Procedure of Cancellation of GST Registration in India

In this article, we are going to talk about “Procedure of Cancellation of GST Registration in India” for Composition Taxpayers.

Section 29 of the CGST Act, 2017 deals with cancellation of GST registration in India. In GST, registration can be cancelled in two circumstances:

  • Upon application made by the registered person or by his legal heirs.
  • By the proper officer, on his own motion.

Cancellation Of GST Registration In India On An Application Made By Registered Person Or By Proper Officer On His Own Motion

In the following situations, the proper officer may, either on his own motion or on an application filed by the registered person or by his legal heirs, in case of death of such person, cancel the registration –

  • The business has been discontinued or fully transferred for any reasons including death of the proprietor, amalgamated with another entity, demerged or disposed of.
  • There is any change in the constitution of the business.
  • The taxable person, other than the person registered under sub-section (3) of section 25, is no longer liable to be registered under section 22 or section 24.

However, this provision has been amended vide Finance Act, 2020 but the effective date is yet to be notified. The amended provision allows the registered person to apply for cancellation if he is no longer liable to be registered under section 22 or section 24 or intends to opt out of the registration voluntarily made under sub-section (3) of section 25.

The impact of the amended provision is that the person who has taken the registration voluntarily is also allowed to apply for cancellation of GST registration. It would be worthwhile to highlight that amendment in the respective rule was made w.e.f. 23rd January 2018 subsequent to which the person who had taken the voluntary registration was also allowed to apply for cancellation of GST registration. The amendment in the CGST Act, 2017 is sought to be made vide Finance Act, 2020.

Cancellation Of GST Registration On Its Own Motion By The Proper Officer

Following are the situations where only the proper officer can initiate measures to cancel registration of a person, from such date as he may deem fit, including any retrospective date, but after giving a reasonable opportunity of being heard to the taxpayer

(i)Where a registered person has –

  • Not conducted any business from the declared place of business
  • Issued invoice or bill without supply of goods or services.
  • Violated the provisions of section 171 of the Act or the rules made thereunder, with regard to not passing the benefit of a reduced tax rate or input tax credit to the recipient.
  • Violated the provision of rule 10A, with respect to non-furnishing of bank account details in Registration Application within the prescribed period.

(ii)Where a composition taxpayer has not furnished returns for three consecutive tax periods.

(iii)Where any registered person, other than composition taxpayer, has not furnished returns for a continuous period of 6 months.

(iv)Where any person who has taken voluntary registration and has not commenced business within 6 months from the date of registration.

(v)Where registration has been obtained by means of fraud, wilful misstatement or suppression of facts.

Cancellation Of GST Registration Not To Affect The Liability Of A Person To Pay Tax Or Other Pending Dues Under The GST Act

It is noteworthy that cancellation of GST registration by any of the above means, shall not affect the liability of a person to pay tax or other pending dues under the GST Act. Also, the CGST (Amendment) Act, 2018 has clarified by adding a Proviso to sub-rule (1) and (2) of Section 29 of the Act, that in any of the above cases, during the pendency of cancellation proceedings, the registration may be suspended, owing to which, as per Rule 21A of the CGST Rules 2017, the registered person shall not be required to furnish any return.

Procedure For Filing Application For Cancellation Of GST Registration In India And Suo-Moto Cancellation By The Proper Officer

The Procedure for cancellation of GST registration is different in both of the above cases. Where a registered person himself makes an application for cancellation of GST registration, the procedure is governed by Rule 20 of the CGST Rules, 2017.In such case, he is required to submit the details in Form GST REG-16, within a period of 30 days from the date of occurrence of the event warranting the cancellation. In this Form, he shall provide the requisite details and relevant documents, in support thereof.

On the other hand, where the proper officer has reasons to believe that the registration of a person is liable to be cancelled under section 29, he shall issue a show cause notice to such person in FORM GST REG-17, requiring the registered person to respond, within a period of 7 working days from the date of the service of such notice, as to why his registration shall not be cancelled. Thereafter, reply to the Show-Cause Notice is to be furnished by the registered person in Form GST REG-18 within a period of 7 working days.

