GST Registration Suspension

Suspension of GST Registration

Suspension of registration is covered under Section 29 of the CGST Act, 2017 and the procedure for the same has been provided under Rule 21A of the CGST Rules 2017. Section 29 has been amended vide the CGST (Amendment) Act, 2018 (no. 31 of 2018) dated 29.08.2018 to allow suspension” of GST Registration w.e.f. 01.02.2019 and Rule 21A was inserted vide Notification 03/2019- Central Tax dated 29.01.2019 with effect from 01.02.2019.

Provisions for Cancellation or Suspension of GST Registration

SECTION 29-

1. The heading of the section was amended from ‘Cancellation of Registration’ to ‘Cancellation or Suspension of Registration’.

2. A new proviso was inserted to section 29 (1) and the same is reproduced hereunder for ready reference –

 ‘Provided that during the pendency of the proceedings relating to the cancellation of registration filed by the registered person, the registration may be suspended for such period and in such manner as may be prescribed’

The above-referred proviso simply states that the GST registration during the period between the date of application of cancellation of GST registration and the date of actual cancellation of GST registration would be suspended.

3. Another proviso was inserted to Section 29(2)(e) which provides for the suspension of GST registration by the proper officer during the pendency of the proceedings relating to the cancellation of GST registration, in the manner prescribed.

RULE 21A-

Deeming provision of suspension –

The deeming provision of suspension of GST registration shall be effective when the registered person has applied for the cancellation of GST registration. The effective date of suspension of GST registration would be later of the following –

4. Date of submission of registration cancellation application; or

5. Date from which the cancellation is sought.

Suspension of GST registration by the proper officer –

The proper officer has been bestowed upon the right to, cancel the GST registration of any registered person if he has a reason to believe that the registration of the person is liable to be cancelled.

However, the proper officer has to follow the entire procedure laid down under rule 22 of the CGST Rules, 2017 before cancelling such registration.

Thus in such a case, where the proceeding for cancellation of GST registration has been initiated by the proper officer, the proper officer can suspend the registration of such person.

The government has further amended Rule 21A vide Notification 94/2020-Central Tax dated 22.12.2020, giving the Departmental Officers more powers with regard to cancellation and suspension of GST Registration and take action against serious misreporting in GSTR 1 and 2B and GSTR 3B.

The amendments made vide the said notification are as below:

• Rule 21A(2A): A new sub-rule 2A has been inserted which states that if a proper officer finds any discrepancies:

i. On comparing details of outward supplies furnished under Form GSTR-1 and Form GSTR 3B

ii. On comparing details of inward supplies reflecting in the Form GSTR-2B with the Form GSTR-3B

iii. Any other analysis

He can issue form GST REG-31 for intimating such discrepancies to the taxpayer on the portal or via communication to the registered email-id. He will also mention that if a proper explanation is not provided on these discrepancies, the registration may get cancelled.

He can also suspend the registration as per Rule 21A(2A) with effect from the date of this communication to the taxpayer. Further, the proper officer can lift the suspension on receiving a satisfactory reply from the taxpayer.

In the words of the government, the sub-rule 2A has been inserted “as a measure to safeguard the interest of revenue, on observance of such discrepancies /anomalies which indicate violation of the provisions of Act and rules made thereunder; and that continuation of such registration poses immediate threat to revenue.”

Since REG-31 has not been activated on the GST portal, CBIC has given a standard operating procedure (SOP) vide circular No 145/01/2021-GST dated 11.01.2021 which is to be read with Rule 21A(2A).

SOP for Suspension of GST registration:

1. The registration of specified taxpayers shall be suspended and system-generated intimation for suspension and notice for cancellation of registration in FORM GST REG-31, containing the reasons for suspension, shall be sent to such taxpayers at their registered e-mail address. Till the time functionality for FORM REG-31 is made available on the portal. The notice/intimation shall be made available to the taxpayer on their dashboard on the common portal in FORM GST REG-17 and they will be able to view the notice in the “View/Notice and Order” tab post login.

2. The taxpayers would be required to furnish reply to the jurisdictional tax officer within thirty days from the receipt of such notice/intimation, explaining the discrepancies/anomalies and shall furnish the details of compliances made or/and the reasons as to why their registration shouldn’t be cancelled:

a. The reply shall be made through FORM GST REG-18 online through Common Portal within 30 days from the receipt of notice/ intimation.

b. In case the intimation for suspension and notice for cancellation of registration is issued on the ground of non -filing of returns, the taxpayer may file all the due returns and submit the response. Similarly, in other scenarios as specified under FORM GST REG-31, they may meet the requirements and submit the reply.

