Mere non-reply to SCN cannot be ground for cancellation of GST Registration

Acambis Helpline Management Pvt. Ltd. Vs Union of India (Allahabad High Court)

The Hon’ble Allahabad High Court in Acambis Helpline Management (P.) Ltd. v. Union of India [Writ Tax No. 185 of 2022 dated December 15, 2022] has set aside the order cancelling the Goods and Services Tax (“GST”) Registration of the assessee, passed on the ground that the assessee had failed to reply to the Show Cause Notice (“SCN”). Held that, even if the assessee has failed to furnish a reply to a SCN, it is necessary for the Revenue Department to consider the facts of the case and accordingly conclude that the facts necessitated cancellation of the GST Registration. Directed the assessee to submit a reply to the SCN within 3 weeks. Further, directed the Revenue Department to decide the matter afresh in accordance with the law.

Facts:

Acambis Helpline Management (“the Petitioner”) is involved the business of man power supply. The Revenue Department (“the Respondent”) served the Petitioner with a SCN dated December 2, 2021 (“the Impugned SCN”) wherein it was stated that the Petitioner had not furnished its return for a continuous period of six months under Section 39 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) and was called upon to file a reply within 30 days. However, the Petitioner failed to furnish a reply.

Consequently, an Order dated January 3, 2022 (“the Impugned Order”) was passed cancelling the GST Registration of the Petitioner under Section 29 of the CGST Act. The Petitioner had preferred an appeal against the Impugned Order, which was dismissed on the ground of limitation.

Being aggrieved, this petition has been filed.

The Petitioner contended that it was entitled to seek judicial review of the Impugned Order on the ground that the same was a non-speaking order.

Issue:

Whether the Impugned Order cancelling the GST Registration of the Petitioner is sustainable?

Held:

The Hon’ble Allahabad High Court in Writ Tax no. 185 of 2022 held as under:

• Observed that, the only reason mentioned in the impugned order for cancelling the GST Registration was that the Petitioner did not furnish a reply to the SCN.
• Held that, even if the Petitioner failed to furnish a reply to the Impugned SCN, it was necessary for the Respondent to consider the facts of the case and accordingly conclude that the facts necessitated cancellation of the GST Registration of the Petitioner.
• Set aside the Impugned Order.
• Directed the Petitioner to submit its reply to the Impugned SCN within 3 weeks.
• Permitted the Respondent to pass fresh order in accordance with the law.

Relevant Provisions:

Section 29 of the CGST Act:

“Cancellation or suspension of registration.

29. (1) The proper officer may, either on his own motion or on an application filed by the registered person or by his legal heirs, in case of death of such person, cancel the registration, in such manner and within such period as may be prescribed, having regard to the circumstances where,––

(a) the business has been discontinued, transferred fully for any reason including death of the proprietor, amalgamated with other legal entity, demerged or otherwise disposed of; or

(b) there is any change in the constitution of the business; or

(c) the taxable person is no longer liable to be registered under section 22 or section 24 or intends to optout of the registration voluntarily made under sub-section (3) of section 25:

Provided that during pendency of the proceedings relating to cancellation of registration filed by the registered person, the registration may be suspended for such period and in such manner as may be prescribed.

(2) The proper officer may cancel the registration of a person from such date, including any retrospective date, as he may deem fit, where,––

(a) a registered person has contravened such provisions of the Act or the rules made thereunder as may be prescribed; or

(b) a person paying tax under section 10 has not furnished the return for a financial year beyond three months from the due date of furnishing the said return; or

(c) any registered person, other than a person specified in clause (b), has not furnished returns for such continuous tax period as may be prescribed; or

(d) any person who has taken voluntary registration under sub-section (3) of section 25 has not commenced business within six months from the date of registration; or

(e) registration has been obtained by means of fraud, wilful misstatement or suppression of facts:

Provided that the proper officer shall not cancel the registration without giving the person an opportunity of being heard.

Provided further that during pendency of the proceedings relating to cancellation of registration, the proper officer may suspend the registration for such period and in such manner as may be prescribed.

(3) The cancellation of registration under this section shall not affect the liability of the person to pay tax and other dues under this Act or to discharge any obligation under this Act or the rules made thereunder for any period prior to the date of cancellation whether or not such tax and other dues are determined before or after the date of cancellation.

(4) The cancellation of registration under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act, as the case may be, shall be deemed to be a cancellation of registration under this Act.

