In the context of taxation regulations, businesses registered under the GST must adhere to compliance rules. If the compliance rules are not followed, the authorities may initiate a suo moto cancellation under Section 29(2) of the CGST Act. It involves the cancellation of GST registration from the tax department without any application from the taxpayer. In this guide, we are going to discuss the meaning, reasons, impact, how to resolve the cancellation, and prevention tips.
What does a Suo Moto cancellation of GST mean?
Suo moto is a Latin term that translates to “on its own motion". In the context of GST, it refers to the cancellation of a taxpayer’s GST registration by the authorities. It is mainly done when the taxpayer fails to comply with the required legal requirements. Typically, some businesses request for the deregistration of their entities in India. Consequently, as opposed to the sole or voluntary type, the suo moto cancellation is taken by the department itself.
For example, if a business registered under GST does not file returns for six months, the department can cancel its registration without prior approval from the business owner.
Several factors can trigger Suo Moto cancellation by the GST department:
- Non-filing of GST returns: If the taxpayer does not file the returns for a certain time limit, then the registration may be cancelled. It could be for any six months for the regular taxpayers and two quarters for the composition scheme holders.
- The business does not start within the specified time frame: A newly registered business must commence operations within the timeline specified in its registration application.
- False registration details: If the business has included any fraudulent contents or incorrect details during the registration, the authorities may cancel the GST registration.
- Violation of GST laws: The act of issuing a fake invoice, violating GST laws to claim Input Tax Credit (ITC), or trying to circumvent GST laws can result in Suo Moto cancellation.
- Nonpayment of GST dues: Failure to clear GST dues despite receiving notices from the tax department may result in Suo Moto cancellation.
Impact of Suo Moto Cancellation on Businesses
Suo moto cancellations can have significant implications for businesses:
- Businesses lose their ability to collect GST due to the cancellation of their legal status. The cancellation of the legal status prevents the business from collecting tax and from issuing tax invoices that charge GST to consumers.
- Restricted transactions: Despite the benefits of having a GST-registered business, such as supplier and buyer preference, the cancellation of a business' registration can cause disruption in operations.
- Blocked Input Tax Credit (ITC): The business will not be able to claim ITC on purchases made during the period of cancellation.
- Penalties and legal issues: Continuing operations without a valid registration may attract hefty penalties.
Example: Consider a scenario where the non-filing of returns results in the cancellation of a retailer's GST registration. Customers may refuse to deal with the retailer, resulting in a loss of business. Additionally, the retailer cannot claim ITC on inventory purchased during the period of cancellation.
Steps to Resolve Suo Moto's Cancellation of GST
If your GST registration is cancelled Suo Moto, you can follow these steps to resolve it:
- Identify the reason for cancellation: Log in to the GST portal and move to the Notices section to download the order for cancellation. Once you have downloaded the cancellation order, click the link within the document that corresponds to the cancellation reason. Here, you can view the stated cancellation reason in the order. Use this information to respond and provide the necessary documents.
- File Pending Returns or Clear Dues: If the cancellation happened because returns were not filed promptly, submit all returns along with any late fees and penalties without delay. Also, clear any outstanding dues right away.
- Submit the Application for Revocation: Submit a request to reverse the cancellation within 30 days of receiving the cancellation notice. Head to the Services section then click on Registration followed by Application for Revoking Cancellation on the GST portal. Include all the required information and attach any supporting documents needed.
- Respond to Officer’s Notices (if required): In some cases, the tax officer may request additional documents or clarification. Ensure you respond promptly to avoid delays.
- Approval and Reactivation of GST Registration: The officer will restore your registration and allow you to resume normal operations if they are satisfied with your submission.
Can you apply for fresh registration after Suo Moto cancellation?
Yes, you can submit a new registration application if the authorities reject your revocation application or if you fail to apply within 30 days. However, this process may require additional scrutiny by the authorities.
Tips to Avoid Suo Moto Cancellation of GST
- Timely filing of returns: Even if there are no transactions, file NIL returns on time.
- Pay dues promptly: Always pay your GST dues before the due date.
- Monitor the GST portal regularly: Stay updated on notices from the department.
- Avoid misuse of ITC: Ensure all invoices are genuine and comply with GST rules.
- Update business details: Inform authorities about any change in business operations or address promptly.
FAQs on Suo Moto Cancellation of GST
Q1: What happens if I don’t apply for revocation within 30 days?
A: If you miss the 30-day deadline, you can no longer apply for revocation and will need to apply for fresh registration.
Q2: Can I operate my business after Suo Moto cancellation?
A: Until you restore your registration, you cannot legally collect GST or issue GST invoices.
Q3: How long does it take to revoke a cancelled GST registration?
A: The time varies based on the officer's scrutiny, but typically it takes 15-30 days after submission of the revocation application.
Q4: Is it possible for me to claim input tax credit (ITC) during the cancellation period of my registration?
A: Unfortunately, you cannot claim input tax credit (ITC) for purchases made during the cancellation period of your GST registration.
Q5: Will late filing always result in cancellation?
A: Not always. The department usually issues reminders and notices before initiating cancellation. However, repeated noncompliance can lead to Suo Moto cancellation.
Q6: Can I appeal against the cancellation?
A: Yes, if your revocation request is denied, you can appeal against the order under GST law.
Q7: Do I need to pay penalties to reactivate my GST registration?
A: Yes. If the cancellation is due to noncompliance, you may have to pay penalties along with late fees for pending returns.
Q8: What if I was not aware of the cancellation?
A: You are responsible for monitoring your GST portal for notices. Ignorance will not exempt you from penalties.
