Gauhati High Court Holds GST Registration Cancellation Order Must Be Speaking and Reasoned Under Rule 22 of CGST Rules

In a significant judgment, the Gauhati High Court has clarified the legal requirement for cancellation of GST registration under the Central Goods and Services Tax (CGST) Act, 2017 and the corresponding Rules. The Court held that any order cancelling GST registration must be a speaking order, explicitly stating the reasons for cancellation, in conformity with Rule 22(3) of the CGST Rules and the prescribed Form GST REG-19.

The petitioner, a proprietor of a small business in Arunachal Pradesh, challenged the cancellation of her GST registration by the Proper Officer. The cancellation was effected following a show cause notice for non-filing of returns, but the petitioner contended that she was unable to respond due to lack of access to the GST portal and was not served notice manually. By the time she became aware of the cancellation, the statutory periods for revocation and appeal had lapsed.

The Court examined the statutory framework, noting that Section 29(2)(c) of the CGST Act and Rule 21(h) of the CGST Rules empower the Proper Officer to cancel registration for failure to file returns for a continuous period of six months. Rule 22 prescribes the procedure, requiring issuance of a show cause notice (Form GST REG-17), an opportunity to reply (Form GST REG-18), and, if cancellation is warranted, a reasoned order in Form GST REG-19.

Upon reviewing the impugned order, the Court found that the Proper Officer had failed to assign any specific reasons for the cancellation, merely citing ‘Others’ as the ground. The Court emphasized that such an order, lacking reasons, is a non-speaking order and does not satisfy the requirements of Rule 22(3) or the principles of natural justice. The Court observed that even if the assessee fails to respond to the show cause notice or appear for a hearing, the Proper Officer is not absolved from the duty to pass a reasoned, speaking order.

The judgment underscores that recording reasons is an essential safeguard against arbitrary action and is integral to fair procedure, especially when the order has adverse civil consequences for the affected party. The Court held that the absence of reasons in the cancellation order constituted a statutory breach, rendering the order illegal and unsustainable.

Addressing the issue of delay in filing the writ petition, the Court held that the gravity of the statutory violation in the cancellation order outweighed the delay, given the significant adverse impact on the petitioner’s business and rights.

Consequently, the Court set aside and quashed the cancellation order, restoring the matter to the stage of the original show cause notice. The petitioner was granted one month to either submit a reply to the show cause notice or furnish all pending returns and pay outstanding dues, in which case the Proper Officer must proceed in accordance with law and pass an appropriate, reasoned order as required.

The judgment reinforces the mandatory requirement for GST authorities to provide clear, reasoned orders when exercising the power to cancel registration, thereby upholding statutory prescriptions and the principles of natural justice.