Gauhati HC Quashes GST Cancellation as Order Contained No Reasons

Yamang Siram Vs Union of India (Gauhati High Court)

The Gauhati High Court allowed the writ petition challenging the cancellation of the petitioner’s GST registration and set aside the cancellation order dated 26.12.2024 on the ground that it was a non-speaking order passed without assigning reasons.

The petitioner, a Scheduled Tribe woman from Arunachal Pradesh, was carrying on business through her proprietorship firm engaged in cybercafé services at Pasighat, East Siang District. She had obtained GST registration under the CGST Act, 2017, and a Registration Certificate in Form GST REG-06 had been issued on 20.10.2021.

On 12.08.2024, the Proper Officer issued a show cause notice proposing cancellation of the petitioner’s GST registration for failure to furnish returns under Section 39 of the CGST Act. The petitioner was asked to submit a reply within thirty working days and appear before the Proper Officer. A subsequent notice in Form GSTR-3A under Rule 68 of the CGST Rules was also issued on 24.09.2024, requiring the petitioner to furnish returns within fifteen days, failing which assessment proceedings under Section 62 of the CGST Act would follow. Thereafter, by order dated 26.12.2024, the petitioner’s GST registration was cancelled retrospectively with effect from 30.08.2024.

The petitioner contended that she could not access the show cause notice uploaded on the common portal due to difficulties in retrieving login credentials and that no manual notice had been served upon her. By the time she became aware of the proceedings, the period for filing a reply had expired and the cancellation order had already been uploaded. She further submitted that the GST portal did not permit her to file an application for revocation due to expiry of limitation and that she could not file an appeal as both the statutory and extended limitation periods had lapsed. It was also argued that the impugned order, required to be issued in Form GST REG-19, was not a speaking order as it did not disclose any reasons for cancellation.

The respondents argued that the petitioner had defaulted in filing returns continuously for more than six months and had neither sought revocation nor preferred an appeal within the prescribed time, demonstrating lack of diligence.

After examining the provisions of Sections 29 and 39 of the CGST Act and Rules 21, 21A and 22 of the CGST Rules, the Court noted that while the Proper Officer possessed the statutory authority to cancel registration for non-filing of returns, Rule 22 mandated adherence to a prescribed procedure. The Court observed that Form GST REG-19 specifically required the Proper Officer to state the reasons for cancellation of registration.

Upon reviewing the impugned order, the Court found that the Proper Officer had merely recorded that no reply had been submitted and the petitioner had not appeared for personal hearing, followed by the vague expression “Others” as the reason for cancellation. No actual reasons were assigned explaining why the registration deserved cancellation.

The Court held that the fact that the petitioner had not responded to the show cause notice or appeared before the authority did not absolve the Proper Officer from the obligation of passing a reasoned order. Since cancellation of GST registration carries adverse civil consequences and affects a person’s ability to conduct business lawfully, the requirement to record reasons formed part of principles of natural justice and fair procedure. The Court further observed that recording reasons reflects conscious application of mind and serves as a safeguard against arbitrary exercise of statutory power.

The Court concluded that the impugned order failed to conform to the requirements of Form GST REG-19 and amounted to a non-speaking order passed without application of mind. Although the writ petition had been filed after a delay of more than one year from the date of cancellation, the Court held that the statutory infirmities affecting the validity of the cancellation order outweighed the delayed approach of the petitioner.

Accordingly, the High Court set aside and quashed the cancellation order dated 26.12.2024 and restored the matter to the stage of the show cause notice dated 12.08.2024. The petitioner was granted one month to either submit a reply explaining why the GST registration should not be cancelled or furnish all pending returns and make payment of outstanding tax dues along with applicable interest, late fee and penalty, if any. The Court also directed the Proper Officer to provide details of outstanding dues if sought by the petitioner and thereafter proceed in accordance with Section 29 of the CGST Act and Rule 22 of the CGST Rules by passing an appropriate order in Form GST REG-19 or Form GST REG-20, as the case may be, within one month thereafter. The writ petition was accordingly allowed to the extent indicated, without any order as to costs.

