GST Registration Cannot Be Cancelled Through Cryptic, Non-Speaking Orders: Gauhati High Court

The Gauhati High Court has recently set aside an order cancelling a taxpayer's GST registration, holding that an adjudicating authority cannot pass a cryptic and non-speaking order that carries adverse civil consequences.

The court observed that even where a taxpayer fails to respond to a show cause notice, the statutory authority remains under an obligation to provide reasons and demonstrate application of mind while cancelling registration.

"If an order is passed without giving a proper reason by the concerned authority, then the order is a non-speaking one. Non-speaking order is one which does not provide a clear reason for its decision," observed the bench.

Justice Manish Choudhury passed the ruling while allowing a writ petition challenging the cancellation of the GST registration of a proprietor engaged in the business of providing light motor vehicles for hire.

The bench further noted, "The fact that the petitioner-assessee did not submit any Reply to the Show Cause Notice dated 13.08.2024 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."

The petitioner had obtained GST registration with effect from November 26, 2021.

A show cause notice was issued in August 2024 alleging failure to furnish returns for a continuous period of six months. The notice also suspended the registration. Subsequently, in September 2024, the registration was cancelled.

Before the Court, the petitioner submitted that due to a miscommunication with her tax consultant, the show cause notice uploaded on the GST portal escaped her attention, and no reply could be filed within the prescribed period.

It was further submitted that the cancellation order had been passed mechanically, without assigning any reasons, and in violation of the procedure prescribed under the GST Rules.

The Revenue opposed the petition, contending that the petitioner herself was responsible for failing to furnish returns for a continuous period of six months or more. It also argued that she had failed to seek revocation of the cancellation or file a statutory appeal within the prescribed period.

Examining the statutory framework under the CGST Act and the CGST Rules, the Court noted that Rule 22 requires the proper officer to issue an order in Form GST REG-19 and record reasons for cancelling registration.

The court observed that the show cause notice merely referred to "failure to furnish returns for a continuous period of six months" without identifying the relevant tax periods or setting out particulars of the alleged default.

"Merely stating that it has come to the notice of the Proper Officer that it appeared that the Registration is liable to be cancelled without detailing out the alleged default committed by the noticee, falls short of the requirement of affording an effective opportunity," held the bench.

The court further found that the cancellation order merely stated that no reply had been filed and cited "Others" as the reason for cancellation, along with a remark that the taxpayer had not filed GSTR-3B returns. According to the Court, such an order failed to satisfy the statutory requirement of recording reasons.

The court observed that cancellation of GST registration has serious consequences because it places a taxpayer outside the GST regime, making it difficult to carry on business in a legitimate manner.

The High Court stated that merely because the taxpayer did not file a reply or appear before the authority does not relieve the proper officer of the obligation to pass a reasoned order.

"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 effect on a registered person like the petitioner," said the bench.

Rejecting the Revenue's objection regarding the delay in filing the writ petition, the Court held that the statutory infirmity in the cancellation order outweighed the petitioner's delayed approach.

Accordingly, the court quashed the GST cancellation order and restored the matter to the stage of the show cause notice. It granted the petitioner one month to either submit a reply to the notice or furnish all pending returns and clear the applicable tax dues, interest, late fee and penalty, following which the proper officer shall proceed in accordance with law.

For Petitioner: Advocate B. Sarma,

For Respondent: B. Sharma, Central Government Counsel