CANCELLATION OF GST REGISTRATION – A REVISIT

[Mr. M. GOVINDARAJAN]

Introduction

The Central Goods and Services Tax Act, 2017 (‘Act’ for short) and the rules made there under provides the cancellation of registration.  The respective provisions undergo changes by means of amendment to the Act and Rules.  This article gives the updated version of the provisions of the Act and rules in respect of cancellation of registration and also the latest case laws in this regard, for the purposes of the readers.

Cancellation of registration

Section 29 of Act provides the procedure for cancellation of registration by the proper officer.  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 cancellation of registration under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act, as the case may be, shall be deemed to be a cancellation of registration under this Act.

Reasons for cancellation

The registration for cancellation may be applied by the registered person due to any of the following reasons-

• if  the business has been discontinued, transferred fully for any reason including death of the proprietor, amalgamated with other legal entity, demerged or otherwise disposed of; or
• there is any change in the constitution of the business; or
• the taxable person 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.

Cancellation by the registered person

Rule 20 provides that a registered person seeking cancellation of his registration shall electronically submit an application in Form GST REG-16, including therein the details of inputs held in stock or inputs contained in semi-finished or finished goods held in stock and of capital goods held in stock on the date from which the cancellation of registration is sought, liability thereon, the details of the payment, if any, made against such liability and may furnish, along with the application, relevant documents in support thereof, at the common portal within a period of 30 days of the occurrence of the event warranting the cancellation.

Where a registered person has applied for cancellation of registration, the registration shall be deemed to be suspended from the date of submission of the application or the date from which the cancellation is sought, whichever is later, pending the completion of proceedings for cancellation of registration. 

Cancellation by Department

Rule 21 provides that the registration granted to a person is liable to be cancelled, if the said person-

• does not conduct any business from the declared place of business; or
• issues invoice or bill without supply of goods or services or both in violation of the provisions of the Act, or the rules made there under; or
• violates the provisions of section 171 of the Act or the rules made there under;
• violates the provision of rule 10A
• avails input tax credit in violation of the provisions of section 16 of the Act or the rules made there under; or
• furnishes the details of outward supplies in Form GSTR-1 under section 37 for one or more tax periods which is in excess of the outward supplies declared by him in his valid return under section 39 for the said tax periods; or
• violates the provision of rule 86B.

Show cause notice

Rule 22 provides that 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 notice to such person in Form GST REG-17, requiring him to show cause, 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.

The registered person shall give reply to the show cause notice in Form GST REG-18 within the period specified in the show cause notice.

Suspension of registration

During pendency of the proceedings relating to cancellation of registration filed by the registered person, the registration may be suspended for such period and in such manner as may be prescribed.

Effective date of cancellation

The proper officer may cancel the registration of a person from such date, including any retrospective date, as he may deem fit-

• if a registered person has contravened such provisions of the Act or the rules made there under as may be prescribed; or
• if a person paying tax under composition scheme has not furnished the return for a financial year beyond 3 months from the due date of furnishing the said return; or
• any registered person, other than a person as specified above has not furnished returns for such continuous tax period as may be prescribed; or
• any person who has taken voluntary registration has not commenced business within 6 months from the date of registration; or
• registration has been obtained by means of fraud, willful misstatement or suppression of facts.

Opportunity to be given

The proper officer shall not cancel the registration without giving the person an opportunity of being heard.           

Order

Where a person who has submitted an application for cancellation of his registration is no longer liable to be registered or his registration is liable to be cancelled, the proper officer shall issue an order in Form GST REG-19, within a period of 30 days from the date of application submitted. 

In case of action taken by the Department the order shall be passed within a period of 30 days from the date of receipt of the reply for the show cause notice issued to the registered person indicating the proposal to cancel its registration.  The registration may be cancelled with effect from a date to be determined by him and notify the taxable person, directing him to pay arrears of any tax, interest or penalty including the amount liable to be paid.   

Dropping the proceedings

Where the reply furnished under sub-rule (2) ⁴[or in response to the notice issued under sub-rule (2A) of rule 21A] is found to be satisfactory, the proper officer shall drop the proceedings and pass an order in Form GST REG –20.

