Calcutta High Court Grants Relief to Small Business Owner in GST Registration Cancellation Case

In a recent judgment, the Calcutta High Court, presided over by Hon'ble Justice Raja Basu Chowdhury, addressed a significant issue concerning the cancellation of GST registration for small business owner Prasanta Das. The case, PRASANTA DAS VERSUS THE SUPERINTENDENT, RANGE-V CGST & CX, BARRACKPORE DIVISION, KOLKATA NORTH COMMISSIONERATE & ORS. - 2024 (6) TMI 895 - CALCUTTA HIGH COURT , highlights the challenges faced by small business owners during the COVID-19 pandemic and underscores the importance of procedural fairness in tax administration.

Background of the Case

Prasanta Das, a registered taxpayer under the Central and West Bengal Goods and Services Tax Act, 2017, operates as a small businessman and works contractor. Due to disruptions caused by the COVID-19 pandemic, Das failed to file GST returns for several months. Consequently, on January 14, 2023, he received a show cause notice from the tax authorities, prompting him to explain why his GST registration should not be canceled for non-compliance under Section 39 of the GST Act.

Despite filing the pending returns by March 16, 2023, the tax authorities proceeded to cancel his registration on March 27, 2023, citing a continuous six-month period of non-filing. Following the cancellation, Das's application for revocation was also rejected due to a lack of response to a subsequent show cause notice issued on April 26, 2023.

Legal Proceedings

Aggrieved by the cancellation and subsequent rejection of his appeal due to alleged late filing, Das approached the Calcutta High Court. His legal counsel, led by Ms. Sutapa Roychoudhury, argued that the proper officer should have acknowledged the filing of pending returns and dropped the cancellation proceedings as per Rule 22 of the GST Rules. The counsel highlighted that the petitioner had promptly filed the required returns upon receiving the initial show cause notice.

On the other hand, the respondents, represented by Mr. U. S. Bhattacharya, contended that Das had consistently failed to comply with GST provisions despite multiple opportunities and did not present his case before the authorities, questioning the bona fides of his actions.

High Court's Decision

After considering the submissions and reviewing the case, Justice Raja Basu Chowdhury observed that the petitioner's non-filing of returns during the pandemic did not indicate any dubious intentions to evade taxes. The court acknowledged that canceling the registration would be counterproductive, preventing the petitioner from conducting business and thereby hindering tax recovery.

The court emphasized the need for a pragmatic approach and granted Das an opportunity to rectify his defaults. The order dated March 27, 2023, which canceled the petitioner's GST registration, was set aside, subject to certain conditions:

1. Compliance Requirements: Das must file all pending returns, pay the requisite tax, interest, fine, and penalties within four weeks from the receipt of the court order.
2. Activation of Portal: The respondents were directed to activate the GST portal within one week of receiving the court's order to facilitate Das's compliance.

The court also set aside the subsequent order rejecting the application for revocation of cancellation and the appellate authority's dismissal on February 26, 2024. 

Implications

This judgment is significant for small business owners struggling with compliance during unprecedented times like the COVID-19 pandemic. It underscores the judiciary's role in ensuring fairness and providing relief where procedural lapses by tax authorities could unduly harm businesses. The case reinforces that procedural fairness and a pragmatic approach are essential in tax administration, especially for small businesses trying to recover from disruptions.