3. Proper officer, post examination of the response received from the taxpayer, may pass an order either for dropping the proceedings for suspension/ cancellation of registration in FORM GST REG-20 or for cancellation of registration in FORM GST REG-19. Based on the action taken by the proper officer, the GSTIN status would be changed to “Active” or “Cancelled Suo-moto” as the case may be.

4. Till the time-independent functionality for FORM GST REG-31 is fully ready, the proper officer may drop a proceeding anytime after the issuance of FORM GST REG-31 if he deems fit, he may advise the taxpayer to furnish his reply on the common portal in FORM GST REG-18.

5. If the proper officer is prima-facie satisfied with the reply of the taxpayer, he may revoke the suspension by passing an order in FORM GST REG-20. The proper officer has the authority to continue with the detailed verification of the documents and recovery of short payment of tax even after the revocation. After detailed verification or otherwise, if the proper officer finds that the registration of the said person is liable for cancellation, he can again initiate the proceeding of cancellation of registration by issuing notice in FORM GST REG-17.

• Rule 21A(3A): A person whose registration has been suspended shall not be granted any refund under Section 54, during the period of suspension of his registration.
• Rule 21A (2): The words “after affording the said person a reasonable opportunity of being heard” has been omitted from clause (2) of Rule 21A meaning thereby that no opportunity of being heard would be given to the taxpayer for suspension of registration, where the proper officer has reasons to believe that the registration of person is liable to be cancelled under Section 29.

This in my opinion is a clear violation of the principles of natural justice.  While the suspension is seen as a positive change, the omission of the requirement of a personal hearing before the suspension of the registration tilts the balance of justice against the interest of the taxpayer.

However, the proper officer must give the registered person a reasonable opportunity of being heard and then follow the appropriate procedure for cancellation as mentioned under Rule 22 of the CGST Rules, 2017

Effective date of GST Registration Suspension:

• When a taxpayer files an application for cancellation of registration: Date of Suspension will be the date on which Cancellation application was filed.
• Suo Moto cancellation has been initiated by the Tax Official: Date of Suspension will be the date on which intimation for suspension of registration or notice Cancellation of registration (Form GST REG 31/REG-17) is issued.

Effect of suspension of GST registration

On suspension of GST registration –

• Such a person cannot make any taxable supply after suspension of GST registration;
• Such a person is not required to furnish any returns as required under section 39 of the Central Goods and Service Tax Act, 2017; and
• Such a person will not be granted any refund under Section 54, during the suspension of the registration.

The main benefit of the suspension of GST registration, from the point of view of the registered person, is that he would be freed up from the return compliance under GST. However, the denial of refund till the revocation of suspension can prove to be disadvantageous to the taxpayer.

Revocation of suspension of GST registration

• Once the proceeding of cancellation of GST registration is being completed by the proper officer, the suspension of GST registration shall be revoked.
• The revocation of suspension of GST registration shall be effective from the date on which the suspension had come into effect.
• The suspension may be revoked by the proper officer, anytime during the pendency of the proceedings of the cancellation, if he deems fit.

After revocation of suspension of GST Registration

• If the suspension of registration is revoked the provisions in Section 31(3)(a) and Section 40 in respect of the supplies made during the period of suspension and the procedure specified therein shall apply.
• According to Section 31(3)(a), a registered person may, within one month from the date of revocation of suspension, issue a revised invoice against the invoice already issued during the period beginning with the effective date of registration till the date of revocation of suspension.
• According to Section 40, the registered person, who has made outward supplies in the period between suspension of registration and revocation of suspension, shall declare the same in the first return furnished by him after the revocation of suspension.

Conclusion:

The provisions governing suspension of registration, especially the recent amendments are designed to provide an immediate recourse to the Government against any anomaly or violation of GST laws so that there is no misuse of the online system. And the defaulters are prohibited from further violation. Although the rules do provide certain relief to the genuine taxpayer who has applied for cancellation of registration, the same is more inclined towards the department in as much as it provides a wide range of powers to the department to initiate suo-moto cancellation proceedings and to suspend the registration in the interim.