Gauhati High Court Holds GST Registration Cancellation Orders Must Be Speaking Orders with Recorded Reasons Under CGST Act

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. The Court held that any order cancelling GST registration must be a speaking order, expressly recording the reasons for such cancellation, in conformity with statutory provisions and principles of natural justice.

The petitioner, a partnership firm engaged in construction works, challenged the cancellation of its GST registration by an order dated 08.03.2024, following a show cause notice issued on 05.02.2024. The petitioner argued that the cancellation order was arbitrary and non-speaking, lacking any detailed reasoning or application of mind. The firm had failed to file returns during a period of financial distress and was unable to respond to the show cause notice or seek revocation or appeal within the prescribed time limits.

The respondent authorities contended that the petitioner was at fault for not filing returns for over six months and for failing to avail statutory remedies in time. However, the Court examined the relevant provisions of the CGST Act and Rules, particularly Section 29(2)(c) and Rule 22, which prescribe the procedure for cancellation of registration, including the issuance of a show cause notice and the requirement to pass an order in Form GST REG-19 with recorded reasons.

Justice Manish Choudhury observed that the show cause notice failed to specify the precise period of default, thereby not affording the petitioner an effective opportunity to respond. More critically, the impugned cancellation order merely referenced the statutory provision without assigning any specific reasons for the decision. The Court emphasized that even if the assessee does not reply or appear, the Proper Officer is not absolved from the obligation to pass a reasoned, speaking order. The absence of reasons renders the order arbitrary and in violation of statutory requirements and principles of natural justice.

The Court further noted that cancellation of GST registration has serious civil consequences, affecting the ability of a business to operate legitimately. The statutory prescription to record reasons in Form GST REG-19 is mandatory, and failure to do so vitiates the order. The Court also held that the vulnerability of the cancellation order due to statutory breaches outweighs any delay in approaching the Court.

Accordingly, the High Court set aside and quashed the impugned 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, after which the Proper Officer must proceed in accordance with law and pass an appropriate, reasoned order.

This judgment reinforces the requirement for administrative authorities to provide clear, reasoned decisions when exercising statutory powers that affect rights and interests, particularly in the context of GST registration cancellations.