Section 29(2)(c) of the Central Goods and Services Tax (CGST) Act allows for the cancellation of a taxpayer’s registration if they fail to file returns for a continuous period of six months. This provision is significant for ensuring compliance with the tax regime, but its application has raised several legal questions, particularly when it comes to the filing of returns just before the cancellation order is passed.
In this article, we examine critical legal interpretations of Section 29(2)(c), along with related provisions under the CGST Rules, through an analysis of court rulings.
Important Provisions:
Central Goods and Services Tax Act, 2017 [hereinafter, “CGST Act”]-
1. Section 29(2)(c)- It provides for cancellation of registration if a person has not filed returns for a continuous period of 6 months. The same may be retroactively applied.
2. Section 39(1)- It requires every registered person, other than an Input Service Distributor or a non-resident taxable person or a person paying tax under the provisions of Section 10 or Section 51 or Section 52 to furnish returns for every calendar month.
Central Goods and Services Rules, 2017 [hereinafter, “CGST Rules”]-
1. Rule 21 – It provides for cases for which registration can be cancelled.
2. Rule 22(4) proviso- Where the person instead of replying to the notice served under subrule (1) for contravention of the provisions contained section 29(2) (b) or (c), furnishes all the pending returns and makes full payment of the tax dues along with applicable interest and late fee, the proper officer shall drop the proceedings and pass an order in FORM GST-REG 20
3. Rule 61- It provides the form and manner of submission of monthly return.
1. Whether filing returns prior to order of court amount to “available records”?
In Phoenix Rubbers v. Commercial Tax Officer, CGST Deptt., Palakkad,[1] the Kerala High Court [hereinafter, “HC”] held that the default in filing the returns must exist both at the time of issuance of the notice and prior to passing the order. Since the competent official is obliged to issue a notice before he passes final orders, it goes without saying that the requirement of 6 months’ continuous period should be fulfilled both at the time of issuance of the above said notice in terms of the proviso to section 29(2) of the CGST Act read with rule 22 of the CGST Rules, but also at the stage of passing the final order cancelling the registration as per section 29(2)(c). In this case, the absence of returns filed existed at the time of issuance of notice on 13th November, 2019, but that was not the case was the order of cancellation of RC was passed by the court on 10th December, 2019. The Kerala HC then quashed the order of cancellation.
The fact situation of the case was such that the petitioner had filed the return for the month of May 2019 on 10th December, 2019 before the order for cancellation was passed. As on 10th December, 2019, (date of issuance of order) the petitioner had not filed returns for the months October, 2019, September 2019, August, 2019, July 2019 and June 2019. However, the department was unaware of the fact that the same was filed, and passed the order of cancellation. On appeal the petitioner contended that the return for the month of May 2019 was filed and thus, it only amounted to non-filing of returns for a continuous period of 5 months and not 6 months, that is from June-October, 2019. The HC agreed with the petitioners’ arguments and set aside the order for cancellation of the RC.
So, even though the authority was unaware that the return had been filed, because of the return being filed, the requirement mandated under section 29(2)(c) and Rule 22 is not fulfilled. Further, this implies that if returns have been filed before an order for cancellation is passed, those returns must be taken into account before passing a decision. Therefore, it means that the returns amount to “available records.”
2. Whether Registration Certificate (RC) can be cancelled on the basis of failing to file a month’s return?
Under section 39(1) for each month or part thereof, has not furnished returns for a continuous period of six months. In the present case, with a literal interpretation of the above Rule, it can be said that since returns were filed for all pending months except one, the criteria for cancellation of RC, that is non-filing of returns for 6 continuous months is not fulfilled, and so the RC cannot be cancelled for failing to file return for a single month. Further, the returns filed for the 5 prevailing months amount to available records which must be taken into account before passing an ex-parte order. Hence, RC cannot be cancelled on the basis of failing to file a month’s return.
It is also to be noted that the person in the present case has not filed the return for the last month only and not the first month, or any month in the middle, as the same isn’t permitted. Section 39(10) of CGST Act states that, “A registered person shall not be allowed to furnish a return for a tax period if the return for any of the previous tax periods has not been furnished by him.” The present fact situation is just the inverse of the Phoenix case,[2] where returns were filed for 5 months and not filed for a month, while in the latter, they were filed for a month and not filed for 5 continuous months.