FULL TEXT OF THE JUDGMENT/ORDER OF GAUHATI HIGH COURT

The petitioner has approached this Court by the instant writ petition, preferred under Article 226 of the Constitution of India, on the premise that her GST Registration under the Central Goods and Services Tax [CGST] Act, 2017 has been cancelled by an Order dated 26.12.2024 pursuant to issuance of a Show Cause Notice dated 12.08.2024. The assail is made inter-alia on the grounds that the manner in which the GST Registration has been cancelled is arbitrary and the impugned Order of cancellation has been passed by the Proper Officer without due application of mind.

2. It is the case of the petitioner that she is a person from the Scheduled Tribe of Arunachal Pradesh and has been carrying on her business in the name of her proprietorship firm, M/s Ngarsi Enterprise, represented by its sole proprietor. It carries on small business of cybercafé and its principal place of business is at Main Market, Post Office & Police Station – Pasighat, District – East Siang, Pin – 791102, Arunachal Pradesh. The petitioner got itself registered as a proprietorship firm under the Central Goods and Services Tax [CGST] Act, 2017 [‘the CGST Act’, for short]. It is stated that when the petitioner applied for registration, the petitioner was issued Registration Certificate in Form GST REG-06 with Registration no. 12LQBPS2030N1ZQ and the Registration Certificate to that effect was issued on 20.10.2021.

3. The petitioner was issued the Show Cause Notice on 12.08.2024 by the Proper Officer asking her to show cause as to why the registration issued to her under the CGST Act should not be cancelled due to failure on her part to furnish timely returns under Section 39 of the CGST Act. The petitioner was thereby, asked to furnish a Reply within thirty working days from the date of service of the Show Cause Notice. The petitioner was also directed to appear before the Proper Officer on a specified date. It was further mentioned that if the petitioner would fail to furnish a Reply within the stipulated date or to appear for personal hearing on the appointed date and time, the case would be decided ex-parte on the basis of the available records and on merits. Another Notice in Form GSTR-3A under Rule 68 of the CGST Rules was issued to the petitioner on 24.09.2024 as a defaulter under Section 46 of the CGST Act. The petitioner was thereby asked to furnish the returns within fifteen days failing which the petitioner would be assessed under Section 62 of the CGST Act.

4. Thereafter on 26.12.2024, the impugned Order came to be passed whereby the petitioner’s GST Registration has been cancelled w.e.f. 30.08.2024.

5. I have heard Ms. Kipa Yamak, learned counsel for the petitioner; Ms. O. Jerang, learned counsel on behalf of Mr. M. Kato, learned Deputy Solicitor General of India [DSGI] for the respondent no. 1; and Mr. T. Kipa, learned Standing Counsel, CGST for the respondent nos. 2 & 3.

6. Ms. Yamak, learned counsel for the petitioner has submitted that in response to the Show Cause Notice, which was uploaded in the common portal, the petitioner could not submit a reply due to reasons beyond her control as it escaped her notice as she could not access it due to failure to retrieve the login credentials. No notice was served upon the petitioner manually. It is submitted that the petitioner came to learn about the Show Cause Notice when the time for filing the Reply was already over and the impugned Order dated 26.12.2024 had already been uploaded in the common portal. Though the petitioner tried to submit an application for revocation, the GST portal did not allow submission of such application as the time-limit prescribed for filing of revocation of application was already over by then. Similarly, the petitioner could not prefer an appeal due to expiry of the statutory period of limitation as well as extended period of limitation. It is submitted that the petitioner filed returns upto August, 2024. Also, during the said period, the petitioner’s business suffered immensely and the business returns took a dip. Mr. Yamak has further submitted that the impugned Order of cancellation of GST Registration is to be passed in Form GST REG-19 and the Proper Officer while cancelling a registered person’s GST Registration, has to assign reasons for cancellation of registration. But, the impugned Order dated 26.12.2024 is not a speaking order, being bereft of any reason.