(5) Every registered person whose registration is cancelled shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock or capital goods or plant and machinery on the day immediately preceding the date of such cancellation or the output tax payable on such goods, whichever is higher, calculated in such manner as may be prescribed:

Provided that in case of capital goods or plant and machinery, the taxable person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery, reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery under section 15, whichever is higher.

(6) The amount payable under sub-section (5) shall be calculated in such manner as may be prescribed.”

FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT

1. Heard learned counsel for petitioner as well as Sri Dipak Seth, learned counsel for respondents.

2. The petitioner has challenged the order dated 03.01.2022 whereby registration of the petitioner has been cancelled in exercise of the power under Section 29 of CGST Act as well as order dated 29.11.2022 where the appeal preferred by the petitioner has been dismissed.

3. It has been submitted by learned counsel for petitioner that petitioner is registered with GST authorities and is invovled in the business of man power supply. It is submitted that petitioner was served with a show cause notice dated 02.12.2021 wherein it was stated that petitioner has not furnished his return for a contentious period of six months under Section 39 of the Central Goods and Services Tax Act and was called upon to file the reply within 30 days as to why his registration be not cancelled.

4. It is stated that petitioner could not furnish reply to the show cause notice because of health issues of his mother and also on account of the fact that the financial condition of the petitioner was extremely poor. It is further stated that due to the fact that the petitioner did not file any response to the show cause notice, the impugned order dated 03.01.2022 was passed cancelling registration which is quoted as under:-

“”Reference Number: ZA0901220061538

Date: 03.01.2022

To

ACAMBIS HELPLINE MANAGEMENT PRIVATE LIMITED

F1/003, ANSAL API, NEAR JAIPURIYA COLLAGE, AHAMMAU, LUCKNOW, Lucknow,

Uttar Pradesh 226002

GSTIN/UIN:09AAOCA5342C2ZQ

Application Reference No. (ARN): AA0912210069784

Dated: 02/12/2021

Order for Cancellation of Registration

This has reference to your reply dated 02/01/2022 in response to the notice to show cause dated 02/12/2021 Whereas the undersigned has examined your reply and submissions made at the time of hearing, and is of the opinion that your registration is liable to be cancelled for following reason(s).

1. In absence of any reply of the notice, the registration is cancelled.

The effective date of cancellation of your registration is 03/01/2022.

Determination of amount payable pursuant to cancellation:

Accordingly, the amount payable by you and the computation and basis thereof is as follows:

The amounts determined as being payable above are without prejudice to any amount that may be found to be payable you on submission of final return furnished by you.

You are required to pay the following amounts on or before failing which the amount will be recovered in accordance with the provisions of the Act and rules made thereunder.

Place: RANGE-I
Date: 03/01/2022

UJJWAL SRIVASTAVA
Superintendent
Lucknow Sector – 19″

5. The appeal preferred by the petitioner against the said order was also dismissed on the ground of limitation.

6. Learned counsel for petitioner has submitted that though the petitioner has a statutory remedy of appeal before the GST Tribunal but the same not having been constituted for the State of Uttar Pradesh, he has preferred present writ petition.

7. Learned counsel for petitioner has further submitted that the appeal has been dismissed beyond the period of limitation as such doctrine of meager would not apply and the petitioner is entitled to seek judicial review of the order dated 03.01.2021 on the ground that the same is non-speaking order.

8. He has further referred to the judgment of this Court passed in Writ Tax No. 147 of 2022 (M/S Chandrasen, Sarda Nagar, Lucknow Vs. Union of India) where it has been held that the order of cancellation of registration or any other order passed either on the administrative side or on judicial side is without any reason or application of mind and hence such an order would not stand the test of scrutiny under Article 14 of the Constitution of India.

9. It is this Court further noticed that no reason whatsoever in the impugned order for cancelling the registration fo the petitioner. The only reason stated that the petitioner did not respond to the show cause notice. This Court is of the considered view that even in case that the petitioner did not given response to the show cause notice it was incumbent to the competent authority to consider the fact of case and come to the conclusion that the facts necessitate cancellling of the registration of the petitioner in exercise of powers under Section 39 of the CGST Act.

10. In light of the above, the impugned order dated 03.01.2022 is illegal and hence in the aforesaid circumstances, the same is set aside. Accordingly, the writ petition is allowed. The matter is remitted to the adjudicating authority and is further directed to the petitioner to file his reply to show cause notice dated 02.12.2021 within three weeks for today. In case, the petitioner files his reply along with certified copy of this order, the respondent shall proceed to pass a fresh order in accordance with law.

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