Facts of the Case

The petitioner was a contractor engaged in providing construction services and was registered under the GST law. According to the petitioner, he was out of business and, therefore, returns after September 2018 could not be filed. The person engaged by him was also under the impression that, since outward supply was nil, there was no requirement to file returns.

A show cause notice dated 22 June 2020 was issued under Rule 22 read with Section 29(2)(c) of the CGST Act, 2017, calling upon the petitioner to explain why his GST registration should not be cancelled for failure to furnish returns continuously for six months. The notice was received on the GST portal; however, according to the petitioner, his erstwhile consultant did not inform him and subsequently left the assignment.

Thereafter, the petitioner’s GST registration was cancelled by order dated 18 March 2021, effective from that date.

The petitioner preferred an appeal on 19 November 2021 under Section 107 of the CGST Act. Written submissions were tendered, and a personal hearing through video conference was afforded on 22 December 2021. The appeal was disposed of on 31 January 2022, with the observation that the appellant was required to file all returns relating to the relevant period up to the date of cancellation.

Subsequently, the petitioner filed returns for the period from September 2018 to March 2021, along with the requisite late fees. On self-assessment, challans aggregating to ₹2,94,520 were also paid in March 2022. The petitioner thereafter submitted a representation dated 19 April 2022 seeking restoration of GST registration on the ground that all returns had already been filed. As no relief followed, the petitioner approached the Gujarat High Court under Article 226 of the Constitution of India.

 

Issues Involved

The principal issues before the High Court were:

  1. Whether cancellation of GST registration under Section 29(2) of the CGST Act could be sustained when the petitioner had subsequently filed the pending returns and discharged self-assessed liabilities along with late fee.
  2. Whether the cancellation order, described by the Court as cryptic and lacking necessary details, deserved to be quashed.
  3. Whether GST registration should be restored to enable the petitioner to file GSTR-1 and continue business operations.
  4. Whether the COVID-19 pandemic period and the Supreme Court’s orders extending limitation could benefit the petitioner.
  5. Whether restoration of registration would prejudice the Revenue or, instead, facilitate proper assessment and adjudication by enabling complete online data to be furnished.
  6. Whether the appellate order rejecting relief deserved interference under Article 226 of the Constitution of India.

 

Petitioner’s Arguments

The petitioner contended that there was a genuine and strong intention to have the GST registration restored and continue business activities.

It was submitted that:

  • The petitioner had been out of business and had not filed returns after September 2018.
  • Since outward supply was nil, there was an understanding that returns were not required to be filed.
  • The consultant engaged by the petitioner had failed to properly advise or inform him regarding the show cause notice and GST compliance obligations.
  • The petitioner had subsequently filed the pending returns.
  • The petitioner had self-assessed the liability and paid taxes and late fee, with challans aggregating to approximately ₹2.94 lakh.
  • The petitioner was ready and willing to pay any further amount that might be determined upon assessment by the competent authority.
  • The petitioner sought quashing of the original cancellation order and the appellate order and requested restoration of GST registration.

The petitioner also relied upon the Gujarat High Court decision in Tahura Enterprise vs Union of India, 2022 (4) TMI 751, where restoration of GST registration had been permitted in circumstances involving cancellation for non-filing of returns, COVID-period limitation considerations and subsequent payment of tax liability.

 

Respondent’s Arguments

The Revenue justified the cancellation of GST registration and contended that the action had been taken in accordance with due procedure and principles of natural justice.

The respondent argued that:

  • The petitioner had continuously failed to file GST returns for approximately 30 months.
  • The show cause notice dated 22 June 2020 was not responded to.
  • No return was filed in response to the show cause notice.
  • The petitioner failed to submit a written response to the cancellation proceedings.
  • The appeal had already been rejected on merits on 31 January 2022.
  • A person genuinely interested in continuing business was expected to remain vigilant regarding statutory GST compliance.
  • Permitting an assessee to remain inactive for a prolonged period and seek relief much later could adversely affect the GST compliance system.
  • Both the original authority and appellate authority had concurrently decided against the petitioner.

The Revenue, therefore, urged that the writ petition be dismissed.

 

Court’s Findings

1. Cancellation Order Was Cryptic

The High Court specifically observed that the cancellation order was quite cryptic and hardly contained the details otherwise necessary. The Court noted that the petitioner had not responded to the cancellation proceedings and had not filed the due GST returns, resulting in cancellation under Section 29(2) of the CGST Act.

At the same time, the Court considered the subsequent compliance made by the petitioner.

2. Government Dues Remained Recoverable Up to the Date of Cancellation

The Court observed that, since returns had not been filed from September 2018 and registration had been cancelled in March 2021, the adjudicating authority possessed the power to recover Government dues up to the date of cancellation of registration.

Thus, restoration of registration did not extinguish the Revenue’s authority to determine and recover lawful dues.