7. Mr. Kipa, learned Standing Counsel, CGST has submitted that the default of not filing the returns for a continuous period of six months and more was clearly attributable to the petitioner and none else. He has further submitted that the petitioner did not either submit an application for revocation in time nor presented an appeal under Section 107, CGST Act in time and such facts go to demonstrate that the petitioner herself was indolent and not vigilant.

8. I have considered the submissions of the learned counsel for the parties and have also gone through the materials brought on record, apart from the relevant provisions of the CGST Act, 2017 and the CGST Rules, 2017 [‘the CGST Rules’, for short] on which the learned counsel for the parties have relied on.

9. Section 39[1] of the CGST Act inter-alia requires a registered person to furnish a return for every calendar month or part thereof, electronically, of inward and outward supplies of goods or services or both, input tax credit availed, tax payable, tax paid and such other particulars, in such form and manner, and within such time, as may be prescribed. Rule 61[1] of the CGST Rules has prescribed the Form and manner of furnishing of return electronically through the common portal either directly or through a notified Facilitation Centre, as specified under sub-section [1] of Section 39 of the CGST Act.

10. As per Section 29[2][c], an officer, duly empowered, may cancel the GST registration of a person from such date, including any retrospective date, as he deems fit, where any registered person, has not furnished returns for such continuous tax period as may be prescribed. As per Rule 21[h] of the CGST Rules, registration granted to a person is liable to be cancelled, if the said person being a registered person required to file returns under sub-section [1] of Section 39 of the CGST Act for each month or part thereof, has not furnished returns for a continuous period of six months.

11. Rule 22 of the CGST Rules has laid down the procedure for cancellation of the registration. For ready reference, Rule 22 of the CGST Rules is quoted hereinbelow :-

Rule 22 : Cancellation of Registration

[1] Where the proper officer has reasons to believe that the registration of a person is liable to be cancelled under Section 29, he shall issue a notice to such person in FORM GST REG-17, requiring him to show cause, within a period of seven working days from the date of the service of such notice, as to why his registration shall not be cancelled.

[2] The reply to the show cause notice issued under sub-rule [1] shall be furnished in FORM REG-18 within the period specified in the said sub-rule.

[3] Where a person who has submitted an application for cancellation of his registration is no longer liable to be registered or his registration is liable to be cancelled, the proper officer shall issue an order in FORM GST REG-19, within a period of thirty days from the date of application submitted under sub-rule [1] of Rule 20 or, as the case may be, the date of the reply to the show cause issued under sub-rule [1], or under sub-rule [2A] of Rule 21A, cancel the registration, with effect from a date to be determined by him and notify the taxable person, directing him to pay arrears of any tax, interest or penalty including the amount liable to be paid under sub-section [5] of Section 29.

[4] Where the reply furnished under sub-rule [2] or in response to the notice issued under sub-rule [2A] of Rule 21A is found to be satisfactory, the proper officer shall drop the proceedings and pass an order in FORM GST REG-20 :

Provided that where the person instead of replying to the notice served under sub-rule [1] for contravention of the provisions contained in Clause [b] or Clause [c] of sub-section [2] of section 29, 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.

[5] The provisions of sub-rule [3] shall, mutatis mutandis, apply to the legal heirs of a deceased proprietor, as if the application had been submitted by the proprietor himself.

12. Sub-rule [2] of Rule 21A of the CGST Rules has empowered the Proper Officer also to suspend the registration of a person with effect from a date to be determined by him, pending completion of the proceedings for cancellation for registration under Rule 22, where the Proper Officer has reasons to believe that the registration of the person is liable to be cancelled under Section 29 or under Rule 21.

