The implementation of Goods and Services Tax has brought a unified domestic indirect taxation system, consolidating various previous levies on goods and services across the country. This transformative tax regime mandates businesses with annual revenues exceeding Rs. 20 lakhs to register for GST, with a reduced threshold of Rs. 10 lakhs for states with special status.
However, companies retain the flexibility to opt out of the GST registration program, relinquishing their GST number, in a process commonly referred to as “GST cancellation.”. It is important to note that the cancellation of GST is contingent upon compliance with specified norms and regulations. In this blog, we shall see some key justification for cancelling the GST registration.
Understanding GST Registration Cancellation
When individuals or businesses register for the Goods and Services Tax, they are assigned a unique GSTIN (Goods and Services Tax Identification Number). GST registration cancellation is the formal procedure through which either the central tax authority or the taxpayer initiates the revocation of this assigned identification number. This process holds significant implications for business operations.
Implications of GST Cancellation
Upon cancellation of their GST number, business owners are legally barred from engaging in any further business activities. The consequences for non-compliance with this restriction are severe, as the Department of Income Tax has the authority to impose substantial fines.
Continued business activities after GST cancellation not only incur penalties but also invite scrutiny from tax authorities. The cancellation of GST registration is a strategic move for businesses that are either closing down or undergoing a significant transformation, such as a name change. By undergoing this process, companies free themselves from ongoing GST obligations, providing financial relief and signalling a shift in their business structure.
Major Reasons or Justifications for Cancelling The GST Registration
GST registration can be cancelled for various reasons, sanctioned either by the Central Tax Authority or at the initiative of a business owner. The following are the justification for cancelling GST registration:
1. Under the Old Tax Law:
Companies that previously filed taxes under the older tax system may be exempt from the GST registration requirement.
For instance, businesses with a VAT threshold of Rs. 10 lakhs are exempt, as the GST threshold is Rs. 40 lakhs.
2. Business Closure:
When a company ceases operations, the owner has the right to request the cancellation of their GST registration.
Justification for cancelling the GST registration in such scenarios include:
- Merger with another company.
- Transfer of all or part of a business, including cases like the death of the owner.
- Organisational structure revision.
3. Exemption from GST Registration:
Another justification for cancelling the GST registration is if a taxpayer is exempt from remaining registered, particularly those who opted for registration under Section 25(3) of the CGST Act.
4. Non-Compliance with GST Regulations:
Another major justification for cancelling the GST registration is if a participant in the GST composition scheme fails to file returns for three consecutive months.
5. Violations of GST Provisions and Laws:
The tax authorities also find justification for cancelling the GST registration if an individual violates GST provisions and laws.
6. Non-Filing of GST Returns:
Another justification for cancelling the GST registration is if a person fails to file GST returns for a continuous period of six months.
7. Non-Commencement of Operations:
If a business owner voluntarily registers under CGST Section 25(3) but fails to commence operations within six months of the registration date, It serves as a justification for cancelling the GST registration.
8. Deception, Misrepresentation, or Concealment of Fact:
Obtaining GST registration through deception, misrepresentation, or concealment of fact is ground or justification for cancelling the GST registration.
These justification for cancelling the GST registration offer a comprehensive understanding of the diverse circumstances that may lead to the abolition of GST registration.
Entities Authorised to Cancel GST Registration
Let us now look at the authorities for cancelation of GST registration after justification for cancelling the GST registration. The authority to submit cancellation requests for GST registrations lies with the following parties:
1. Current Taxpayers:
Individuals or businesses currently registered under GST have the authority to initiate cancellation requests.
2. Migrated Taxpayers with Approved Enrolment:
Taxpayers who have successfully migrated to the GST system and completed the enrolment process can submit cancellation requests.
3. Migrated Taxpayers Yet to Complete Forms:
Migrated taxpayers who have applied for GST registration but have not yet filled out the necessary forms are eligible to request cancellation.
4. Limitations on Cancellation by Tax Deductors/Collectors and Those with a Unique ID:
Tax deductors/collectors and individuals with a unique ID do not possess the authority to cancel GST registration.
Procedure for GST Cancellation
After seeing the justification for cancelling the GST registration, let us look at the process. The process of cancelling GST registration involves the following steps:
1. Initiation by Tax Office:
The tax office initiates the cancellation process by sending a show-cause notice, typically through GST REG-17.
2. Submission of Justification:
Upon receiving the show-cause notice, the taxpayer must provide a valid justification to halt the GST cancellation. A formal reply must be issued within seven days of receiving the notice.
3. Assessment and Decision:
If the tax officer finds the response satisfactory, they will proceed to cancel the GST registration and issue a GST REG-20 order.
Procedure for Taxpayer-Initiated Cancellation of GST
Individuals or businesses that have submitted tax returns or have migrated can follow the steps outlined below to initiate the cancellation of their GST registration:
Step 1: Log In to the GST Portal
Access your GST account by entering the necessary login details on the GST portal.
Step 2: Go to Registration Cancellation Request
From the top bar of your GST account screen, select the ‘Registration’ option from the ‘Service’ dropdown menu. Then, choose ‘Registration Cancellation Request.’ The dashboard will display three sub-items: standard information, cancellation information, and confirmation information.
Step 3: Fill Out Essential Details
In the ‘essential details’ box on the dashboard, provide the required information. Save the details and ensure future communications are directed to the main office address.
Step 4: Access the Cancellation Screen
After saving the essential information, the cancellation screen will appear.
Step 5: Select Cancellation Reason
Choose a cancellation reason from the dropdown menu, including options such as a sole proprietor’s death, end of tax liability, PAN change due to business constitution change, business discontinuance, and business transfer.
Step 6: Complete the Cancellation Form
Include essential information on the cancellation form, covering aspects like Refund for Goods and Services Tax, Target date for withdrawing GST registration, Subject to tax stocks and inputs, and details of the most recent tax returns submitted.
Step 7: Choose Ledger for Recording Value and Liabilities
Select an electronic credit or cash ledger to record the value of stocks and tax liabilities.
Step 8: Enter Transferee Entity’s GSTIN
If a unit is transferred, demerged, or merged, enter the GSTIN of the transferee entity.
Step 9: Verification
The verification area will appear after completing the cancellation form. Identify the signing authority and provide details of the deed’s location.
Step 10: Authorised Signatory Details
Fill out details of the authorised signatory and submit the information after selecting the appropriate answer.
Step 11: Submission and Confirmation
Choose to ‘Submit to DSC’ or ‘Submit to EVC.’ After filling out the verification form, an OTP will be generated. Enter the OTP, and within the next 15 minutes, you will receive a confirmation of receipt.
Final Thoughts
The justification for cancelling the GST registration is varied and reflective of the dynamic circumstances that businesses and individuals may encounter. Whether due to changes in tax laws, business closures, mergers, or non-compliance issues, the cancellation process serves to align the tax structure with evolving situations. The outlined reasons, encompassing exemptions, structural revisions, and legal violations, underscore the importance of a flexible and responsive tax system. Ultimately, the process ensures that GST registration aligns with the genuine needs and status of businesses, promoting transparency, compliance, and fair taxation practices.