3. Pending Returns Filed and ₹2.94 Lakh Deposited

The Court took note of the fact that the petitioner had already filed returns for the period from September 2018 to March 2021 and had deposited approximately ₹2.94 lakh on self-assessment.

The petitioner also expressed readiness to discharge any further tax liability arising upon assessment and to fulfil other statutory obligations.

4. Filing of GSTR-1 Required Restoration of Portal Access

An important aspect considered by the High Court was the Revenue’s repeated objection regarding non-filing of GSTR-1.

The Court observed that, once the filing had been missed and registration stood cancelled, GSTR-1 could not be filed unless:

  • cancellation of registration was revoked; and
  • the assessee was again given access to the GST portal.

The Court found no reason to deny the petitioner an opportunity to file GSTR-1 when he had expressed readiness to comply with legal obligations and discharge any further liability.

5. Restoration Would Not Prejudice Revenue

The High Court held that permitting filing of GSTR-1 would not prejudice the interest of Revenue. On the contrary, it would facilitate the adjudication process because the necessary data would become available online for comparison, verification and proper assessment.

This was a significant finding because the Court viewed restoration not merely as relief to the taxpayer but also as a measure capable of facilitating effective tax administration.

6. COVID-19 Limitation Extension Applied in Petitioner’s Favour

The Court held that the pandemic period could not be ignored. It referred to the Supreme Court proceedings in Re: Cognizance for Extension of Limitation, including M.A. No. 665 of 2021 in SMW(C) No. 3 of 2020, concerning extension and exclusion of limitation during the COVID-19 period.

The High Court observed that the limitation relief considered by the Supreme Court would also come to the rescue of the petitioner in the circumstances of the case.

7. State Should Enforce Law Without Unnecessarily Thwarting Business Prospects

The High Court made an important clarification that the State has an obligation to ensure implementation of the law, but at the same time should not thwart the business prospects of citizens.

Since the petitioner appeared keen to continue business and had demonstrated readiness to fulfil tax and legal obligations, the Court found it appropriate to grant relief.

 

Court Order / Final Decision

The Gujarat High Court allowed the petition and granted substantive relief to the petitioner.

The Court:

  • quashed and set aside the GST registration cancellation order dated 18 March 2021;
  • set aside the appellate order;
  • directed the respondent authorities to forthwith restore the petitioner’s GST registration;
  • directed the petitioner to file GSTR-1 within 15 days from restoration of registration;
  • directed the competent authority to complete the assessment within six weeks thereafter;
  • directed the petitioner to cooperate with the assessment proceedings;
  • took note of the petitioner’s payment of outstanding amounts on self-assessment and readiness to fulfil further obligations arising upon assessment.

The petition was accordingly disposed of.

 

Important Clarification

Nil or Zero Outward Supply Does Not Automatically Eliminate the Return-Filing Obligation

A major practical clarification arising from the facts is that an assessee should not proceed on the assumption that GST returns need not be filed merely because outward supply is nil or zero. Statutory return-filing obligations must be independently examined and complied with.

Restoration Does Not Wipe Out Tax Liability

The Court’s relief did not mean that outstanding Government dues ceased to exist. The adjudicating authority retained the power to assess and recover lawful dues up to the relevant period.

GSTR-1 Filing May Require Restoration of GST Portal Access

Where GST registration has been cancelled and the assessee cannot file pending GSTR-1 due to loss of portal access, restoration of registration may become practically necessary to enable compliance.

Revenue Interest Can Be Better Served Through Restoration in Appropriate Cases

The Court recognised that enabling pending GSTR-1 filing and making complete data available online could facilitate assessment and adjudication rather than prejudice Revenue.

Subsequent Compliance Is a Material Consideration

Filing pending returns, paying self-assessed dues and late fee, undertaking to discharge further assessed liabilities, and demonstrating a genuine intention to continue business were material factors considered by the Court.

COVID-19 Limitation Orders Can Be Relevant

The Supreme Court’s general extension of limitation during the COVID-19 pandemic was treated as relevant to the petitioner’s case and formed part of the High Court’s reasoning.

 

Sections / Rules / Constitutional Provisions Involved

Section 29(2) of the Central Goods and Services Tax Act, 2017 — Power to cancel GST registration in specified circumstances.

Section 29(2)(c) of the CGST Act, 2017 — Relevant provision invoked in relation to continuous failure to furnish returns for the prescribed period, as applicable to the proceedings.

Section 107 of the CGST Act, 2017 — Statutory appeal against decisions or orders passed under the GST law.

Rule 22 of the Central Goods and Services Tax Rules, 2017 — Procedure concerning cancellation of registration.

Article 226 of the Constitution of India — Extraordinary writ jurisdiction of the High Court.

Section 12 of the CGST Act, 2017 — Referred to in the judgment while narrating the petitioner’s status and business circumstances.

GSTR-1 Compliance Provisions — Relevant to the Court’s direction permitting filing after restoration of registration.

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783142719_509compressed.pdf

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