Madras High Court Restores GST Registration, Cites Right to Livelihood

Get the full picture - access the original judgement of the court order here

Case Name

M/s. M.G. Exim vs. The Assistant Commissioner (Circle) (ST), Chokkikulam Assessment Circle, Madurai (High Court of Madras)

W.P.(MD) No. 1455 of 2024

Date: 24th January 2024

Key Takeaways

• Right to Livelihood: The court held that cancellation of GST registration can severely impact a person’s right to livelihood, protected under Article 21 of the Constitution.
• Technical Lapses vs. Substantive Rights: The court found that procedural lapses (like missing the appeal deadline) should not permanently bar a business from operating, especially for small entrepreneurs facing genuine difficulties.
• Restoration with Safeguards: The court ordered restoration of GST registration, subject to the petitioner clearing all dues, penalties, and filing pending returns within a specified period.
• Wider Implications: The judgment urges GST authorities to issue notices in regional languages and through accessible means, recognizing the realities faced by small traders.

Issue

Should a GST registration cancelled for non-filing of returns be restored by the High Court under Article 226, even if the statutory appeal period has lapsed, especially when the cancellation affects the right to livelihood?

Facts

• Who: M/s. M.G. Exim, a government contractor, represented by proprietor Meenatchi Gajendran Elenkathir.
• What Happened: The petitioner’s GST registration (No. 33AAZPE3354N1Z7) was cancelled by the Assistant Commissioner (ST) on 10.08.2022 for non-filing of returns for six months.
• Why: The petitioner claimed he was ill and relied on an accountant to file returns, but the accountant failed to do so. The petitioner was unaware of the cancellation and missed the statutory appeal period under Section 107 of the GST Act.
• Impact: Without GST registration, the petitioner could not continue his business, affecting his livelihood.

Arguments

Petitioner (M/s. M.G. Exim)

• The petitioner was executing government contracts and needed GST registration to operate.
• He was ill and believed his accountant was handling compliance.
• He missed the appeal deadline due to lack of awareness.
• Cancellation of GST registration has severely affected his business and livelihood.
• Requested the court to quash the cancellation and restore the registration.

Respondent (Assistant Commissioner)

• The petitioner was given sufficient opportunity to respond to the show cause notice (issued 15.07.2022).
• The cancellation was as per law, since the petitioner failed to respond and did not file an appeal within the 90-day limitation under Section 107(4) of the GST Act.
• The authorities acted within the statutory framework and could not condone the delay beyond what the law allows.

Key Legal Precedents

1. WP No. 11833 of 2022 (Bombay High Court):

• Held that GST laws should not be interpreted to deny the right to trade and livelihood.
• The court can exercise powers under Article 226 to restore GST registration if the statutory appeal is missed due to genuine hardship.

2. Special Appeal No. 123 of 2022 (Uttarakhand High Court):

• Cancellation of GST registration affects the right to livelihood under Article 21.
• Denial of registration without remedy is unconstitutional.

3. Suguna Cutpiece vs. Appellate Deputy Commissioner (ST) (GST) and others, 2022 (2) TMI 933 (Madras High Court):

• No useful purpose is served by keeping businesses out of the GST regime.
• Restoration should be allowed with safeguards to ensure compliance and prevent abuse.

4. Mafatlal Industries Ltd. vs. Union of India, (1997) 5 SCC 536 (Supreme Court):

• Jurisdiction of High Courts under Article 226 cannot be barred by statutory provisions, but should be exercised in line with legislative intent.

Statutory Reference:

• Section 107(4) of the GST Act: Prescribes a 90-day limitation for filing appeals against GST orders.

Judgement

• Decision: The Madras High Court quashed the cancellation order and directed the GST authorities to restore the petitioner’s registration.
• Reasoning: The court found that denying GST registration due to procedural lapses, especially for small businesses, is disproportionate and affects the right to livelihood. The court relied on precedents and constitutional rights (Articles 19(1)(g) and 21).
• Conditions: Restoration is subject to the petitioner:
• Filing all pending returns for the period before cancellation.
• Paying all outstanding taxes, interest, penalties, and late fees within 45 days.
• Not using unapproved Input Tax Credit for these payments.
• Filing returns and paying GST for the period after cancellation in cash.
• The authorities may scrutinize and approve Input Tax Credit before allowing its use.
• The GST Network is to be instructed to facilitate the process on the web portal.
• Broader Directions: The court urged the GST department to issue notices in regional languages and through accessible means (like SMS), considering the realities faced by small traders.

FAQs

Q1: What happens if a business misses the GST appeal deadline?

A: Normally, the law does not allow condoning delays beyond the prescribed period. However, the High Court can intervene under Article 226 if the cancellation affects fundamental rights, such as the right to livelihood, especially in cases of genuine hardship.

Q2: Can GST registration be restored after cancellation?

A: Yes, the court can order restoration, subject to the business clearing all dues, filing pending returns, and complying with other safeguards to prevent abuse.

Q3: Why is GST registration so important for small businesses?

A: Without GST registration, businesses cannot raise bills, receive payments for government contracts, or operate legally, which directly affects their ability to earn a livelihood.

Q4: What did the court say about communication from GST authorities?

A: The court criticized the practice of sending system-generated notices only in English and urged the department to use regional languages and more accessible means like SMS and registered post.

Q5: Does this judgment mean anyone can ignore GST compliance?

A: No. The court emphasized that restoration is conditional on clearing all dues and compliance. The authorities can impose penalties and scrutinize Input Tax Credit to prevent misuse.