Where the person instead of replying to the notice served under sub-rule (1) for contravention of the provisions contained in clause (b) or clause (c) of sub-section (2) of section 29, furnishes all the pending returns and makes full payment of the tax dues along with applicable interest and late fee, the proper officer shall drop the proceedings and pass an order in Form GST REG –20.

Liability

The cancellation of registration shall not affect the liability of the person to pay tax and other dues under this Act or to discharge any obligation under this Act or the rules made there under for any period prior to the date of cancellation whether or not such tax and other dues are determined before or after the date of cancellation.

Every registered person whose registration is cancelled shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax 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 or the output tax payable on such goods, whichever is higher, calculated in such manner as may be prescribed.  In case of capital goods or plant and machinery, the taxable person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery, reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery, whichever is higher.

Case laws

Non filing of return

In LATIKA GHOSH VERSUS THE COMMERCIAL TAX OFFICER/ASSISTANT COMMISSIONER, WEST BENGAL GOODS & SERVICE TAX, RAIGANJ CHARGE & ORS. - 2022 (3) TMI 263 - CALCUTTA HIGH COURT, a show cause notice was issued to the petitioner  by the Department on 06.06.2018 proposing to cancel the registration of the petitioner  for the reason that they have not filed the return for a continuous period of 6 months.  The petitioner, on receipt of the show cause notice, filed the return for the alleged period and also paid the tax.  The appellant also paid late fee.  The authorities cancelled the registration vide their order dated 08.02.2021.  The petitioner filed the writ petition before the High Court.  The Department produced a copy of the show cause notice dated 02.12.2019 issued to the petitioner proposing to cancel the registration since the petitioner did not file return for a continuous period of 6 months.  The High Court observed that the order dated 08.02.2021 only indicated the show cause notice dated 06.06.2018.  The High Court allowed the writ petition and set aside the impugned order.

Vague show cause notice

In SHAH INDUSTRIES THROUGH PROPRIETOR VISHAL HASTIMAL SAKARIA VERSUS STATE OF GUJARAT- 2022 (4) TMI 1093 - GUJARAT HIGH COURT , a show cause notice was issued to the writ petitioner on 02.11.2021 calling upon the petitioner for show cause as to why the GST registration should not be cancelled.  The High Court observed that the show cause notice is bereft of any material particulars or information.  In the absence of any material particulars and the details, it is difficult for any individual to respond to such a vague show cause notice.   Probably what the Authority is trying to convey is that the registration had been merely on paper and no actual business activity is found on the place of business as the writ petitioner, a registered person was not found at the place of business of the applicant.  If such are the allegations it is expected of the Authority to furnish some details in this regard.  The Authority submitted that the writ petitioner obtained registration by means of fraud with the misstatement or suppression of facts, it shall be open for him to issue a fresh show cause notice in a physical form and such fresh show cause shall contain all necessary information and details for the purpose of effectively responding to the same.

In VAHANVATI STEELS THROUGH PROP. BAROT CHINTANKUMAR MAHENDRAKUMAR VERSUS STATE OF GUJARAT - 2022 (4) TMI 1242 - GUJARAT HIGH COURT  the writ petitioner was issued a show cause notice dated 29.03.2022 calling upon him to show cause as to why the GST registration should not be cancelled. The writ petitioner filed the present writ petition against the show cause notice.  The High Court observed that the show cause notice is bereft on any material particulars or information.  In the absence of any material particulars and the details, it is difficult for any individual to respond to such a vague show cause notice.  The Authority is expected to furnish some details in regard to the proposal to cancel the registration.

Violative of  principles of natural justice

In JINESH ASSOCIATES VERSUS COMMISSIONER OF COMMERCIAL TAXES, BENGALURU  - 2022 (7) TMI 1167 - KARNATAKA HIGH COURT  the petitioner filed the present writ petition with the prayer to quash the order for cancellation of registration.  The petitioner submitted before the High Court that the hearing date has not been intimated to him and the order was passed without giving him a reasonable opportunity of being heard.  The High Court held that the Authorities concerned are required to specifically state the time and date as regards personal hearing provided to the assessee.  The show cause notice not stating any specific date for availing opportunity of personal hearing and the order merely recording that reply and submission had been examined at the time of hearing.  There is no detail as to whether the petitioner was afforded the opportunity of personal hearing.  The High Court set aside the impugned order and remanded the matter to the Authority for its fresh consideration after giving reasonable opportunity to the petitioner.