3. Whether claimant can claim ITC for the period prior to cancellation of Registration Certificate [hereinafter, “RC”]?
In terms of Section 29(2) of the CGST Act, the proper officer has the discretion to cancel the registration from any date, including with retrospective effect; however, the discretion cannot be exercised in an arbitrary manner. In order to cancel a RC retrospectively, there must be genuine reasons. The effect of cancellation of GST registration from a retrospective date has a cascading effect inasmuch as the concerned authorities would also deny the Input Tax Credit to other tax payers.[3]
Further, the purpose of a show-cause notice is to apprise the notice regarding the reason for the proposed action to enable him to respond to the same. This in turn enables the concerned authority to make an informed decision. No adverse order could be passed against the petitioner without informing the petitioner of reasons for the same and affording him an opportunity to respond to the same.[4]
In a plethora of cases,[5] the Delhi HC has held that, “In terms of Section 29(2) of the Act, the proper officer may cancel the GST registration of a person from such date including any retrospective date, as he may deem fit if the circumstances set out in the said sub-section are satisfied. Registration cannot be cancelled with retrospective effect mechanically. It can be cancelled only if the proper officer deems it fit to do so. Such satisfaction cannot be subjective but must be based on some objective criteria. Merely, because a taxpayer has not filed the returns for some period does not mean that the taxpayer’s registration is required to be cancelled with retrospective date also covering the period when the returns were filed and the taxpayer was compliant.
It is important to note that, according to the respondent, one of the consequences for cancelling a taxpayer’s registration with retrospective effect is that the taxpayer’s customers are denied the input tax credit availed in respect of the supplies made by the tax payer during such period. Although, we do not consider it apposite to examine this aspect but assuming that the respondent’s contention is required to consider this aspect while passing any order for cancellation of GST registration with retrospective effect. Thus, a taxpayer’s registration can be cancelled with retrospective effect only where such consequences are intended and are warranted.”
In one of the cases,[6] the court stated, “There is no material on record to justify such retrospective cancellation of GST registration by the Adjudicating Authority. As noted hereinbefore, the reason for proposing cancellation of petitioner’s GST registration as stated in the Show Cause Notice dated 30.06.2021 is non filing of returns; thus, absent any other reason, the retrospective cancellation cannot extend to include the period for which returns were filed by the petitioner.”
Whereas when the person has claimed to revoke the RC as their business was closing or because they no longer wanted to continue with the RC, the retrospective cancellation can apply from the date of closure of business and not prior,[7] otherwise the cancellation will apply from the date of issue of the show cause notice.[8]
Thus, the sole reason that the petitioner had not filed the returns for a continuous period of six months – the ground on which cancellation was proposed in the Show Cause Notice – does not, in any manner, justify retrospective cancellation. As a result, in the present case the claimant can claim ITC for the period prior to the cancellation of RC, that is prior to when the show cause notice was issue. And it follows that if there is no cancellation of the RC, the claimant can claim ITC for the period after as well.
[1] Phoenix Rubbers v. C. T. O., (2020) 76 GSTR 397.
[2] Id.
[3] Ashish Garg Proprietor Shri Radhey Traders v. Commr. (SGST), 2023 SCC OnLine Del 4408.
[4] Roxy Enterprises v. Union of India, 2023 SCC OnLine Del 3103.
[5] Deepali Kapoor v. Avato Ward-63, State Goods & Services Tax, 2024 SCC OnLine Del 685; Aditi Agencies v. Commr. (CGST), 2024 SCC OnLine Del 1140; Rane Brake Lining Ltd. v. Superintendent, 2024 SCC OnLine Del 1133; Sagar Enterprises v. Commr. of Goods & Service Tax, 2024 SCC OnLine Del 1132; Green Work Metal v. Commr. of GST, 2024 SCC OnLine Del 920; Shubh Ball Bearings Co. v. Commr., 2024 SCC OnLine Del 1199; Hansraj Tiles World v. Commr. of DGST Delhi, 2024 SCC OnLine Del 2659.
[6] supra note 3.
[7] Mukesh Kumar Singh v. Commr. of Delhi GST, 2024 SCC OnLine Del 2907.
[8] Bridgekala Luxurious Lifestyle Management (P) Ltd. v. Commr. (Delhi GST), 2024 SCC OnLine Del 401.
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