Kerala High Court Overturns GST Registration Cancellation Order

Case Name:

Anilkumar Madhusudhanan v. The Superintendent Tax Payer Services, Circle Pala, Central GST & Central Excise, Pala Range, Pala, Kottayam

Key Takeaways:

1. The cancellation of GST registration can be challenged through a writ petition in the High Court.
2. The cancellation order must provide specific reasons and explanations for the alleged fraud, willful misstatement, or suppression of facts.
3. A non-speaking order, which fails to provide reasons, is unsustainable in law.
4. The court may set aside a cancellation order if it is found to be a non-speaking order and remit the matter back to the authority for a reasoned order.
5. The petitioner has the right to be heard and present their submissions before the authority.

Case Synopsis:

In the High Court of Kerala at Ernakulam, a writ petition (WP(C) No. 37875 of 2023) was filed by Anilkumar Madhusudhanan, aged 42 years, challenging the order dated 05.10.2023 passed by the Superintendent Tax Payer Services, Circle Pala, Central GST & Central Excise, Pala Range, Pala, Kottayam, cancelling the petitioner’s GST registration.

The petitioner received a show cause notice (Ext.P2) on 09.08.2023, asking him to show cause why his registration should not be cancelled under Section 29(2)(e) (of Income Tax Act, 1961) of the CGST/SGST Act 2017, which deals with registration obtained by means of fraud, willful misstatement, or suppression of facts. However, the notice did not provide any specific details about the fraud, willful misstatement, or suppression of facts that were alleged to have occurred at the time of obtaining the GST registration.

The petitioner replied to the show cause notice (Ext.P3), and after considering the reply, the 1st respondent passed the order (Ext.P4) cancelling the petitioner’s registration. The order stated that the effective date of cancellation was 16/03/2023 and that the petitioner was required to furnish all pending returns and a final return in FORM GSTR-10 within three months of the date of the order.

The petitioner challenged the order on the grounds that it was a non-speaking order, meaning it did not provide any reasons or explanations for the cancellation. The court agreed with the petitioner and set aside the impugned order. The matter was remitted back to the 1st respondent to pass a reasoned order after giving an opportunity of hearing to the petitioner. The petitioner was directed to appear before the 1st respondent on 01.12.2023 and make his submissions.

This judgment highlights the importance of providing specific details and reasons when cancelling a GST registration based on fraud, willful misstatement, or suppression of facts. The court emphasized that a non-speaking order is unsustainable in law.

FAQ:

Q1: What was the reason for the cancellation of the petitioner’s GST registration?

A1: The cancellation was based on Section 29(2)(e) of the CGST/SGST Act 2017, which deals with registration obtained by means of fraud, willful misstatement, or suppression of facts. However, the specific details of the alleged fraud or misstatement were not provided in the show cause notice or the cancellation order.

Q2: What did the court decide in this case?

A2: The court set aside the cancellation order due to its lack of specific reasons and explanations. The matter was remitted back to the authority for a reasoned order after giving the petitioner an opportunity of hearing.

Q3: What is a non-speaking order?

A3: A non-speaking order is an order that does not provide any reasons or explanations for the decision made. In this case, the court found the cancellation order to be a non-speaking order because it did not specify the fraud, misstatement, or suppression of facts that led to the cancellation.

Q4: Can a cancellation order be challenged in court?

A4: Yes, a cancellation order can be challenged through a writ petition in the High Court. The petitioner can seek the court’s intervention to review the order and provide appropriate relief if it is found to be unjust or lacking in proper reasoning.

The present writ petition has been filed impugning the order dated 05.10.2023 passed by the 1st respondent cancelling the GST Registration of the petitioner.

2. The petitioner was issued a show cause notice in Ext.P2 dated 09.08.2023 asking the petitioner to show cause why the petitioner’s registration should not be cancelled for the reason ‘Section 29(2)(e) (of Income Tax Act, 1961)-registration obtained by means of fraud or willful misstatement or suppression of facts.’ It is relevant to note that the notice does not further delineate what fraud, willful misstatement or suppression of facts were there at the time the petitioner obtained the GST registration.

3. Be that as it may, the petitioner has replied to the said show cause notice in Ext.P3. After considering the reply to the show cause notice, the Ext.P4 order has been passed by the 1st respondent. Ext.P4 order, on reproduction, would read as under:

“Order for Cancellation of Registration

This has reference to show cause notice issued dated 09/08/2023.

The effective date of cancellation of your registration is 16/03/2023.

3. It may be noted that a registered person furnishing return under sub-section (1) of section 39 of the CGST Act, 2017 is required to furnish a final return in FORM GSTR-10 within three months of the date of this order.

4. You are required to furnish all your pending returns 5 It may be noted that the cancellation of registration shall not affect the liability 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. Section 29 of the CGST/SGST Act 2017 empowers the competent authority to cancel or suspend the registration for the grounds mentioned in the said section. Subsections (1) and (2) of Section 29 (of Income Tax Act, 1961) are extracted hereinbelow for ready reference.

“29. Cancellation [or suspension] of registration

(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 leg 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 (of Income Tax Act, 1961) or section 24 (of Income Tax Act, 1961) or intends to opt out of the registration voluntarily made under sub-section (3) of section 25 (of Income Tax Act, 1961):

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 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 (of Income Tax Act, 1961) 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 (of Income Tax Act, 1961) has not commenced business within six months from the date of registration;or

(e) registration has been obtained by means of fraud, willful 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.” (emphasis supplied)

5. From the perusal of the aforesaid provision of Section 29 (of Income Tax Act, 1961), it is evident that registration obtained by a person under the GST can be cancelled if the same has been obtained by means of fraud, willful misstatement or suppression of facts. Though clause (e) of sub-section (2) of Section 29 of the GST Act is extracted in the show cause notice, neither in the show cause notice nor the impugned order (Ext.P4), it is not made clear what kind of fraud, willful misstatement or suppression of fact were there at the time of granting GST registration to the petitioner. The impugned order is wholly a non-speaking order. As such, the order is unsustainable in law.

Therefore, the writ petition is allowed. The impugned order is set aside. The matter is remitted back to the files of the 1st respondent to pass a reasoned order after giving an opportunity of hearing to the petitioner. The petitioner is directed to appear before the 1st respondent on 01.12.2023 and make his submissions.

Sd/-

DINESH KUMAR SINGH

JUDGE