In CURIL TRADEX PVT. LTD. VERSUS THE COMMISSIONER, DELHI GOODS AND SERVICE TAX & ANR. - 2022 (9) TMI 259 - DELHI HIGH COURT, the proper officer issued a show cause notice on 12.04.2022 with the direction to the registered person to file reply for the said notice.  The proper officer suspended the registration with effect from 12.04.2022 i.e., the date of notice.  The petitioner filed the present writ petition before the High Court.  The High Court observed that the physical verification was carried out by the respondents/revenue, albeit, without having the petitioner’s authorized representative remain present.  No prior notice has been issued by the proper officer to the petitioner.    No tax or cess is due from the petitioner.  The High Court passed the following orders-

• The petitioner will file an application for revocation of order of cancellation within the next 15 days.
• Once an application is filed, the same will be adjudicated by the concerned officer within two weeks of the date of submission of the application.
• A speaking order will be passed by the concerned officer; a copy of which will be furnished to the petitioner.
• In case the order passed by the concerned officer is adverse to the interests of the petitioner, the petitioner shall have liberty to take recourse to an appropriate remedy, albeit, as per law.

In DRS WOOD PRODUCTS LUCKNOW THRU. ITS PARTNER SH. ARUN JINDAL VERSUS STATE OF U.P. THRU. PRIN. SECY. TAX AND REGISTRATION LKO. ANDORS. - 2022 (8) TMI 406 - ALLAHABAD HIGH COURT the petitioner was carrying out the business from the registered place of the business as registered with GST Authorities and are paying taxes.  A show cause notice was issued on 08.05.2020 to the petitioner alleging that the petitioner was found non functioning and non existing at the place of business.  The petitioner, while uploading his E-way bill he came to know that the registration of the petitioner firm was cancelled on 08.05.2020.   Therefore the petitioner moved an application for revocation of cancellation.  In response to the said application the Authority issued a show cause notice stating that the application for revocation is liable to be rejected since no satisfactory explanation was received within the prescribed time limit.  On 24.06.2020 the petitioner sought 15 days extension in view of his daughter’s marriage.  However the application for revocation of cancellation of registration was rejected on 15.07.2020.  The petitioner filed appeal before the Appellate Authority against the said order.  The appeal was dismissed.  The Appellate Authority recorded that an inspection was carried out on 20.05.2020 in the premises of the petitioner.  On the site in question the Committee comprising of 3 persons did not find any activity pertaining to the firm over the property in question.  The partner of the firm did not co-operate with the inspection team.  The petitioner submitted that on 20.06.2020 the goods of the petitioner were seized on the grounds that the goods were being carried on the basis of expired E-way bill.  Further the Authority issued a show cause notice on 28.05.2021 alleging that on the inspection carried out at the petitioner’s premises, goods found in the premises were stored contrary to the rules and thus liable to be confiscated.  Based on the above facts the petitioner contended that the show cause notice is bereft of any facts.

The High Court observed that the allegations leveled against the petitioner are only to the ground that ‘the taxpayer found non-functioning/non existing at the principal place of business’.  The show cause notice did not propose to rely upon any report or any inquiry conducted to form the opinion and on what basis the allegation leveled against the tax payer was found non functioning; it does not indicate as to when the inspection was carried out.  The High Court held that a vague show cause notice without any allegation or proposed evidence against the petitioner is clearly violative or principles of Natural Justice.  The High Court set aside the order of rejection of application for revocation of cancellation order.  The High Court observed that the actions of the Department are not in consonance with the ease of doing business, which is being promoted at all levels.  The High Court directed the State Government to pay Rs.50000/- towards the cost to the petitioner for the harassment caused to the petitioner.