Cancellation of Registration, its Effects and Consequences.

Cancellation of GST is governed by Section 29 of the CGST Act, 2017. The procedure for the cancellation of the GST registration is laid down in rule 22 of the CGST Rules 2017.

There are many types of the cancellation of the GST registration. We will discuss these in details in the below mentioned paragraphs.

Voluntary Cancellation

The Registered person may on his own, if stops his/her business, may apply for the cancellation of GST Registration. He may file the application for cancellation of his/her GST Registration on the common portal. Once he/she applies for the cancellation his GST no. stands suspended with immediate effects and when the proper officer cancel his/her registration it stands cancelled.

The registered person may file the application for cancellation of the GST registration in the following stages.

(a) 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

(b) There is any change in the constitution of the business; or

(c) 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.

Provided that 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.

Cancellation by the proper officer

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

1. A registered person has contravened such provisions of the Act or the rules made there under as may be prescribed; or

(b) A person paying tax under section 10 has not furnished the return for a financial year beyond three months from the due date of furnishing the said return or

(c) Any registered person, other than a person specified in clause (b), has not furnished returns for such continuous tax period as may be prescribed or

(d) Any person who has taken voluntary registration under sub-section (3) of section 25 has not commenced business within six months from the date of registration; or

(e) Registration has been obtained by means of fraud, willful misstatement or suppression of facts:

Provided that the proper officer shall not cancel the registration without giving the person an opportunity of being heard specially in case when the GST registration is cancelled on account of charges of fraud, willful misstatement or suppression of facts:

Consequences of the Cancellation of GST Registration

Consequences when cancelled on his own by the taxpayer:-

1. Taxpayer will stop filing returns from the date of applying for the cancellation.
2. The tax payer will have to file a final return u/s 45 of the CGST Act, 2017 in form no. GSTR-10 within three months of date of cancellation of the GST registration
3. The cancellation of registration under this section 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 thereunder 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 cancelation.
4. The taxpayer may get the notice of any discrepancy in the returns filed by him with the time stipulated u/s 73 and 74.

Consequences when cancelled by the proper officer.

1. The Proper officer may cancel the registration suo moto u/s 29 including with retrospective effects. There are some serious consequences if the GST registration is cancelled suo moto by the proper officer including with retrospective effects.
2. The purchaser of the taxpayer may not get the input tax credit against the purchases made by him if the registration is cancelled with retrospective effects.
3. The taxpayer will be unable to file the remaining GST returns in the forms of GSTR-1 & GSTR-3B after the date of the cancellation.
4. The tax payer will have to file the final return in form no. GSTR-10 within the period of three months from the date of cancellation showing all the liability and will have to reversed the input tax credit lying in the stock held as on date of the cancellation.
5. The cancellation of registration under this section 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 thereunder 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 cancelation.
6. The taxpayer may still get the notice of any discrepancy in the returns filed by him within the time stipulated u/s 73 and 74

COURT JUDGEMENTS ON CANCELLATION OF GST REGISTARTION

1- My Trading Overseas vs Commissioner Delhi Goods and Service Tax (DELHI HIGH COURT)

W.P.(C) 15317/2023 & CM APPL. 61392/2023

The petitioner challenges the cancellation of GST registration citing a deficient show cause notice lacking specific reasons; the court sets aside the cancellation, deeming it void for violating natural justice principles, and directs the restoration of GST registration.

The petitioner has filed the present petition impugning an order dated 22.11.2023 (hereafter ‘the impugned order’) whereby the petitioner’s GST registration was cancelled. The impugned order was passed pursuant to a show cause notice dated 05.04.2022 (hereafter ‘the impugned SCN’) whereby the petitioner’s GST registration was proposed to be cancelled for the following reasons: -

“In case, Registration has been obtained by means of fraud, willful misstatement or suppression of facts.”

• The petitioner was directed to file a reply to the impugned SCN within a period of seven working days and to appear before the concerned officer on 07.04.2022 at 12.00 pm. additionally, the petitioner’s GST registration was suspended with effect from the said date, that is, 05.04.2022.
• The petitioner responded to the impugned SCN on 06.04.2022, inter alia, stating that the registration was obtained by uploading all required documents, however, due to size restriction, the documents uploaded were blurred. The petitioner further stated that it was ready to upload all the documents once again, if required and requested the concerned officer to restore its GST registration, which was suspended.
• It is apparent from the above that the impugned SCN was bereft of any particulars. It did not clearly set out any specific reason for proposing to cancel the petitioner’s GST registration. It did not set out any particular allegation of fraud or willful misstatement allegedly made. It provided no clue as to the facts allegedly suppressed by the petitioner.
• In view of the above, the impugned order as well as the impugned SCN are set aside. The respondent is directed to forthwith restore the petitioner’s GST registration.

