Bona Fide Delay and Full Tax Payment Lead to GST Registration Restoration in Recent Court Ruling
Corporate Social Responsibility Penalty Imposed Alongside GST Registration Restoration by Bombay High Court
In a landmark judgment, the Bombay High Court has issued an important ruling regarding the restoration of Goods and Services Tax registration, emphasizing that registration should be reinstated when the taxpayer has cleared all dues, including interest and penalties, and the delay in compliance is bona fide. The court also directed the payment of a Corporate Social Responsibility contribution as a penalty for the delayed compliance. This case, involving Azaria Corp LLP, highlights crucial legal precedents for businesses grappling with GST registration cancellations and their subsequent reinstatement.
Background of the Case
Azaria Corp LLP, a taxpayer registered under the GST regime, filed a writ petition after the State Tax Department cancelled its GST registration on June 5, 2023. The cancellation was based on the petitioner’s failure to file GST returns and settle outstanding tax dues, leading to a suspension of its ability to conduct business under GST provisions.
However, the petitioner made significant efforts to resolve the issue. On June 7, 2024, Azaria Corp LLP paid the full outstanding tax amount of ₹16,46,186, along with interest and late fees amounting to ₹6,27,935, thereby settling its dues in full.
Azaria Corp LLP’s counsel argued that the delay in filing returns and clearing dues was due to bona fide reasons and was not deliberate. They emphasized that maintaining the cancellation of GST registration would severely affect their business operations and potentially cause a loss of GST revenue to the State.
Court’s Analysis and Judgment
The division bench, comprising Justice M.S. Sonak and Justice Advait M. Sethna, acknowledged the petitioner’s efforts to clear all outstanding dues, interest, and penalties. While recognizing the Revenue’s right to initially cancel the registration due to non-compliance, the court opined that permanent cancellation for such a curable default was disproportionate and would not serve the interests of either the taxpayer or the State.
The court referred to previous judgments by the Bombay and Orissa High Courts, where restoration of GST registration was ordered once the taxpayer had cleared all dues. The High Court found that, in such cases, restoration of registration aligned with the principle of proportionality — where the default could be rectified and the taxpayer should not face permanent penalties for inadvertent delays.
Justice Sonak and Justice Sethna remarked that GST registration cancellations for non-filing of returns and dues could be restored once the taxpayer had cleared all arrears. The restoration of registration, the court held, would enable businesses to resume operations without losing their tax status, benefiting both the taxpayer and the Revenue.
Key Directives from the Court
Restoration of GST Registration: The court ruled that the cancellation of GST registration would be quashed, provided the petitioner had fully settled all dues, including interest and late fees. The court emphasized the restoration principle in cases where the default was curable and bona fide.
Communication of Further Dues or Penalties: The department was ordered to inform the petitioner in writing within 15 days if there were any further penalties or dues payable. In case of additional dues, the petitioner was required to pay within 15 days of receiving the notification.
Corporate Social Responsibility Contribution: As part of the judgment, the Bombay High Court directed Azaria Corp LLP to make a CSR contribution of ₹50,000 to KEM Hospital within 15 days. This payment was intended as a penalty for the delayed compliance but also aimed at benefiting a social cause.
Implications for Businesses and Taxpayers
This ruling offers significant insights for businesses operating under the GST framework. It establishes that GST registration cancellations, stemming from non-compliance in filing returns or paying taxes, are not always permanent if the taxpayer demonstrates that the delay was bona fide and rectified promptly.
The ruling further reinforces the idea that penalties should be proportionate to the default and should not permanently hinder a business from operating, especially when the default can be rectified. By imposing a CSR contribution as part of the penalty, the court also signalled a shift toward encouraging businesses to contribute to societal causes while complying with tax regulations.
Restoration of GST Registration: A Path to Compliance
This case sets an important precedent for taxpayers seeking to restore their GST registration after facing cancellation due to late filings or dues. It highlights the principle that the taxpayer should not be penalized indefinitely when all dues have been paid, and the delay was genuine. In the same breath, the case reiterates the responsibility of businesses to comply with GST regulations in a timely manner to avoid cancellation in the first place.
For businesses, the ruling serves as a reminder of the importance of adhering to tax obligations and filing returns on time. However, for those who may face temporary challenges or delays, the judgment provides a potential pathway for restoring their tax registration, provided they act swiftly and transparently.
The Bombay High Court’s decision is a positive step toward a balanced approach in GST compliance. By restoring GST registration after the full payment of dues and emphasizing the principle of proportionality, the court ensures that businesses are not unjustly penalized for curable defaults. Moreover, the added directive for a CSR payment reflects a growing awareness of social responsibility within the business and legal community. For businesses facing similar issues, this ruling provides a clear legal framework for potential relief, ensuring that compliance challenges do not lead to permanent business disruptions.