GST Cancellation

What is the Cancellation of GST Registration?

GST registration cancellation is a crucial aspect of the Goods and Services Tax (GST) framework, signalling the removal of a taxpayer from the list of GST-registered entities. This action relieves the individual or business from the obligations associated with GST, such as payment, collection, claiming input tax credits, and filing returns.

The process of GST registration cancellation is governed by the Central Goods and Services Tax (CGST) Act, specifically under Section 29, and the corresponding CGST Rules 20-22. Cancellation can be initiated either voluntarily by the taxpayer or compulsorily by the tax authorities, usually in response to non-compliance, failure to file returns, violations of GST rules, or the cessation of business operations.

Once the cancellation is effective, the taxpayer is no longer authorized to collect GST from customers or make claims for input tax credits. This reflects a significant shift in the taxpayer’s status, with their GST-related responsibilities being terminated. It is essential for businesses to adhere to the regulations and promptly address any issues to avoid compulsory cancellation and its associated consequences.

Why is Cancellation of Registration Required Under GST?

GST Registration can be cancelled for a variety of reasons including:

* Failure to submit GST returns for six consecutive months by a taxable entity.
* Not initiating business operations within six months from the voluntarily registered date.
* Ceasing business operations, discontinuing activities, changing business name or constitution, or transferring/selling the business due to amalgamation or demerger.
* Individuals or entities previously registered under the pre-GST tax laws, who either no longer meet the mandatory GST registration criteria or are no longer liable for registration.

The cancellation of GST registration is deemed necessary under certain circumstances, offering a mechanism to relieve individuals or businesses from their GST-related compliance obligations. This strategic move can prove beneficial for those seeking to streamline their operations or modify their business structure. By opting for cancellation, taxpayers can avoid the imposition of penalties or late fees associated with non-compliance. This process not only facilitates a smoother exit from the GST framework but also aligns with the principles of transparency and accountability in taxation. However, it is essential for entities to carefully navigate the cancellation process, ensuring that all requisite criteria and procedures are adhered to in order to successfully alleviate their compliance burdens and associated financial implications.

Procedure for cancellation:

1) For individuals or entities previously registered under any of the existing tax laws such as Central excise, Service tax, VAT, etc., but who no longer meet the criteria for registration under the GST Act, the submission of an electronic application is mandated by December 31, 2017. This application, submitted in FORM GST REG-29 through the common portal, serves as a formal request for the cancellation of the registration granted to them under the GST framework. Following the submission, the Superintendent of Central Tax is tasked with conducting an inquiry, as deemed fit, to verify the grounds for cancellation. Once the inquiry is complete and it is established that the individual or entity is no longer liable for GST registration, the Superintendent of Central Tax will proceed to cancel the registration, thereby formalizing the removal of the taxpayer from the GST system. This process ensures a systematic and transparent approach to registration cancellations in alignment with the provisions of the GST Act.

2) The cancellation of registration under the State Goods and Services Tax (SGST) Act or the Union Territory Goods and Services Tax (UTGST) Act holds a consequential implication, as it is automatically considered a cancellation of registration under the Central Goods and Services Tax (CGST) Act. This integrated approach ensures a unified and harmonized system across different levels of taxation within the GST framework. Therefore, when a taxpayer’s registration is cancelled under the SGST or UTGST Act, it is concurrently recognized as cancelled under the CGST Act. This streamlined process promotes consistency and simplifies administrative procedures, contributing to the efficiency and coherence of the overall GST structure across states and union territories. It also emphasizes the interconnected nature of the GST framework, where actions taken at the state or union territory level have corresponding implications at the central level.

3) In instances where the Superintendent of Central Tax harbors reasons to believe that a person’s registration is subject to cancellation, a formal notice is issued to the concerned individual. This notice, outlined in FORM GST REG-17, mandates the person to provide a justification within a stipulated timeframe. Specifically, the individual is required to present their case and address the concerns raised by the tax authorities within seven working days from the date of receiving the notice. This show-cause mechanism allows the taxpayer an opportunity to explain any discrepancies or rectify issues that may have triggered the potential cancellation of their registration. The seven-day window emphasizes the need for a prompt response, ensuring an expeditious resolution of any concerns and contributing to the overall efficiency of the GST registration cancellation process.

4) Upon receiving a show-cause notice in FORM GST REG-17, the registered person is required to furnish their response within a prescribed timeframe. This reply, addressing the concerns raised in the notice, must be submitted by the individual in FORM REG-18. The seven working days allocated for the submission of this form underscore the importance of a swift and comprehensive response. Timely and accurate replies enable tax authorities to assess the justifiability of the registered person’s continued eligibility for GST registration, contributing to the efficiency and effectiveness of the cancellation review process. Adhering to this timeline ensures a streamlined and transparent communication channel between the taxpayer and the tax authorities during the evaluation of the grounds for potential registration cancellation.

5) If the registered person’s response to the show-cause notice is deemed satisfactory by the Superintendent of Central Tax, the ongoing cancellation proceedings will be discontinued. The Superintendent will then issue an order, formalized in FORM GST REG-20, officially confirming the closure of the proceedings. This signifies that the concerns raised in the show-cause notice have been adequately addressed, and there is no further justification for the cancellation of the GST registration. The issuance of FORM GST REG-20 reflects the official conclusion of the proceedings, providing clarity to the registered person and affirming the continued validity of their GST registration. This transparent resolution process ensures that individuals or entities with legitimate justifications for retaining their registration can effectively navigate the cancellation review and maintain compliance within the GST framework.

6) Upon finding that a person, who has applied for cancellation or responded to a show-cause notice, is no longer liable for registration or their registration is subject to cancellation, the Superintendent of Central Tax issues an order in FORM GST REG-19 within thirty days. This order cancels the registration, effective from a determined date, and notifies the taxable person to settle any arrears of tax, interest, or penalty as directed by the tax authorities.

7) Following the cancellation of registration, the registered person must pay an amount equivalent to the credit of input tax for inputs, semi-finished or finished goods, and capital goods held in stock on the day preceding the cancellation date. This payment is made through debit in the electronic credit ledger or electronic cash ledger, and the higher of the two amounts—input tax credit or output tax payable on the goods—will be considered for settlement.