The provisions of the Central Goods and Services Tax, Act 2017 have been time and again amended since the implementation of the Goods and Services Tax (GST) regime in 2017 with an aim to ease out the concept and the practical aspects of GST for the Taxpayers.
The concept of ‘Suspension of GST Registration’ was introduced by an amendment in Section 29 of the Central Goods and Services Tax Act, 2017 (CGST Act) through the Central Goods and Service Tax (Amendment) Act, 2018 (no. 31 of 2018) (Amendment Act).
The procedure for the same is mentioned in Rule 21A of the Central Goods and Services Tax Rules, 2017 (CGST Rules) which was introduced by the CGST (Amendment) Rules, 2019 (Amendment Rules).
These provisions were made effective from 01.02.2019.
PROVISIONS FOR SUSPENSION OF GST REGISTRATION
Section 29 of the CGST Act, 2017 contains provisions relating to the cancellation or suspension of registration. The Amendment Act inserted the following proviso to section 29 (1) –
“Provided that during the pendency of the proceedings relating to 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 means that when the Taxpayer applies for the cancellation of registration, his registration can be suspended for the period between the date of such application and the date of actual cancellation of GST registration.
Another proviso was inserted into Section 29(2) of the CGST Act 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.
In order to give effect to these provisions, Rule 21A was inserted vide the Amendment Rules Rule 21A provides for suspension of registration in three cases:
Rule 21A(1): The deemed suspension applies to those registered persons who have applied for the cancellation of their registration.
Rule 21A(2): Suspension by the Proper Officer, when he has reasons to believe that the registration of a person is liable to be cancelled under Section 29 or under Rule 21 during the period when proceedings for the cancellation of registration are in process.
Rule 21A(2A): When the registered person’s returns are compared with the details of outward supplies provided in FORM GSTR-1 or the details of inward supplies derived based on the details of outward supplies in FORM GSTR-1 or such other analysis, it shows significant differences or anomalies indicating contravention of the provisions of the Act or the rules leading to the cancellation of registration.
PROCEDURE OF SUSPENSION OF REGISTRATION
If a registered person applies for the cancellation of registration under Rule 20 of the CGST Rules, the registration is deemed to be suspended from the date of submission of the application or the date from which the cancellation is sought, whichever is later, during the pendency of the proceedings for cancellation of registration under Rule 22 of the CGST Rules.
Suspension of GST Registration by the proper officer
When the Proper Officer has ‘reasons to believe’ that the registration of a person is liable to be cancelled under Section 29 of the CGST Act or under Rule 21 of the CGST Rules during the period when proceedings for the cancellation of registration are in process, he may suspend the registration of such person effective from the date determined by him.
The Government has also amended Rule 21A vide Notification 94/2020-Central Tax dated 22.12.2020, granting the Departmental Officers wider authority over GST registration cancellation and suspension.
In cases of significant differences or anomalies revealed upon comparison of the returns furnished by the registered person, the Officer shall suspend the registration and shall issue Form GST REG-31 electronically, on the common portal, or send a communication to the e-mail address of the Taxpayer to intimate him of the discrepancies.
A period of 30 days from the receipt of this intimation is provided to the Taxpayer to explain the reasons as to why his registration should not be cancelled. Reply has to be sent to the Jurisdictional Officer through the common portal within the given time period.
Since REG-31 has not been activated on the GST portal, the Central Board for Indirect Taxes and Customs (CBIC) has given a standard operating procedure (SOP) vide Circular No. 145/01/2021-GST dated 11.01.2021 for suspension of registration of a person on observance of such discrepancies /anomalies which indicate violation of the GST Act. This Circular is to be read with Rule 21A(2A) of the CGST Rules.
The registration of Specified Taxpayers will be suspended, and a system-generated intimation of suspension and notice of cancellation of registration in form GST REG-31, stating the reasons for suspension, would be delivered to such Taxpayers on their registered e-mail address, as per the SOP.
Until the functionality for FORM REG-31 is accessible on the site, the Taxpayer will receive notice/intimation in Form GST REG-17 on their dashboard on the common portal. The SOP provides that such notice can be viewed in the ‘View/Notice and Order’ tab post login.
The SOP further states that if an intimation of suspension and notice of cancellation of registration is sent owing to non-filing of returns, the concerned Taxpayer may file all required returns and respond.
EFFECTS OF SUSPENSION OF REGISTRATION
A registered person, whose registration has been suspended under Rule 21A(1) of the CGST Rules, shall not make any taxable supply during the period of suspension and shall not be required to furnish any return under Section 39 of the CGST Act.
A registered person, whose registration has been suspended under Rule 21A(2) or Rule 21A(2A) of CGST Rules, shall not make any taxable supply during the period of suspension, shall not be required to produce any return under Section 39 of CGST Act and shall not be granted any refund under Section 54, during the period of suspension of his registration.
REVOCATION OF SUSPENSION OF GST REGISTRATION
When the Proper Officer concludes the proceeding of cancellation of GST registration, the suspension shall be deemed to be revoked and the revocation will be effective from the date on which the suspension had come into effect.