2- Cancellation of GST registration without due opportunity

Citation - WP No. 1135 of 2023

M/S S P METALS vs ASSISTANT COMMISSIONER OF COMMERCIAL TAXES (HIGH COURT OF KARNATKA)

Date of Order – 10-03-2023

The petitioner was in judicial custody from 16.11.2022 until he was admitted to bail and released on 08.12.2022. In the meanwhile, his registration was cancelled after issuing SCN dated 17.11.2022. The reason for cancellation was that he has issued invoices and bills without actual supply of either goods or services.

The petitioner contended that the cancellation was done without due opportunity.

The respondent submits that the petitioner must be called upon to furnish the returns for the period for which the returns are not filed as a condition for revocation of the cancellation.

HELD

The petition is allowed. The second respondent – the Superintendent of Central Tax - is permitted to pass suitable orders for revocation of the cancellation of the registration, if the petitioner files Returns for the relevant period for which returns have to be filed.

3. Notice treated as vague and reckless

Citation - 2023-VIL-189-ALH

M/s VIRAJ POLYMERS PRIVATE LTD Vs STATE OF U.P. AND 3 OTHERS (HIGH COURT OF ALLAHABAD)

Date of Order – 16-03-2023

The registration was cancelled after not replying to the initial notice. The reason for cancellation was that the firm was not found existence in the business place. The petitioner filed an application u/s 30 seeking revocation of the cancellation of registration. The SCN was served upon the petitioner. The SCN was issued without stating any content on which the petitioner was supposed to be replied.

HELD

However, this Court intends to record the manner in which the GST authorities have issued the show cause notice which from the bare perusal of the notice dated 28.08.2021 is reckless and as vague as it can be. Even the order dated 06.10.2021 is not only arbitrary but a reckless exercise of power which led to denial of the rights of freedom and business guaranteed under Article 19 of the Constitution of India, as such, the orders and the show cause notice can never pass the test of Article 14 of the Constitution of India.

The impugned orders are set aside. The writ petition stands allowed.

4 Judgement on cancellation of registration

Citation – 2023-VIL-187-ALH

M/s SHYAM SUNDAR SITA RAM TRADERS Vs STATE OF U.P. AND 2 OTHERS (HIGH COURT OF ALLAHABAD)

Date of Order – 20-03-2023

The registration was cancelled on the basis of availing fake ITC credit from bogus firm and no business activity was found at the given address. The petitioner pointed out that the stand of the respondents is that they are issuing a show cause notice for recovery of the credit wrongly availed.

HELD

• Once registration is granted, the same could be cancelled only in terms of the conditions prescribed under Section 29(2) of the CGST Act and allegedly being a bogus firm is not a ground enumerated under Section 29(2).
• The stand of the respondents is that the firm is not existent whereas on the other hand, steps are being taken for recovery of the ITC allegedly wrongly taken under Section 74 of the CGST Act and both of them cannot go simultaneously.
• The order rejecting the application for revocation was a wrong exercise of power by the department.

5. Judgement on summon issued under section 70 with direction to stop payment

Citation - 2023-VIL-165-AP

M/s SRI SAI BALAJI ASSOCIATES Vs THE STATE OF ANDHRA PRADESH (HIGH COURT OF ANDHRA PRADESH)

Date of Order – 07-03-2023

The petitioner aggrieved with notice issued under section 70 CGST with direction to stop payment. The petitioner submits that the respondent in terms of Section 70 (1) of G.S.T Act, has power to summon any person whose attendance is considered necessary either for giving evidence or producing a document or any other thing in any inquiry in the same manner, however that power is not extended to direct the summoning of a party to stop all further payments, which he ought to receive from the customers.

HELD

It is obvious that under Section 70 (1) of GST Act the proper officer cannot exercise powers to direct the summoning party to stop payment to the assessee which is beyond the scope of 70 (1) of GST Act. Of course, under Section 83 of GST Act, if the Commissioner is of the opinion that for the purpose of protecting the government revenue, he may by order provisional attachment of any property including bank account belonging to the taxed person or any person specified in Sub Section 1 (A) of Section 122 in such manner as prescribed. The impugned notice was issued under Section 70 (1) of GST Act but not in exercise of powers conferred under Section 83 of GST Act. Therefore, such a direction is beyond the jurisdiction of the 3rd respondent. The same is liable to be set aside to that extent.

Conclusion

The GST registration of a taxpayer can only be cancelled according to section 29 of the CGST Act, 2017 read with rule 22 of the CGST Rules 2017. The proper officer cannot cancel the GST registration without giving an opportunity to hear to the tax payer.

We have seen in the past the input tax credit has been denied to the purchasers if the GST registration is cancelled with retrospective effect or for any other reason but in my opening the input tax claim is governed by Section 16. The taxpayer is entitled to the input tax credit if he fulfils all the conditions laid down in section 16 of the CGST Act, 2017.

ADV. NARENDER AHUJA

Mob - 9810764296