GST registration cancellation u/s 29 CGST Act quashed; Covid distress accepted, restoration directed upon payment and compliance

HC held that cancellation of the petitioner's GST registration for non-filing of returns over six months, occurring during the Covid-19 period, was unduly harsh in the absence of any allegation of fraud or unlawful activity. Accepting the explanation of medical and financial distress as bona fide, and noting the petitioners' undertaking to discharge all tax dues with applicable late fees and interest, HC followed its earlier approach in similar circumstances. The impugned cancellation order was set aside and the matter remanded to the GST authorities to restore registration on the petitioners' compliance with statutory obligations and payment of all outstanding liabilities.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether cancellation of registration under the GST Act for non-filing of returns during COVID-19 affected periods was justified in the absence of allegations of fraud or unlawful activity.

1.2 Whether, in the facts and circumstances, registration under the GST Act ought to be restored subject to payment of outstanding tax dues, interest and late fees within a stipulated time.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for cancellation of GST registration for non-filing of returns during COVID-19 affected periods

Interpretation and reasoning

2.1 The Court recorded that the petitioners had admittedly failed to file GST returns for approximately six months, corresponding to March-August 2021 in one petition and December 2020-June 2021 in the other.

2.2 The Court noted that these periods were proximate to and fell within the COVID-19 pandemic period, during which one petitioner suffered a heart condition and underwent medical procedures, and the other faced severe financial constraints.

2.3 The Court found that the explanation for non-filing of returns did not appear mala fide or unreasonable.

2.4 The Court expressly noted that there were no allegations that the petitioners had indulged in any unlawful business activities or attempted to defraud the GST authorities, and counsel for the authorities confirmed that there was no hint of fraudulent transactions.

2.5 While the respondents argued that the petitioners should have been more diligent, the Court balanced this with the exceptional circumstances of the pandemic and the absence of misconduct.

Conclusions

2.6 The Court held that, in the given circumstances of COVID-19, medical hardship, and financial constraints, coupled with the absence of any allegation of fraud or unlawful activity, the rigid consequence of cancellation of GST registration warranted reconsideration.

Issue 2: Restoration of GST registration subject to payment of dues

Legal framework and precedent as discussed

2.7 The Court referred to its earlier decision in "Azaria Cor LLP vs. The Deputy Commissioner of State Tax & Anr.", wherein in similar circumstances, cancelled registration was restored subject to the petitioner paying all dues together with late fee and interest, and to other precedents referred to in that decision.

Interpretation and reasoning

2.8 The petitioners, through counsel, stated their readiness and willingness to pay all dues for the relevant periods, including any dues up to date, along with late fees and interest, within 15 days of intimation from the GST authorities.

2.9 The Court accepted the submission that cancellation of registration would benefit neither the petitioners nor the revenue authorities, as the petitioners were interested in continuing their lawful business of trading in building materials.

2.10 Applying the reasoning in the Azaria Cor LLP decision and related precedents to the "peculiar facts" of the present matters, the Court considered it appropriate to fashion a conditional relief mechanism balancing revenue interest and the petitioners' right to carry on business.

Conclusions

2.11 The Court directed the concerned authorities, within 15 days of uploading of the order, to intimate in writing the status of tax dues, late fees and interest payable by the petitioners.

2.12 It was ordered that, if the petitioners pay the demanded amount within 15 days of receipt of such intimation, or if no intimation is sent within 15 days, the impugned orders cancelling GST registration dated 27 October 2021 and 29 October 2021 shall stand quashed and set aside, without prejudice to the authorities' right to recover dues, if any.

2.13 The Court further held that if the petitioners fail to make payment within 15 days of receipt of intimation, the writ petitions shall stand dismissed automatically, without further reference to the Court.

2.14 On these terms, the rule was made absolute and the petitions were disposed of, with no order as to costs.

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