1. Introduction
It is commonly seen that the GST Department cancels the GST registration of many taxpayers on the basis of physical verification or field visits, particularly where the business premises are found closed or the taxpayer is not available at the time of inspection. However, cancellation of GST registration is a serious civil consequence. Once registration is cancelled, the taxable person is practically disabled from issuing tax invoices, collecting GST, filing regular returns, passing input tax credit to customers and carrying on business in the normal course. Therefore, such cancellation cannot be ordered casually, mechanically or merely on the basis of a single physical visit without following the due process prescribed under the GST law.
In this article, I have discussed the practical applicability, procedural requirements, reporting requirements and key precautions relating to cancellation of GST registration where the business premises are alleged to be closed or non-existent, with special reference to Section 29 of the CGST Act, 2017 and Rules 21, 21A, 22 and 25 of the CGST Rules, 2017. In case you have any doubt after reading this article, or if you feel that any practical aspect requires further discussion, you may contact me at the contact details mentioned at the end of this article.
One common ground taken by the department is that the business premises were found closed, locked, or the taxpayer was not available at the time of field visit. However, a closed premises on one particular date does not automatically mean that the business is non-existent or that no business is being conducted from the declared place of business.
A GST registration cannot be cancelled merely because the premises were found closed during one inspection. Such fact may justify further inquiry, but it cannot by itself become conclusive evidence for cancellation. The proper officer must follow the statutory procedure prescribed under Section 29 of the CGST Act, 2017 read with Rules 21, 21A, 22 and 25 of the CGST Rules, 2017.
2. Statutory Framework for Cancellation of GST Registration
Section 29(2) of the CGST Act, 2017 empowers the proper officer to cancel registration only in specified circumstances. These include contravention of the Act or Rules, non-filing of returns for the prescribed period, non-commencement of business after voluntary registration, or registration obtained by fraud, wilful misstatement or suppression of facts.
The proviso to Section 29(2) is very important. It clearly provides that the proper officer shall not cancel registration without giving the person an opportunity of being heard.
Therefore, two conditions are essential before cancellation:
1. There must be a valid statutory ground under Section 29 read with the relevant rules.
2. The taxpayer must be given a proper and meaningful opportunity to respond.
Cancellation cannot be sustained where the officer does not identify the exact legal ground, does not disclose the material relied upon, or does not consider the taxpayer’s reply and supporting documents.
3. Rule 21(a): Business Not Conducted from Declared Place
In cases relating to closed premises or alleged non-existence of business, the department generally relies on Rule 21(a) of the CGST Rules, 2017.
Rule 21(a) provides that registration is liable to be cancelled if the registered person does not conduct any business from the declared place of business.
However, Rule 21(a) requires a factual finding that the assessee is not conducting business from the declared place. This finding must be based on evidence. A single visit where the premises were found closed is not enough.
There may be several valid reasons why premises may be closed during a visit:
| Situation | Possible Explanation |
| Service provider | Work may be performed at client site |
| Trader | Goods may be stored at warehouse, transporter’s premises or additional place |
| Small business | Owner may be temporarily unavailable |
| Seasonal business | Premises may not remain open daily |
| Renovation or repair | Temporary closure |
| Field-based business | Staff may be working outside premises |
| Holiday or odd timing | Premises may be closed due to timing of visit |
| Medical or personal emergency | Temporary absence of proprietor or staff |
Thus, the department must prove something more than physical closure. It must establish, with material evidence, that the assessee is not conducting business from the declared place or that the registration was obtained by fraud, wilful misstatement or suppression of facts.
4. Rule 25: Physical Verification of Business Premises
Rule 25 of the CGST Rules, 2017 deals with physical verification of business premises. It is a verification provision. It is not an independent cancellation provision.
The present Rule 25 covers two situations:
| Stage | Rule | Requirement |
| After grant of registration | Rule 25(1) | Where the proper officer is satisfied that physical verification of the place of business is required after grant of registration, he may get such verification done. The verification report, along with documents including photographs, must be uploaded in FORM GST REG-30 on the common portal within 15 working days from the date of verification. |
| Before grant of registration | Rule 25(2) | Where physical verification is required before grant of registration in the circumstances specified in the proviso to Rule 9(1), the proper officer shall get verification done and upload the verification report, documents and photographs in FORM GST REG-30 at least 5 working days before completion of the prescribed Rule 9 time period. |
The object of Rule 25 is to ensure that physical verification is documented properly. The rule requires a verification report, supporting documents and photographs to be uploaded in FORM GST REG-30. This requirement prevents arbitrary or undocumented field visit remarks from being used against the taxpayer.
Earlier, Rule 25 used the words “in the presence of the said person.” However, the present Rule 25 was substituted by Notification No. 38/2023-Central Tax dated 04.08.2023, and the current rule no longer contains that expression. Therefore, for verifications conducted after the amendment, the stronger legal grounds are:
1. Whether there was any valid basis for physical verification.
2. Whether REG-30 was uploaded within prescribed time.
3. Whether photographs and supporting documents were uploaded.
4. Whether the survey/verification material was supplied to the assessee.
5. Whether the show cause notice disclosed the exact allegation.
6. Whether the assessee’s reply and documents were considered.
7. Whether the cancellation order contains independent reasons.
Thus, Rule 25 may generate evidence for further proceedings, but it does not itself authorise cancellation.