13. Sub-rule [1] of Rule 22 of the CGST Rules has inter-alia prescribed that where the Proper Officer has reasons to believe that the registration of a person is liable to be cancelled under Section 29 of the CGST Act, he is required to issue a notice to such person in FORM GST REG-17, requiring the registered person to show cause, within a period of seven working days from the date of the service of such notice, as to why her registration shall not be cancelled. Then, the registered person can furnish, as per sub-rule [2], his or her Reply to the show cause notice in FORM GST REG-18 within the period specified, that is, within seven working days.

14. Sub-rule [3] of Rule 22 has inter-alia prescribed that where in respect of a registered person the registration is liable to be cancelled, the Proper Officer shall issue an order in FORM GST REG-19 with a period of thirty days from the date of the Reply to the Show Cause Notice issued under sub-rule [1], cancelling the registration with effect from a date to be determined by him and notifying the taxable person to pay arrears of any tax, interest or penalty. It is implicit in sub-rule [3] that the Reply submitted by the person has to be unsatisfactory for the registration to be cancelled.

15. Sub-rule [4] of Rule 22 of the CGST Rules has stated that where the Reply furnished under sub-rule [2] is found to be satisfactory, the Proper Officer shall drop the proceedings and pass an order in FORM GST REG –20.

16. The petitioner was directed to furnish a Reply to Show Cause Notice within thirty days from the date of service of the Show Cause Notice. By the Show Cause Notice, the petitioner was also directed to appear before the Proper Officer. The Show Cause Notice further provided that if the petitioner as the noticee would fail to furnish a Reply within the stipulated date or fail to appear for personal hearing on the appointed date and time, the case would be decided ex-parte on the basis of available records and on merits.

17. When the contents of the impugned Order dated 26.12.2024 are read, it is found that the Proper Officer while cancelling the GST Registration of the petitioner w.e.f. 30.08.2024, has not assigned any reason. The Proper Officer in the Order dated 26.12.2024 has recorded that : ‘This has reference to show cause notice dated 12.08.2024. Whereas no reply to the show cause notice has been submitted and on day fixed for personal hearing, you did not appear in person or through an authorized representative; and whereas, the undersigned based on record available with this office is of the opinion that your registration is liable to be cancelled for following reason[s] : [1] Others.’

18. It has been laid down in sub-rule [3] of Rule 22 of the CGST Rules that the Officer has to pass an Order under Section 29[2] of the CGST Act read with Rule 22[3] of the CGST Rules in FORM GST REG-19. For ready reference, the contents of Form GST REG-19 are extracted hereinbelow :-

20. Under the GST regime a registered assessee is required to pay the statutory dues under the CGST Act or the SGST Act, as the case may be, or both. These statutory dues are required to be paid by all the assessees, who are registered under the GST regime, mandatorily. Such payments of statutory dues contribute towards the State Exchequer. If a taxable person like the petitioner is not included within the GST regime, then any statutory dues that may be required to be deposited by an assessee like the petitioner would not be deposited and properly accounted for and such a situation is, albeit, not in the interest of the revenue.

21. At the same time, cancellation of GST registration would entail adverse civil consequences to the person affected as due to cancellation of her registration under the GST regime, the person would be outside it and it would be difficult for the person to carry on any business in a valid manner. It is not in doubt that the impugned Order dated 26.12.2024 whereby the petitioner’s GST registration has been cancelled is an order which has the consequence of bringing adverse consequences to the petitioner.

22. When the contents of the impugned Order dated 26.12.2024 are looked at, it is found that in the impugned Order, the Proper Officer has not assigned any reason as to why the petitioner’s GST Registration has been cancelled.

23. On perusal of the impugned Order, it is evidently clear that the impugned Order is not in conformity with the procedure prescribed in FORM GST REG-19. A speaking order is one which expressly states the reasons for the decision. In other words, a speaking order speaks for itself by assigning the reasons behind the conclusion. If an order is passed without giving a reason by the concerned authority, then the order is a non-speaking one. Non­speaking order is one which does not provide a clear reason for its decision. The fact that the petitioner-assessee did not submit any Reply to the Show Cause Notice dated 12.08.2024 or did not appear before the Proper Officer, when she was called upon to do so, does not absolve the Proper Officer from the obligation of passing a speaking order as any order which brings adverse consequence to a person cannot be a mere paper formality.

