Understanding the Process of GST Registration Cancellation

Businesses may seek to cancel their Goods and Services Tax (GST) registration if they no longer meet the eligibility criteria, are closing down operations, or if a tax officer initiates the cancellation. This guide explains the various reasons and procedures involved in the GST registration cancellation process.

Recent Legislative Changes Regarding GST Registration Cancellation

The Union Budget 2024 introduced a proposed amendment to Section 30 of the CGST Act. This amendment aims to empower the government to specify conditions and limitations for revoking a cancelled GST registration. This change will become effective upon notification by the Central Board of Indirect Taxes and Customs (CBIC).

Definition of GST Registration Cancellation

A GST registration cancellation signifies that the taxpayer is no longer recognized as a GST-registered entity. Consequently, they are not obligated to collect or remit GST, cannot claim input tax credit, and are exempt from filing GST returns.

Effects of Cancelling GST Registration

• The taxpayer is relieved from GST payment obligations.
• If a business continues operations after its GST registration is cancelled, despite being legally required to register, this constitutes an offense under GST law, potentially leading to substantial penalties. Registration under GST is mandatory for certain businesses.

Parties Authorized to Cancel GST Registration

GST registration can be cancelled by three main entities: the registered taxpayer, the legal heirs of a deceased taxpayer, or the tax officer themselves. It's important to note that a previous rule requiring voluntary registrations to wait one year before applying for cancellation has since been removed.

GSTIN Cancellation for Taxpayers Migrated from Previous Regimes

Individuals previously registered under older indirect tax systems were required to transition to GST. Many of these individuals might not have met the GST registration thresholds, which are higher (e.g., \b20 lakh generally, \b40 lakh for only goods in some states, or \b10 lakh in specific category states/UTs) compared to former VAT (\b5 lakh) or Service Tax (\b10 lakh) limits. However, inter-state suppliers (except service providers) had mandatory registration. Such taxpayers applied for cancellation using Form GST REG-29 via the GST portal. Following a necessary inquiry, the designated officer would then cancel the registration.

For migrated taxpayers, the cancellation procedure on the GST Portal involves these general steps:

1. Access the GST Portal and select the option for 'Cancellation of Provisional Registration'.
2. On the cancellation page, your GSTIN and business name will auto-populate. You must provide a clear reason for the cancellation.
3. The system will inquire if any tax invoices were issued during the current month.
4. Complete the authorized signatory details and their location. Proprietors and partnership firms must electronically verify using EVC, while LLPs and companies are mandated to sign with a Digital Signature Certificate (DSC).

Taxpayers who have not issued tax invoices can utilize this simplified process. If tax invoices have been issued, then Form GST REG-16 must be filed instead.

Taxpayer-Initiated Cancellation (Non-Migrated)

Reasons for Taxpayer Cancellation

A taxpayer might opt to cancel their GST registration for several reasons, including:

• Cessation of business operations.
• Complete transfer, amalgamation, demerger, or other disposal of the business. In such cases, the new entity or transferee must register, while the original transferor cancels its registration if it no longer operates.
• A change in the business's legal structure, such as a private limited company converting to a public limited company.
• As of January 1, 2022, Aadhaar authentication became mandatory for applying for revocation of cancelled GST registration under CGST Rule 23 in Form REG-21.

Required Forms for Cancellation

Taxpayers who do not qualify for the simplified cancellation process mentioned above must file an application using Form GST REG-16. This procedure also applies to the legal heirs of a deceased taxpayer.

Form GST REG-16 requires specific information:

• Details of raw materials, semi-finished, and finished goods inventories held on the application date.
• Associated liabilities.
• Payment specifics.

Upon receiving the application, the appropriate officer is required to issue a cancellation order in Form GST REG-19 within 30 days. The effective date of cancellation will be determined and communicated by the officer to the taxpayer.

Officer-Initiated Cancellation of Registration

Grounds for Officer Cancellation

A tax officer can cancel a GST registration under various circumstances, including if the taxpayer:

• Fails to conduct business from the declared principal place of business.
• Issues invoices or bills without actual supply of goods or services, violating GST regulations.
• Breaches anti-profiteering rules, such as not passing on the benefits of Input Tax Credit (ITC) to consumers.
• As of January 1, 2021, utilizes ITC from the electronic credit ledger to cover over 99% of the tax liability for specific taxpayers, contrary to Rule 86B, particularly when monthly taxable supplies exceed \b50 lakh (with certain exemptions).
• Is unable to file GSTR-1 because GSTR-3B has not been filed for more than two consecutive months, or one quarter for those under the Quarterly Return Monthly Payment (QRMP) scheme. Further details on GSTR-1 blocking.
• Wrongfully claims input tax credit in contravention of Section 16 of the Act or associated rules.

Cancellation Procedure by Officer

When an officer has grounds to cancel a registration, they follow these steps:

1. A show-cause notice (Form GST REG-17) is issued to the taxpayer.
2. The taxpayer must respond in Form REG-18 within 7 days, explaining why their registration should not be cancelled.
3. If the response is deemed satisfactory, the officer will terminate the proceedings and issue an order in Form GST REG-20.
4. If cancellation is warranted, the officer will issue an order in Form GST REG-19 within 30 days of receiving the taxpayer's reply to the show-cause notice.

Revoking a Cancelled Registration

Understanding Revocation of Cancellation

Revocation refers to the official reversal of a decision. In the context of GST, revoking a cancellation means that the initial decision to cancel a registration is overturned, thereby reinstating the registration's validity.

Applicability of Revocation

This process is exclusively available when a tax officer has initiated the cancellation of a taxable person's registration on their own accord (suo moto). The affected taxpayer can then apply for revocation within 30 days from the date the cancellation order was issued.

Revocation Procedure

1. A registered individual whose registration was cancelled by the officer on their own motion may submit an application for revocation using Form GST REG-21.
2. This application must be submitted through the Common Portal within 30 days of receiving the cancellation order.
3. If the officer is satisfied, they can issue an order in Form GST REG-22 to revoke the cancellation within 30 days of receiving the application. The reasons for revocation must be documented.
4. Conversely, the officer may reject the revocation application by issuing an order in Form GST REG-05 and informing the applicant.
5. Before rejecting the application, the officer must issue a show-cause notice in Form GST REG-23, requiring the applicant to justify why their application should not be rejected. The applicant has 7 working days to respond in Form GST REG-24.
6. The officer will make a final decision within 30 days of receiving the applicant's clarification in Form GST REG-24.

Important: A revocation application cannot be filed if the registration was cancelled due to a failure in filing returns. In such cases, all pending returns must first be furnished, along with the payment of all due taxes, interest, and penalties.

Re-registration for GST After Cancellation

A business is generally permitted to register for GST again after a previous cancellation, with the exception of cases where the tax officer initiated the cancellation due to non-compliance or specific violations.