5. Rule 22: Mandatory Procedure Before Cancellation
Where the proper officer has reasons to believe that registration is liable to be cancelled under Section 29, Rule 22(1) requires issuance of notice in FORM GST REG-17.
The notice must require the taxpayer to show cause within seven working days from the date of service as to why registration should not be cancelled.
The taxpayer’s reply is required to be filed in FORM GST REG-18.
If the reply is satisfactory, Rule 22(4) requires the proper officer to drop the proceedings and pass order in FORM GST REG-20.
If the officer is not satisfied, Rule 22(3) permits passing of cancellation order in FORM GST REG-19 within 30 days from the date of reply to the show cause notice. The order must specify the effective date of cancellation and the dues payable, if any.
| Statutory sequence: Reason to believe ->Rule 25 physical verification, where applicable ->REG-30 report with documents and photographs ->specific show cause notice in REG-17 ->reply in REG-18 ->opportunity of hearing ->reasoned order ->REG-20 if proceedings are dropped or REG-19 if registration is cancelled. |
6. Suspension Under Rule 21A Is Not Final Cancellation
Rule 21A permits suspension of registration during pendency of cancellation proceedings. However, suspension is only an interim measure. It does not dispense with the requirement of proper cancellation proceedings under Rule 22.
Where the proper officer has reasons to believe that registration is liable to be cancelled under Section 29 or Rule 21, he may suspend registration pending completion of proceedings under Rule 22.
Further, in cases involving significant differences or anomalies between returns, outward supplies, inward supplies, or non-compliance with Rule 10A relating to bank account details, Rule 21A(2A) contemplates electronic intimation in FORM GST REG-31, asking the taxpayer to explain within 30 days why registration should not be cancelled.
Thus, suspension cannot be treated as final cancellation. Final cancellation must still pass through the procedure of notice, reply, opportunity and reasoned order.
7. Officer’s Process Before Cancelling Registration for Closed Premises
Where the proposed ground is that the premises were closed, non-existent or not available at the time of visit, the proper officer should follow the following process:
| Step | Required Action |
| 1 | Record the exact statutory ground under Section 29 read with Rule 21. |
| 2 | Record reason why physical verification is required. |
| 3 | Conduct physical verification under Rule 25. |
| 4 | Record date, time, complete address, officer name and designation. |
| 5 | Take photographs and collect relevant documents/material. |
| 6 | Upload verification report with documents and photographs in FORM GST REG-30. |
| 7 | Supply or disclose the relied-upon material to the taxpayer. |
| 8 | Issue specific show cause notice in FORM GST REG-17. |
| 9 | Mention exact allegation, inspection details, legal provision and proposed action. |
| 10 | Give opportunity to file reply in FORM GST REG-18. |
| 11 | Consider the taxpayer’s evidence, such as rent deed, electricity bill, photographs, invoices, e-way bills, returns, books and bank statements. |
| 12 | Give opportunity of hearing wherever required. |
| 13 | Pass a speaking order dealing with the reply and evidence. |
| 14 | Drop proceedings in REG-20 if explanation is satisfactory. |
| 15 | Pass cancellation order in REG-19 only if statutory ground is actually proved. |
A cancellation order that merely states “premises found closed” or “reply not satisfactory” without discussing the evidence is vulnerable to challenge.
8. Actions Which Should Not Be Taken by the Proper Officer
| Incorrect Action | Legal Defect |
| Cancelling only because premises were closed during one visit | Does not prove that business is not conducted from declared place |
| Issuing vague SCN alleging fraud without particulars | Violates natural justice |
| Not uploading REG-30 after physical verification | Violates Rule 25 |
| Not supplying field visit report, photographs or relied-upon documents | Denies effective opportunity of reply |
| Introducing new grounds in cancellation order | Order travels beyond show cause notice |
| Ignoring rent deed, electricity bill, invoices, e-way bills and returns | Shows non-application of mind |
| Passing order with only “reply not satisfactory” | Non-speaking order |
| Cancelling retrospectively without reasons | Arbitrary and excessive |
| Treating suspension as final cancellation | Contrary to Rule 21A and Rule 22 |
The judicial approach in such matters has also been consistent that cancellation of GST registration cannot be sustained on vague allegations, undisclosed inspection material, non-speaking orders or non-consideration of the taxpayer’s documents. Courts have repeatedly held that the department must act strictly within Section 29 and the prescribed rules, and must give a meaningful opportunity to the assessee before taking such drastic action.
9. Conclusion
A closed premises is not equal to a non-existent business. It may be a reason for verification, but it cannot automatically justify cancellation.
Before cancelling GST registration on the ground of closed premises, the proper officer must establish a statutory ground under Section 29 read with Rule 21, conduct proper verification under Rule 25 where required, upload REG-30 with documents and photographs, supply the material relied upon, issue a specific show cause notice in REG-17, consider the reply in REG-18, grant meaningful opportunity, and pass a speaking order.
If the officer fails to follow these steps, especially where there is no REG-30 report, no supply of survey material, vague SCN, non-consideration of reply, or mechanical cancellation order, the cancellation can be challenged as being contrary to Section 29(2), Rules 21, 21A, 22 and 25 of the CGST Rules, 2017 and principles of natural justice.
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