24. An adjudicating authority exercising statutory power of cancelling registration under the CGST Act must record reasons for its decision, unless such obligation is expressly or impliedly dispensed with. It is implicit in the principles of natural justice and fair play that an adjudicating authority should record reasons as it is part of fair procedure, more particularly, when the decision is likely to affect the right of the person concerned. Recording of reason is also prima facie suggestive of conscious application of mind on the part of the authority. The obligation to record reasons is a possible check against arbitrary action on the part of the adjudicating authority invested with the statutory power to take a decision which is likely to affect the right of the person concerned. When the statute itself contains a prescription to record reasons in the decision, absence of reasons in the decision falls short of the prescription and would be in violation of the prescription and thus, illegal. A look at FORM GST REG-19 also goes to substantiate that the Proper Officer is obligated to record his reason[s] for taking the action of cancellation of GST Registration.

25. Thus, from every standpoint, the impugned Order dated 26.12.2024 is not a speaking order. As such, the impugned Order dated 26.12.2024 is found to be one which is passed without any application of mind. For the afore-stated reasons, the impugned Order dated 26.12.2024 cannot stand the scrutiny of law and is liable to be set aside and quashed.

26. A submission has been made that the writ petition has been preferred with delay as the petitioner has filed the writ petition in April, 2026, that is, after more than one year four months from the order of cancellation of registration. Although the petitioner has not approached the Court immediately after the order of cancellation of registration, this Court is of the considered view that when the extent of vulnerability of the order of cancellation of registration is due to not meeting the statutory prescription of recording reasons is pitted against the delayed approach, the vulnerability of the order of cancellation of registration, due to statutory breaches, would far outweigh the delayed approach because of its likely adverse affect on a registered person like the petitioner.

27. For all the afore-mentioned reasons, the impugned Order dated 26.12.2024 is set aside and quashed. With the setting aside and quashing of the impugned Order dated 26.12.2024, the matter stands reverted back to the stage of issuance of the Show Cause Notice in FORM GST REG-17.

28. It is discernible from a reading of the proviso to sub-rule [4] of Rule 22 of the CGST Rules that if a person who has been served with a Show Cause Notice under Section 29[2][c] of the CGST Act is ready and willing to furnish all the pending returns and to make 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 the prescribed Form, that is, Form GST REG-20.

29. In the above fact situation obtaining in the case in hand, it is open for the petitioner to submit a Reply to the Show Cause Notice dated 12.08.2024 showing reason[s] as to why the GST Registration should not be cancelled in terms of sub-rule [2] of Rule 22 of the CGST Rules read with Section 29[2][c] of the CGST Act. In the alternative, the petitioner-assessee, at the time of or instead of, replying to the Show Cause Notice served under sub-rule [1] of Rule 22 of the CGST Rules, can furnish all the pending returns and make full payment of the tax dues along with the applicable interest, late fee and penalty, if any. It is, therefore, observed that it would be open for the petitioner-assessee to avail either of the two options. This Court, for ends of justice, deems it just and proper to grant a period of one month from today to the petitioner to avail either of the two permissible options. If the petitioner wants to know her outstanding dues including the tax dues, applicable interest, late fee, penalty, etc. the Proper Officer shall furnish or shall supply such details to the petitioner if the petitioner approaches him within the said period of one month. It is further observed that depending on the option availed by the petitioner, the Proper Officer shall proceed thereafter, in accordance with the procedure prescribed in Section 29 of the CGST Act and Rule 22 of the CGST Rules to bring the process to its logical conclusion by passing appropriate order either in FORM GST REG-19 or FORM GST REG-20, as the case may be, as expeditiously as possible, but, not later than a period of one month thereafter.

30. With the observations made and the directions given above, the writ petition stands allowed to the extent indicated above. There shall, however, be no order as to cost.