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GST Registration Cancellation: A Case Study

Background – Cancellation of GST Registration of the Petitioner

This case revolves around the cancellation of GST registration of the petitioner, Pratibha-Mosinzhshtroi Consortium. The controversy began when a Show Cause Notice (SCN) was issued on 08.07.2021, stating that the petitioner’s registration was liable to be cancelled. However, the SCN did not provide any specific reasons for the proposed action. The petitioner’s registration was subsequently suspended with effect from 08.07.2021.

Case study on cancellation of GST registration

Despite the lack of clarity in the SCN, the petitioner filed a reply. However, the reply was not placed on record, although there is a reference to the reply in the order cancelling the registration, dated 06.08.2021. The order cancelling the registration did not provide any reasons for the cancellation either.

Following the cancellation of the registration, the petitioner filed an application for revocation of the cancellation order around 21.10.2021. In response to this application, another SCN was issued on 17.11.2021. This SCN, issued pursuant to the petitioner filing an application for revocation of cancellation, stated that the petitioner’s unit was found non-existent at the registered premises during a physical verification conducted on 05.07.2021.

The petitioner filed a reply to the SCN dated 17.11.2021, providing information as to why the petitioner-consortium’s unit was not found in existence at the registered premises. The petitioner-consortium had furnished information that it had shifted its place of business to another location. Documents in support of this plea were also appended to the reply.

Despite this, an order dated 08.12.2021 was passed, rejecting the petitioner-consortium’s application for revocation of cancellation. The order stated that the principal place of business was non-existent, therefore revocation of cancellation may not be granted.

The petitioner-consortium, being aggrieved by the order, preferred an appeal, which was disposed of by the Joint Commissioner, Central Goods and Service Tax, Appeals-I, Delhi via the order dated 22.02.2022. The appellate authority sustained the order cancelling the petitioner-consortium’s registration.

Prayer of the Applicant – revoke cancellation of GST registration

The petitioner sought the following substantial reliefs:

  1. Quash and set aside the impugned order dated 22.02.2022 passed by the Joint Commissioner, Central Goods and Service Tax, Appeals-I, Delhi.
  2. Quash and set aside the order of cancellation of RC dated 06.08.2021 and the order of rejection of revocation application dated 08.12.2021.
  3. Restore the RC of the petitioner with immediate effect.
  4. Issue a Writ of Mandamus or any other Writ, order, or direction.

Legal Issues Involved

The case presented several legal issues:

  1. The SCN issued on 08.07.2021 did not provide any specific reasons for the proposed cancellation of the petitioner’s registration. This lack of clarity compromised the principles of natural justice.
  2. The order cancelling the registration, dated 06.08.2021, did not provide any reasons for the cancellation either. This was likely because the SCN did not mention any reasons for the proposed action.
  3. The SCN issued on 17.11.2021, following the petitioner’s application for revocation of the cancellation order, stated that the petitioner’s unit was found non-existent at the registered premises during a physical verification conducted on 05.07.2021. This procedure is not contemplated under the Central Goods and Services Tax Act, 2017.
  4. The petitioner provided a reply to the SCN dated 17.11.2021, explaining why the unit was not found at the registered premises and providing evidence that the business had shifted to another location. Despite this, an order dated 08.12.2021 was passed, rejecting the petitioner’s application for revocation of cancellation. The order stated that the principal place of business was non-existent, therefore revocation of cancellation may not be granted.
  5. The petitioner’s appeal against the order was disposed of by the Joint Commissioner, Central Goods and Service Tax, Appeals-I, Delhi via the order dated 22.02.2022. The appellate authority sustained the order cancelling the petitioner’s registration.
  6. The SCN dated 08.07.2021 did not mention the inspection conducted on 05.07.2021, which revealed that the petitioner’s unit was not in existence at the registered premises. This was a violation of the principles of natural justice as the petitioner was not given an opportunity to address this issue.
  7. The impugned order dated 22.02.2022 passed by the Joint Commissioner, CGST-I, Delhi did not discuss the assertions made by the petitioner-consortium that it had relocated its business.

Submission by the Opposition

  1. The respondent/revenue argued that the petitioner’s unit was found non-existent at the registered premises during a physical verification conducted on 05.07.2021. This was the primary reason for the cancellation of the petitioner’s registration.
  2. The respondent/revenue maintained that the petitioner had not been able to show sufficient cause for revoking the order directing the cancellation of registration.
  3. The respondent/revenue contested the petitioner’s claim that it had relocated its business. The respondent/revenue argued that the petitioner had not provided sufficient evidence to support this claim.
  4. The respondent/revenue also pointed out that the lead member of the petitioner-consortium, Pratibha Industries Limited, had been ordered to be liquidated by the concerned bench of National Company Law Tribunal (NCLT) in exercise of powers under Section 33 of the Insolvency and Bankruptcy Code, 2016. This order was passed on 08.02.2021.
  5. The respondent/revenue questioned the delegation of powers by the liquidator, Mr. Anil Mehta, to Mr. Ansoo Saurabh, an officer employed with Pratibha Industries Limited, for contesting this matter.

