Complete Guide to Suo Moto GST Registration Cancellation: Causes, Legal Precedents & Precautions

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The Goods and Services Tax (GST) framework in India is designed to ensure compliance among taxpayers. However, instances arise where the GST registration of a taxpayer may be canceled by the authorities without any formal request from the taxpayer, a process known as Suo Moto Cancellation. This article provides an exhaustive overview of the circumstances under which the tax authorities can initiate this process, the procedural aspects involved, and the measures taxpayers can take to prevent such cancellations. Additionally, we include relevant legal terminology, statutory provisions, and judicial interpretations that form the foundation of this mechanism.

What is Suo Moto Cancellation of GST Registration?

Suo Moto cancellation refers to the cancellation of GST registration initiated by the tax authorities without a request from the taxpayer. The tax officer exercises this power when they find that a registered person is in violation of GST provisions. This can occur for reasons such as non-filing of returns, evasion of tax, and more, as specified under the GST Act.

Legal Provisions and Circumstances for Suo Moto Cancellation of GST Registration

Section 29(2) of the Central Goods and Services Tax (CGST) Act, 2017, empowers the tax authorities to cancel the GST registration of a person for specific reasons. The law identifies numerous grounds for initiating suo moto cancellation, each carrying substantial legal consequences. Below are the circumstances and causes that may trigger such a cancellation:

1. Non-Submission of GST Returns for Six Consecutive Months

    • A registered taxpayer (other than a composition taxpayer) who has failed to file returns for a continuous period of six months is liable to face cancellation of registration under Section 29(2)(c) of the CGST Act.

2. Issuance of Invoices Without Actual Supply

    • If a taxpayer issues invoices without supplying goods or services, and the intention is to wrongfully avail input tax credit (ITC) or seek a refund, this constitutes a violation under Section 122 and Section 16 of the CGST Act, leading to cancellation.

3. Tax Evasion by Non-Issuance of Proper Invoices

    • A registered person issuing invoices or bills without actual supply of goods or services, leading to tax evasion, falls under the purview of Section 122 of the CGST Act.

4. Failure to Pay Collected Tax to the Government

    • If a registered person collects tax from customers but fails to remit it to the Central/State Government within three months from the due date, as per Section 29(2)(d), cancellation proceedings can be initiated.

5. Failure to Pay Tax, Interest, or Penalty

    • A failure to pay any amount of tax, interest, or penalty due to the Central/State Government beyond a period of three months can trigger cancellation as per the provisions of Section 29(2)(e).

6. No Longer Liable for Tax Deduction at Source (TDS)

    • A person who is no longer liable to deduct tax at source (TDS) as per Section 51 of the CGST Act may face cancellation if the tax authorities deem it necessary.

7. No Longer Liable for Tax Collection at Source (TCS)

    • Similarly, a person who is no longer liable to collect tax at source (TCS) under Section 52 of the CGST Act may have their registration canceled.

8. Closure of Business

    • If a taxpayer discontinues or closes their business, they are obligated to inform the tax authorities, and if not done, cancellation of registration can occur.

9. Change in Constitution Leading to Change in PAN

    • A change in the business constitution, such as a partnership firm converting into a company, resulting in a change of PAN or the entity’s legal structure, can lead to cancellation under Section 29(2)(g).

10. Failure to Maintain GST Compliance

    • The registered person is no longer required to be registered under GST, or fails to meet the compliance requirements of Section 25(3), can result in cancellation.

11. Fraudulent Registration

    • GST registration obtained by means of fraud, misstatement, or suppression of facts can lead to suo moto cancellation as per Section 29(2)(j).

12. Death of Sole Proprietor

    • The death of a sole proprietor results in cessation of business, and the registration can be canceled as per Section 29(2)(i).

13. Failure of Composition Dealer to File Returns

    • A composition taxpayer who fails to file returns for three consecutive tax periods may have their registration canceled.

Procedural Aspects of Suo Moto Cancellation

Suo moto cancellation of GST registration by the tax officer is not an automatic process. The tax authorities must adhere to a defined procedural framework outlined under the GST Act.

Step 1: Issuance of Show Cause Notice (SCN)

    • As per Section 29(2), the proper officer must issue a Show Cause Notice (SCN) before proceeding with the cancellation of registration. The SCN must specify the reason for cancellation and provide the taxpayer with an opportunity to explain or rectify the issue.
    • The taxpayer must respond to the SCN within 7 working days from the date of issuance. Failure to respond within this timeline may result in cancellation without further notice.

Step 2: Response to Show Cause Notice

    • Taxpayers are required to submit their clarifications via the GST portal under Services > Registration > Application for Filing Clarifications.
    • The officer may drop the cancellation proceedings if the response is satisfactory or proceed with further actions if the response is insufficient.

