The Allahabad High Court, Lucknow Bench, has held that GST department were not justified in cancelling a taxpayer’s registration over an issue concerning non-deposit of input tax credit (ITC), when the appropriate course was to initiate recovery proceedings under Sections 73 and 74 of the Central Goods and Services Tax Act, 2017.

The Bench of Justice Shekhar B. Saraf and Justice Amitabh Kumar Rai directed the authorities to allow revocation of the cancellation in accordance with law and also noted that the taxpayer had been regularly filing returns and found no justification for cancelling its registration in the circumstances.

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The petitioner/assessee approached the High Court under Article 226 of the Constitution, challenging the order cancelling its GST registration, as well as the subsequent order passed on its application seeking revocation of the cancellation.

Upon examining the impugned orders, the Court found that the issue related to non-deposit of ITC. It observed that the authorities should have pursued the statutory procedure for recovering the credit instead of cancelling the petitioner’s registration.

The brief judgment does not specify the amount of disputed ITC, the relevant tax period, or the transactions underlying the dispute.

The Bench observed that the authorities ought to have taken appropriate steps for recovery of the ITC under Sections 73 and 74 of the CGST Act, 2017. Instead, they had proceeded to cancel the registration.

The Court held that the action taken by the authorities was not in consonance with the procedure established by law.

The ruling distinguishes between recovery of disputed ITC through the statutory process and cancellation of registration in the circumstances before the Court. It does not decide whether the disputed credit was ultimately recoverable from the petitioner.

The taxpayer’s compliance with return filing requirements was a specific consideration in granting relief.

The Bench stated, “Since the petitioner has been regularly filing his returns, we do not find any justification for cancellation of his registration.”

Read together with the observations concerning the recovery procedure, this finding formed the basis for directing revocation of the cancellation.

The observation is tied to the facts of this case. The order does not hold that regular filing of returns prevents cancellation for every possible statutory violation.

The High Court directed the authorities to allow revocation of the cancellation of the petitioner’s GST registration in accordance with law.

At the same time, the Bench preserved the department’s power to initiate proceedings concerning other violations. It clarified that the authorities would remain at liberty to issue a show-cause notice to the petitioner in respect of any other violation of law, following the procedure established by law.

Accordingly, the relief against cancellation does not give the petitioner immunity from lawful proceedings. The department must follow the appropriate statutory process for the violation it seeks to address.

The Court disposed of the writ petition with these directions. No specific deadline for allowing revocation was prescribed in the order.

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