Important Observations of the Court

The court made several important observations in its judgment:

“Given these facets, we are of the view, that the impugned order cannot be sustained for the following reasons. Firstly, the SCN dated 08.07.2021 gave no clue whatsoever, as to what was the infraction committed by the petitioner-consortium, and hence the case/allegation it had to meet. Secondly, although inspection of PIL’s premises was carried out on 05.07.2021, it did not find mention in the SCN dated 08.07.2021. Besides this, no notice of physical inspection was given. The concerned authority, having exercised this option under Rule 25 of the CGST Rules, 2017, it had to give notice.” (Page 7, Para 7)

“Thirdly, another SCN dated 17.11.2021 was issued, which is not contemplated under the CGST Act, 2017. Fourthly, the order dated 22.02.2022 passed by the Joint Commissioner, Central Goods and Service Tax, Appeals-I, Delhi is bereft of reasons. The order does not deal with the information given by PIL as regards its relocation. In sum, the entire proceedings, right up to the stage of passing of the order-in-appeal was legally flawed. Accordingly, the impugned order is set aside.” (Page 8, Para 7)

  • The respondent has the option to issue a new SCN if they believe it is needed, and during this process, the registration of the petitioner will be temporarily reinstated.

“Liberty is, however, given to the respondent/revenue, to issue a fresh SCN, if deemed necessary, with regard to the registration certificate, issued under the Act. However, in the meanwhile, the registration of the petitioner shall be restored.” (Page 8, Para 8)

  • Mr. Jain informed the court that the last return was filed in August 2021. In light of this information, the court has granted the petitioner-consortium an additional four weeks to file their returns for the relevant period. However, to enable them to file the returns, the designated portal for the petitioner-consortium must be activated. The respondent/revenue is responsible for activating the portal within forty-eight hours of receiving a copy of the court’s judgment.

“Furthermore, on account of the hiatus created due to the cancellation of registration of the petitioner-consortium, we are told by Mr Jain, that the petitioner-consortium could not file returns. Mr Jain says, that the last return was filed in August, 2021. Having regard to the aforesaid, further four weeks are granted to the petitioner-consortium to file the returns, for the relevant period. It goes without saying, that for the petitioner-consortium to file the returns, the designated portal concerning the petitioner-consortium will have to be activated. The respondent/revenue will do so, within forty eight hours of the receipt of a copy of the instant judgment.” (Page 8, Para 9,10)

  • The petitioner will not be subjected to any interest or penalty for the delay in filing pending returns. The delay was caused by actions taken by the respondent or revenue authority. However, this benefit of no interest or penalty will only apply to the petitioner-consortium and is available for a limited period of four weeks, starting from the date they receive a copy of the judgment.

“Given the circumstances in which the petitioner was placed, on account of the actions of the respondent/revenue, no interest or penalty will be levied on account of delay in filing the pending returns. However, this window will remain open for the petitioner-consortium only for four (4) weeks, which will run from the date of receipt of a copy of the judgment.” (Page 9, Para 11)

Important Provisions of Law

SCN under the CGST Act, 2017

The SCN is a legal document issued by tax authorities to a taxpayer, notifying them of an alleged contravention of tax laws. The SCN provides the taxpayer with an opportunity to explain or clarify their position regarding the alleged non-compliance. In this case, the court found that the SCN issued did not provide any specific reasons for the proposed cancellation of the petitioner’s registration, compromising the principles of natural justice.

Rule 25 of the CGST Rules, 2017

This rule pertains to the physical verification of the business premises in certain cases. The court observed that the physical verification of the petitioner’s premises was conducted without giving notice to the petitioner, which is not in line with the procedure outlined in Rule 25.

Where the proper officer is satisfied that the physical verification of the place of business of a person is required due to failure of Aadhaar authentication or due to not opting for Aadhaar authentication before the grant of registration, or due to any other reason after the grant of registration, he may get such verification of the place of business, in the presence of the said person, done and the verification report along with the other documents, including photographs, shall be uploaded in FORM GST REG 30 on the common portal within a period of fifteen working days following the date of such verification.

Amendments History:

1. CGST Rule 25 substituted vide Central Tax Notification 16/2020 dt. 23/03/2020.

2. The text ‘or due to not opting for Aadhaar authentication’ inserted in CGST Rule 25 w.e.f. 21/08/2020 vide Central Tax Notification 62/2020 dt. 20/08/2020.

Section 33 of the Insolvency and Bankruptcy Code, 2016

This section deals with the initiation of the liquidation process for a corporate debtor. The respondent/revenue pointed out that the lead member of the petitioner-consortium, Pratibha Industries Limited, had been ordered to be liquidated by the concerned bench of National Company Law Tribunal (NCLT) in exercise of powers under Section 33 of the Insolvency and Bankruptcy Code, 2016.

Conclusion

The court concluded that the impugned order could not be sustained due to several reasons. The SCN dated 08.07.2021 did not provide any specific reasons for the proposed cancellation of the petitioner’s registration. The order cancelling the registration, dated 06.08.2021, did not provide any reasons for the cancellation either. The SCN issued on 17.11.2021, following the petitioner’s application for revocation of the cancellation order, was not contemplated under the Central Goods and Services Tax Act, 2017. The order dated 22.02.2022 passed by the Joint Commissioner, Central Goods and Service Tax, Appeals-I, Delhi did not discuss the assertions made by the petitioner-consortium that it had relocated its business.

Given these circumstances, the court set aside the impugned order and restored the registration of the petitioner. The court also granted the petitioner-consortium four weeks to file the returns for the relevant period, without any interest or penalty levied on account of delay in filing the pending returns. The writ petition was disposed of in these terms.

 

Author: Parthvi Patel, United World School of Law 

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