. In this context, it would be relevant to note that the Division Bench of this Hon’ble Court in the case of Subhankar Golder v. Assistant Commissioner of State Tax, Serampore Charge (MAT 639 of 2024) on 9^th April 2024, while considering the case of cancellation of registration was, inter alia, pleased to set aside the order of cancellation subject to the registered tax payer whose registration had been cancelled, files returns for the entire period of default, pays requisite amount of tax and interest, fine and penalty.

14. In the light of the above and having regard to the direction issued by the Hon’ble Division Bench in the case of Subhankar Golder (supra), I do hereby propose to and set aside the order dated 23^rd August, 2022 cancelling the petitioner’s registration and the order dated 13^th March, 2024 passed by the appellate authority under the said Act, subject to the conditions that the petitioner files his returns for the entire period of default and pays requisite amount of tax and interest and fine, late fees and penalty, if not already paid.

15. It is made clear that if the petitioner complies with the directions/conditions noted above, within 4 weeks from the date of receipt of the server copy of this order, the petitioner’s registration under the said Act shall be restored by the jurisdictional officer. However, if the petitioner fails to comply with the directions as aforesaid, the benefit of this order will not enure to the petitioner and the writ petition would stand automatically dismissed.

16. For the purpose of compliance of the above directions, the respondents are directed to activate the portal within one week from date, so that the petitioner can file his returns, pays requisite amount of tax and interest, fine, late fees and penalty if not already paid.

17. With the above direction and observations, the writ petition is disposed of without any order as to costs.

18. All parties to act on the basis of the server copy of this order duly downloaded from the official website of this Court.