GST: High Court Restores Cancelled Registration Due to COVID-19 Hardship and Improper Notice Service

During the COVID-19 pandemic, numerous businesses’ recipients did not pay their dues, which ultimately lowered the financial conditions of businesses. Hence, many companies could not file their returns during the pandemic period. This led to the issuing of SCNs and GST registration cancellation.

Here, in this case also a company named M/S Vinayaga Consultancy filed a writ petition in the Madras High Court to challenge an order dated 31.05.2023 passed by the GST tax department, cancelling their GST registration for non-filing of GST returns for a continuous period of six months. The company here is requesting the high court to quash the GST registration cancellation order and direct the GST department to restore the registration so that the firm can pay taxes and file returns.

The company is a registered taxpayer under the GST enactments, and they have been filing the GST returns regularly till December 2022. However, during the COVID-19 period, numerous recipients of the company did not pay their dues, which affected the financial condition of the company and, therefore, the company could not continue filing their returns from March 2022 onwards.

Considering this violation, the GST department issued a Show Cause Notice (SCN) dated 15.01.2023 to the company via the online GST portal and without serving any physical copy of it. The company was not aware of the notice, hence could not file any reply to it. As a result, the GST department on 31.05.2023 issued the GST cancellation order, without even considering their reply and as the time limit for filing an appeal had already expired, they could not even file any appeal. Hence, the company approached the Madras High Court seeking to quash the cancellation and restore the GST number (GSTIN-33ABMPU8129P1ZR).

The GST department argued that GST registration was cancelled because the firm did not file returns for six months. Also stated, restoration of registration is possible, but only if the petitioner pays all dues and files all pending returns.

When the court observed the entire case, the judges accepted that the company had genuinely faced financial hardship due to the pandemic; hence, the reason given by the petitioner seemed honest. Therefore, instead of dismissing the case, the court decided to grant relief to the company on the condition that the department must instruct the GST Network (New Delhi) to make changes in the GST portal so that the petitioner can file returns and pay dues. This must be done within 4 weeks of receiving the court order. The company must then file their pending GST returns to date and pay all tax dues, interest, and late fees. This also must be done within 4 weeks after restoration. The company here is not allowed to use any ITC that might be unutilised in their account to pay these dues, and all payments must be made in cash or by bank transfer. If there is any unutilised ITC, it must be checked and approved by the department before use.

After inspection, only the approved ITC can be used to pay future GST liabilities. If the company fails to follow the above conditions, the court will take back its relief, and GST registration will remain cancelled.