GST registration must be restored if portal access was denied for filing returns.

GST registration must be restored if portal access was denied for filing returns.

Issue

Can the cancellation of a GST registration for non-filing of returns be sustained when the taxpayer was effectively prevented from filing those returns because their access to the GST portal was blocked as a result of the registration being suspended or cancelled?

Facts

• The GST department cancelled the assessee’s registration retrospectively on the grounds that returns had not been filed.
• The assessee’s subsequent application to revoke the cancellation and their appeal against that decision were both dismissed (the appeal was rejected for being filed late).
• The assessee contended before the High Court that the very reason they couldn’t file their returns was because the department had cancelled/suspended their registration, thereby blocking their access to the GST portal. This created a classic catch-22 situation.
• The department argued that since the returns were eventually filed late, the authorities were right not to consider them.
• It was brought on record that the assessee had already managed to deposit the returns along with late fees and penalties for some of the periods in question, demonstrating an intent to comply.

Decision

The High Court ruled in favour of the assessee.

• Recognizing the procedural impossibility created by the department’s actions, the court took an equitable and pragmatic approach.
• It held that since the assessee had already shown their bona fide intent by depositing some of the returns and penalties, the registration must be revived to allow for full compliance.
• The court directed the department to restore the assessee’s GST registration and to provide them with access to the GST portal. This would enable the assessee to file all remaining pending returns and pay any associated fines and penalties.

Key Takeways

• A Taxpayer Cannot Be Penalized for an Impossibility: The law does not compel a person to do something that is impossible. If the tax authority’s own actions (like blocking portal access) prevent compliance, they cannot then penalize the taxpayer for that non-compliance.
• Breaking the Procedural Deadlock: The court’s role here was to break a procedural deadlock. Upholding the cancellation would have made it impossible for the assessee to ever become compliant, which is contrary to the objectives of the tax law.
• Bona Fide Intent Matters: The assessee’s effort to pay the dues for some of the periods, despite the difficulties, was taken as a sign of their good faith, which influenced the court to grant relief.
• Focus on Substantive Compliance over Procedural Flaws: The ultimate goal is tax compliance. The court’s order facilitated this goal by restoring the means of compliance (the registration and portal access), rather than upholding a cancellation based on a procedural logjam.