Once detailed information is submitted by the registered person (or by his legal heir, in case of his death) in Form GST REG-16, in a situation where registered person (or his legal heir) wants to apply for cancellation of GST registration in India or once reply to show cause notice is given, in a situation where proper officer himself proceeds to cancel the registration, and if the proper officer is satisfied that such person is no longer liable to be registered or his registration is liable to be cancelled, he shall issue an order in Form GST REG-19, within a period of 30 days from the date of application submitted, or from the date of reply to show cause notice. In such order, he shall direct the taxable person to pay the due tax, interest or penalty, as the case may be.

Dropping Of Proceedings For Cancellation Of GST Registration In India

However, where the reply given by the registered person is found to be satisfactory by the proper officer and he is convinced that the registration is not liable to be cancelled, the proper officer shall drop the proceedings and pass an order in FORM GST REG –20.

Moreover, in relation to the above provision, the law provides an exception, that if the cancellation of GST registration in India of a person is on account of non-filing of returns as a regular taxpayer or as a composition tax payer, then furnishing all the pending returns and making full payment of all the taxes along with applicable interest and late fee shall suffice, and the  proper officer shall drop the proceedings and pass an order in FORM GST-REG 20.

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Consequences Of Cancellation Of GST Registration In India

Whether composition taxable person is required to pay amount under Section 29(5) of CGST Act, 2017 at the time of cancellation of GST registration in India in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and capital goods held in stock. Section 29(5) of the CGST Act, 2017 provides that every registered person whose registration is cancelled shall pay an amount, which shall be higher of the two –

  • credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and capital goods held in stock, as on the day immediately preceding the date of such cancellation, or
  • output tax payable on such goods.

input tax credit of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and capital goods held in stock, for the purpose of (a) above, shall be calculated in accordance with Rule 44 of the CGST Rules, 2017. The final payable amount shall be paid either by way of utilisation of credit available in Electronic Credit Ledger or by making payment through Electronic Cash Ledger.

Section 29(5) read with Rule 44 contains provision regarding reversal of input tax credit if any claimed in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock or capital goods or plant and machinery on the day immediately preceding the date of such cancellation.

The provision does not makes out a case where inputs held in stock and inputs contained in semi-finished or finished goods held in stock or capital goods or plant and machinery on the day immediately preceding the date of such cancellation, are treated as if they have been supplied as in the case section 35(6) wherein it has been provided that proper officer shall determine the amount of tax payable on the goods or services or both that are not accounted for, as if such goods or services or both had been supplied by such person. Section 29(5) of CGST Act, 2017 does not create a deeming provision in a similar way.

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Further Para 4 of Schedule II of CGST Act, 2017 does provide that where any person ceases to be a taxable person, any goods forming part of the assets of  any business carried on by him shall be deemed to be supplied by him in the course or furtherance of his business immediately before he ceases to be a taxable person. However, pursuant to amendment made to section 7 of CGST Act, 2017 vide CGST( Amendment) Act, 2018, Schedule II would only come into picture to determine whether the activity or transaction is a supply of goods or  supply of services when such activity or transaction falls within the ambit of supply under the provisions of Section 7(1) (a), 7(1) (b) and 7(1) (c).

Therefore, in the given case of a person covered under composition scheme opting for cancellation of GST Registration in India, merely in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock or capital goods or plant and machinery on the day immediately preceding the date of such cancellation cannot be classified as supply under the provisions of Section 7 and once it is not classifiable as supply, provisions of schedule II would not come into picture.

The intention of the section is to reverse the input tax credit claimed in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock or capital goods or plant and machinery on the day immediately preceding the date of such cancellation since post GST registration cancellation, these goods would be sold without charging GST.

Since in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock or capital goods or plant and machinery on the day immediately preceding the date of such cancellation, person under composition scheme would not have claimed any input tax credit or if claimed earlier as a regular taxpayer, would have reversed by Form GST ITC-03 while opting for composition scheme, therefore provisions of section 29(5) are not applicable upon him. Further, reference to output tax in Section 29(5) seems to be another way or benchmark to arrive at the amount under the provisions of section 29(5).

Another key indicator of legislative intent can be seen from Rule 44 which contains provisions regarding “Manner of Reversal of credit under special circumstances”. Therefore, at  the outset, it can be observed that provisions of Rule 44 are applicable only in cases wherein input tax credit has to be reversed. Secondly provisions of Rule 44(4) provide that in case of cancellation of GST registration , details of the amount determined under provisions of Rule 44(1) has to be furnished under GSTR-10.

