Gst or vat

"but does not do business at all but now he wants to start dealer business in goods under same firm name."     Yes, but he will have to regularize the firm, by at least filing earlier returns, may penalty be levied.

"if yes whether he needs to register under vat or gst."  If turn over doesn't exceed threshold limit by June 2017, can directly register under GST.

How much would be the penalty  and returns with nil income can be filed for all 4 yrs at a time.

To levy any penalty and its amount is at the discreation of Jurisdictional AO. You may just file the last two years 'NIL' belated returns. (AY 2015-16 & 201617).