High Court Restores GST Registration; Financial and Health Hardships Accepted as Justification for Nil Returns and Inactivity

High Court Restores GST Registration; Financial and Health Hardships Accepted as Justification for Nil Returns and Inactivity

1. The Core Dispute: Technical Cancellation vs. Business Intent

The petitioner’s GST registration was cancelled by the Department under Section 29(2) because the business had shown no transactions and had filed “Nil” returns for three consecutive years. The Department viewed this as a case of an inactive business that no longer required registration.

• Petitioner’s Stand: The lack of business activity was not intentional but was due to severe financial and health problems. The petitioner argued that losing the old GST number would cause significant operational difficulties and that they intended to restart the business.

• Petitioner’s Commitment: The petitioner expressed a readiness to comply with all pending filings and pay any outstanding tax, interest, or penalties to keep the original registration active.

2. Legal Analysis: The Objective of Registration

The High Court focused on whether the “Nil” filing status was a sufficient ground to permanently bar a taxpayer from the GST system when they had a legitimate reason for the lull in activity.

I. Genuineness of Hardship

The Court observed that the reasons provided (health and financial distress) were genuine. It held that the GST framework should facilitate business rather than create hurdles for taxpayers who are struggling but wish to remain compliant.

II. The “Fresh Registration” vs. “Revocation” Debate

The petitioner rightly pointed out that obtaining a new registration often involves more scrutiny and the loss of the historical compliance record associated with the old GSTIN.

• The Ruling: Since the petitioner was willing to clear all past compliance gaps, there was no reason to deny the revocation of the cancellation. Revocation allows the taxpayer to “cure” the defect and resume business under the existing identity.

3. Final Verdict: Conditional Restoration

The High Court set aside the cancellation order and allowed the petitioner to return to the GST fold.

• Verdict: The impugned order cancelling the registration was revoked.

• Conditions: The restoration is subject to the petitioner completing all required compliance (filing pending returns and paying any applicable interest/penalty) within the timeframe typically stipulated by the authorities.

• Outcome: The petitioner retained their original GST registration number.

Key Takeaways for Taxpayers

• Explain “Nil” Activity: If you receive a Show Cause Notice (SCN) for cancellation due to inactivity, proactively explain the reasons (medical, financial, or market-related) rather than ignoring the notice.

• Preserve Your GSTIN: It is almost always legally and operationally advantageous to seek revocation of a cancelled GSTIN rather than applying for a new one, as it maintains your business history.

• Compliance is a Pre-requisite: Courts are generally lenient with registration restoration only if the taxpayer commits to paying all dues and filing all backlogged returns.