However, if we go through the provisions of Section 45 of CGST Act, 2017, it is observed that a registered person who is required to furnish a return under sub- section (1) of section 39 i.e. GSTR-3B is liable to file GSTR-10 within 90 days of cancellation of GST registration in India. Therefore, since the person covered under composition scheme is filing return under Section 39(2) of CGST Act, 2017, he is not liable to file GSTR-10.

Applying the principle of purposive interpretation, had the intention of legislature been to impose liability under Section 29(5) on a composition taxable person opting for cancellation of GST registration , then in such case they would have required him to file GSTR-10 as in case of normal GST Dealers who claim Input Tax Credit on inward supply of goods or services or both. There cannot be a situation wherein a person is required to pay a liability but there is no method prescribed in the law to discharge it.

The primary reason for not requiring composition taxable person to file GSTR-10 seems to be the fact since section 29(5) is only applicable in case of input tax credit claimed and since in case of composition taxable person there cannot be a scenario wherein he would have claimed input tax credit, therefore he is not required to file GSTR-10.

Further, the Instructions in Form GSTR-10 itself provide:

  • This form is not required to be filed by taxpayers or persons who are registered persons paying tax under section 10;
  • Details of stock of inputs, inputs contained in semi-finished or finished goods and stock of capital goods/plant and machinery on which input tax credit has been availed.

The above set of instructions also make it clear that the FORM is not applicable to persons paying tax under section 10 and secondly details of only those stock of inputs, inputs contained in semi-finished or finished goods and stock of capital goods/plant and machinery is required to be given on which input tax credit has been availed. In the case of a person paying tax under section 10, since he has not availed any input tax credit, he is not required to file GSTR-10. The form which is relevant for Section 29(5) and its set of instructions do clarify the intent behind section 29(5) of CGST Act, 2017.

Therefore, taking into consideration the above factors, it can be interpreted that no liability accrues in case of composition taxable person in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock or capital goods or plant and machinery on the day immediately preceding the date of such cancellation.

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Revocation Of Cancellation Of GST Registration In India

As can be seen from the cases discussed in Point No.1. and 2. above that proper officer can cancel registration of a registered person on his own motion. In such cases, power has been entrusted with proper officer to revoke such cancellation of GST registration in India on an application being made by registered person. Revocation of cancellation of registration under respective SGST Act or UTGST Act shall be deemed to be revocation of  cancellation of  registration under CGST Act, 2017. No application filed for revocation of cancelled registration shall be rejected without giving proper opportunity of being heard.

Application for Revocation of Cancelled Registration

A registered person whose registration has been cancelled by the proper officer on his own motion, can apply to such officer for revocation of cancellation of registration in FORM REG- 21 within 30 days from date of service of cancellation order. However, in case registration has been cancelled for failure of registered person to furnish returns then no application for revocation of cancellation can be filed unless due returns have been furnished and any amount due as tax, in terms of such returns has been paid along with any amount payable towards interest, penalty and late fee payable in respect of the said returns.

Process to dispose of application filed for revocation of Cancelled Registration

The proper officer may issue a notice in FORM GST REG–23 requiring applicant to show cause as to why application submitted for revocation of cancellation of registration should not be rejected. The applicant shall furnish reply within 7 working days from date of service of notice in FORM GST REG-24. Once the proper officer receives information or clarification in FORM GST REG-24, he shall proceed to dispose of application within 30 days from date of receipt of such information or clarification from applicant.

Where the proper officer is satisfied, for reasons to be recorded in writing, that there are sufficient grounds for revocation of cancellation of registration, he shall revoke cancellation of registration by an order in FORM GST REG-22 within 30 days from the date of receipt of the application and communicate the same to the applicant. The proper officer may reject the application for revocation of cancellation of registration and communicate the same to the applicant. The order for rejection of application for revocation of cancellation of registration should be in writing and should be a reasoned order. The order shall be passed in FORM GST REG-05.

I hpoe you now understood “Procedure of Cancellation of GST Registration in India For Composition Taxpayer”.

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