Step 3: Issuance of Final Order

    • If the tax officer is satisfied with the taxpayer’s response, they will issue an order to drop the cancellation proceedings, and the GSTIN status will be reverted to “Active”.
    • If the officer is not satisfied, they will issue an order for cancellation of the GST registration. The taxpayer will be notified by email and SMS, and the cancellation order will be available on their dashboard.

Consequences and Effects of Suo Moto Cancellation

Upon successful cancellation, the following changes occur:
    1. GSTIN Status: The GSTIN will change to “Suspended” until the cancellation proceedings are concluded.
    2. No Filing Rights: Post-cancellation, the taxpayer cannot file returns or upload invoices for the period after the date of cancellation mentioned in the order.
    3. Non-Amendment of Registration: The taxpayer cannot amend registration details, except for updating email and mobile number until outstanding dues or refunds are cleared.

Right to Appeal and Revocation of Cancellation

Right to Appeal: Section 107 of the CGST Act

    • The taxpayer has the right to file an appeal against the cancellation of registration under Section 107 of the CGST Act, within three months from the date of the cancellation order.
    • The appeal can be filed with the Appellate Authority. If the taxpayer provides valid reasons, the appellate authority may extend the time to file an appeal by an additional month.

Revocation of Cancelled Registration

    • The taxpayer can apply for revocation of the canceled registration through the GST portal under Services > Registration > Application for Revocation of Cancellation.
    • Revocation can only occur if:
      1. All pending returns are filed.
      2. The due tax, penalties, and interest are cleared.
    • Once the application is approved, the GSTIN status will revert to Active, and the taxpayer can resume normal GST operations.

Judicial Precedents on Suo Moto GST Cancellation

Here are some recent case laws relating to the cancellation of GST registration, which offer perspectives both in favor of the taxpayer and the GST authorities:

1. In Favor of the Taxpayer:

  • Suguna Cutpiece Centre vs. Appellate Dy. Commissioner (2022): The Madras High Court quashed the cancellation of registration due to vague and unclear grounds in the Show Cause Notice (SCN). The court emphasized the violation of natural justice, stating that an SCN must clearly state the reasons for proposed cancellation, and not be cryptic​.
  • Galaxy Mechanical Engineering Equipments Pvt. Ltd. v. Asst. Commissioner (2022): The Calcutta High Court held that the cancellation order was invalid due to the absence of reasons provided for the suspension of the registration. The order was deemed non-speaking and therefore unsustainable.
  • Phoenix Rubbers v. CTO (2020): In this case, the Kerala High Court quashed the cancellation order, as it was found that the condition of six months’ continuous default (as per Section 29(2)(c) was not met at the time of passing the order. The Court noted that the taxpayer had filed returns for the required period before the cancellation order was passed​

2. In Favor of the GST Authorities:

  • Suresh Chand Gupta vs. Union of India (2024): The Delhi High Court quashed a GST registration cancellation order due to lack of clarity in the SCN. The SCN had only cited Section 29(2)(e) without detailing any fraud or misrepresentation, making the case in favor of the taxpayer. The Court stressed that the cancellation process must adhere to principles of natural justice​

 

  • Agarwal Timber vs. State of U.P. (2023): In this case, the Allahabad High Court upheld the cancellation of registration where the taxpayer repeatedly failed to file GST returns despite multiple notices. The Court emphasized that a taxpayer’s repeated non-compliance justifies such actions from the authorities​

These case laws indicate that the Courts tend to favor taxpayers if cancellation orders or SCNs lack clarity or do not follow due process of law. However, if non-compliance or failure to file returns is evident, the authorities’ actions are likely to be upheld.

How to Prevent Suo Moto Cancellation?

Taxpayers can avoid the risk of suo moto cancellation by adhering to the following best practices:
  1. Ensure Timely Filing of GST Returns: File GST returns (monthly/quarterly) within the due dates to avoid non-compliance.
  2. Issuance of Proper Invoices: Ensure invoices are issued only for actual supplies. E-invoicing must be complied with, where applicable.
  3. Proper Tax Payment: Ensure timely payment of taxes, interest, penalties, and late fees.
  4. Adherence to ITC Provisions: Avail Input Tax Credit only in accordance with the conditions specified under Section 16 of the CGST Act.
  5. Compliance with Rule 86B: Ensure compliance with Rule 86B to avoid suspension due to blocked credit.
  6. Maintain Updated Bank Details: Furnish accurate and updated bank account details as required under Rule 10A.
  7. Follow All GST Rules: Comply with all other applicable GST provisions to avoid the risk of cancellation.

Final Thoughts

The suo moto cancellation of GST registration is a vital provision in the GST law that serves to maintain tax compliance. Taxpayers must understand the various circumstances that could lead to cancellation and the processes involved. By responding promptly to Show Cause Notices and adhering to the legal obligations under GST, taxpayers can protect themselves from unwanted consequences.

To stay compliant and ensure smooth operations, it is crucial to follow the precautions discussed above. For more expert insights and updates on GST law, continue to explore detailed articles on TaxGroww. Our team of tax experts is ready to assist you with all your GST-related queries.

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