Restoration of GST Registration Cancelled for Non-Filing Due to Financial and Health Hardships Subject to Strict Cash Payment and ITC Restrictions

Restoration of GST Registration Cancelled for Non-Filing Due to Financial and Health Hardships Subject to Strict Cash Payment and ITC Restrictions

1. The Core Dispute: Cancellation for Prolonged Non-Filing

The petitioner’s GST registration was cancelled by the authorities because they failed to file returns for a continuous period of six months, as empowered under Section 29(2)(c).

• Petitioner’s Stand: The non-filing was not deliberate but was caused by severe financial constraints and health problems (including medical procedures). The petitioner expressed a genuine willingness to regularize all defaults by filing pending returns and paying all dues.

• Revenue’s Stand: The cancellation was a mechanical consequence of the statutory default. However, the Revenue generally leaves such matters to the court’s discretion when genuine hardship is demonstrated.

2. Legal Analysis: Balancing Revenue Interest and Business Continuity

The Courts (notably the Madras and Bombay High Courts in late 2024 and 2025) have increasingly viewed GST registration as a “lifeline” for business. Permanent cancellation for a procedural, curable default is often seen as disproportionate.

I. Genuineness of Hardship

The Court observed that reasons like cardiology-related procedures or severe financial setbacks appear genuine and bona fide. Since there was no allegation of fraud, suppression, or “fake” ITC, the default was treated as regulatory rather than punitive.

II. The “Cash-Only” Restoration Principle

To protect the interest of the Revenue, the Court imposed strict financial discipline for the restoration:

• No ITC Adjustment: All outstanding tax, interest, and late fees must be paid in cash. The petitioner is expressly forbidden from adjusting these dues against any unutilized or unclaimed Input Tax Credit (ITC).

• Freeze on Existing ITC: Any unutilized ITC already sitting in the Electronic Credit Ledger is to be “frozen.” It cannot be used for any liability until a competent officer completes a thorough scrutiny and grants formal approval.

3. Final Ruling: Conditional Restoration

The High Court set aside the cancellation order and directed the restoration of the GSTIN, provided the following conditions are met:

• Verdict: Registration to be restored within a time-bound period (usually 1-4 weeks) once proof of compliance is submitted.

• Conditions: 1. Filing of all pending returns up to the date of restoration.

  2. Payment of tax, interest, and late fees strictly in cash.

  3. Undertaking to remain regular in future filings.

• Automatic Cessation: The relief is “self-executing”—if the petitioner breaches any condition (e.g., fails to file a return or pay dues within the deadline), the restoration order will automatically cease to operate.

Key Takeaways for Taxpayers

• Document Your Hardship: If you miss the 90-day (or extended 270-day) window for revocation, collect medical certificates or financial statements to prove “genuine hardship” in a Writ Petition.

• Be Ready for Cash Outflow: Courts rarely allow the use of ITC to settle the very “default” that led to cancellation. You will likely need to arrange liquidity for the full tax + interest + late fees.

• Proportionality Rule: Use this case as a precedent to argue that permanent cancellation is a “civil death” for a business and is a disproportionate response to a curable procedural lapse.