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14 September 2021

GST officer has himself has to conduct enquiry as contemplated in Rule 25 and can-not cancel the GST registration on basis of report of intelligence officer

Recently, Hon’ble High Court of Kerala, in the matter of F R Trade Links vs. State Tax Officer, Pala, W.P(C) No. 28917 of 2020 held that GST Authority to restore the GST registration as the petitioner has produced the receipt of the building tax from the local authority to prove the authenticity of his stand.

The petitioner was holding GST Registration Certificate. The impugned order order of cancellation of registration of the petitioner is dated 02.11.2020. Perusal of that order shows that registration is cancelled by invoking provision of Sub Section (2) of Section 29 of the CGST Act, 2017.

As against the order of cancellation, been filed by the petitioner which is also cancelled by the department. As against order for cancellation of registration, the petitioner filed a petition, for challenging this order of cancelling his certificate of registration under the CGST/SGST Act and rejection of his application for revocation of cancellation of registration certificate. In this petitioner drew my attention to the order of cancellation of registration done by invoking the provisions under Section 29(2) of the CGST/SGST Act, 2017. However, the reasons stated in the impugned order are not in consonance with the powers conferred by the respondents for cancellation of registration. It is further, submitted by the learned counsel appearing for the petitioner that the order for rejection of application for revocation of cancellation also suffers from non-application of mind and it is an unreasonable order, without mentioning any reason for rejection of application for revocation of cancellation.

The revenue opposes the contention by placing reliance on the counter affidavit. She submitted that several inspections were conducted by the respondents at the principal place of business of the petitioner. It is submitted that during inspection, it was found that no business was conducted at the place of principal business centre. The building was not having any building number or shutter and no books of accounts were placed at that place of principal business. The door was fully opened, and some water tanks were kept. The building was found to be having no change in structure during second inspection. In second inspection, it was found that some stock was kept at the new premises near the house of the petitioner, but that place was not added in the GST registration and therefore, it was suspected to be bogus. The business in the name and style of 'F.R Trade Links' was not found functioning in the given address and therefore, the impugned action was taken.

After hearing both sides, Hon’ble High court - of Kerala decided the case in favour of the assessee. It was observed that impugned order of cancellation of registration shows that registration is cancelled by invoking provision of Sub Section (2) of Section 29 of the CGST Act, 2017.  It is worthwhile to reproduce provisions of Sub Section (2) of Section 29 of the CGST Act, which reads thus:-

''29. Cancellation or suspension of registration:

  • …………………………
  • The proper officer may cancel the registration of a person from such date, including any retrospective date, as he may deem fit, where,
    • a registered person has contravened such provisions of the Act or the rules made thereunder as may be prescribed or
    • a person paying tax under section 10 has not furnished returns for three consecutive tax periods; or
    • any registered person, other than a person specified in clause (b), has not furnished returns for a continuous period of six months; or
    • any person who has taken voluntary registration under sub-section (3)of section 25 has not commenced business within six months from the date of registration; or
    • registration has been obtained by means of fraud, wilful misstatement or suppression of facts:
Provided that the proper officer shall not cancel the registration without giving the person an opportunity of being heard:”

It is seen from the foregoing provision of law that the proper officer can cancel registration of a person for the reasons stated in Sub Section (2) of Section 29 of the CGST Act. In the instant case, It is not the case of the respondents that the petitioner had contravened any of the above provisions thereunder, inasmuch as, no such allegation is levelled against the petitioner either in the show case notice nor such accusation is made against him in the impugned order.

High court also observed, the State Tax Officer, Pala is also the registering authority of the petitioner. This officer has issued a notice to cancel the registration of the petitioner in FORM GST REG 17, based on the report of the intelligence officer. Thus, it is clear that the State Tax Officer, Pala has himself did not conduct any enquiry as contemplated in Rule 25. He proceeded further to cancel registration, despite the fact that the petitioner was aggrieved by the report of the intelligence officer as seen from the reply tendered by the petitioner. The proper officer, as such, ought not to have proceeded ahead with cancellation of the registration on the basis of report of the intelligence officer. The proper officer ought to have independently assessed the situation, particularly, when the petitioner had produced the receipt of the building tax from the local authority to prove the authenticity of his stand. This seems to have been not done by the proper officer. Without considering this, the registering authority had cancelled the registration. Thus, the application for revocation of cancellation of registration is also rejected by the respondent without proper enquiry in the matter.

The court held that impugned order is quashed and set aside. Consequently, the respondent is directed to restore the registration of the petitioner.