If the Officer deems fit, he can also revoke the suspension during the pendency of the proceedings of the cancellation.
If the suspension of registration is revoked, then any supplies made during this period will be subject to Section 31(3)(a) and Section 40 of the CGST Act. Section 31(3)(a) stipulates that a registered person may, within one month from the date of revocation of suspension, shall 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 of the CGST Act, 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.
RIGHTS OF THE TAXPAYER
While the Rule provides that 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, the words “after affording the said person a reasonable opportunity of being heard” has been omitted from Clause (2) of Rule 21A.
Consequently, 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 a person is liable to be cancelled under Section 29 of the CGST Act or Rule 21 of the CGST Rules.
Once the registration is suspended the Taxpayer is unable to make taxable supplies or get refund during the period of such suspension. This would inevitably cause hardships to genuine taxpayers and would be fatal to their business thereby violating Article 19(1)(g) of the Constitution.
Shakti Shiva Magnets Private Limited v. Assistant Commissioner & Ors. (Delhi High Court) [W.P. (C) 1559/2022]
Shakti Shiva Magnets Private Limited had filed a petition in response to the Show Cause Notice (SCN) dated 11.11.2021 issued by the Revenue Department which resulted in the Petitioner’s registration being suspended for more than two months without adequate explanation, reason, or fact.
The Petitioner highlighted Rule 21A of the CGST Rules that describe the conditions needed to be fulfilled for suspending a registration and Rule 22(3) of the CGST Rules wherein it is provided that an assessee’s registration can be suspended only for 30 days and the cancellation proceeding has to be concluded within the same period.
The Respondent prayed for 3 days’ time to issue a fresh detailed SCN to the Petitioner and for fifteen days’ time to decide the same.
Whether the Respondent can suspend the registration of the Petitioner with no sufficient explanation, reason or fact under the CGST Rules?
Observation of the Court
The Delhi High Court quashed the impugned SCN for it lacked the reason or fact and is not supported by any document based on which the Petitioner’s registration could be suspended for more than two months.
The Delhi High Court directed the restoration of the Petitioner’s registration. The Court however, allowed the Respondent to issue a fresh SCN containing all facts and reasons.
Further, the Delhi High Court directed the Respondent to issue a practice direction so that in future, if any SCN for cancellation of GST registration is issued, the same is not bereft of any material particulars or reasons.
Galaxy Mechanical Engineering Equipments Private Limited & Anr. v. Assistant Commissioner, Bally, West Bengal Goods and Services Tax & Ors. (Calcutta High Court)[W.P.A. 2857 of 2022]
The Petitioner filed the petition to challenge the impugned SCN issued by the Department for cancellation and suspension of the registration of the Petitioner.
The Petitioner contended that the SCN was passed without giving any reasonable opportunity of being heard. The Petitioner further contended that the impugned order of cancellation was a non-speaking order.
The Petitioner also contended that the said SCN is issued without the application of mind and that the recording in the impugned order of cancellation ‘that the respondent has considered the reply in response to the impugned SCN’ is untrue as no such reply was given.
Observation of the Court
The Calcutta High Court set aside the impugned order of cancellation and held it to be unsustainable in law as it was bereft of any reason and was a non-speaking order.
With respect to the impugned show-cause notice for cancellation of registration, the Calcutta High Court disregarded the suspension as the impugned SCN was very vague and contains one line allegation without any basis.
The Court noted that to meet the ends of justice, a person to whom an SCN is issued must at the very least be provided in brief the basis of such allegation. The Calcutta High Court finally suspended the impugned order of suspension till the reply to the impugned SCN is given and a hearing is given on the same and is disposed of by passing a well-reasoned speaking order in accordance with the law.
The provisions governing the suspension of registration, particularly the latest amendments, are meant to give the Government rapid redress in the event of any irregularity, anomaly, or violation of GST legislation, ensuring that the online system is not abused.
The defaulters are also barred from committing any more violations. The GST Officers have already stepped up their efforts to combat false invoices, which have resulted in a rise in tax collections in recent months.
These amendments are intended to reduce tax avoidance and protect revenue. The SOP provides that the sub-rule 2A has been inserted:
“as a measure to safeguard the interest of revenue, on the observance of such discrepancies /anomalies which indicate a violation of the provisions of Act and rules made thereunder; and that continuation of such registration poses an immediate threat to revenue.”
The provisions provide, to genuine taxpayers who have requested for registration cancellation, some relief from compliance with the GST return filing during the suspension period thereby decreasing the compliance cost of the Taxpayer.;
However, they are more favourable to the Department in the way that the said provisions provide the broad authority to the Department to commence suo motu cancellation procedures and suspend registration in the meantime.
The mere inability of a genuine taxpayer to comply with any provisions or rules should not lead to cancellation of registration on the basis of the principle that the punishment should be commensurate with the offence committed as held in Falcon Air Cargo & Travel Ltd. vs. CCE, New Delhi [2002 (141) E.L.T 284]. Suspension of registration and hampering the right of the Taxpayer to carry on his business are extreme steps for minor non-compliances.
The lack of a provision providing for a “reasonable opportunity of being heard” before the suspension of registration could be seen as a clear violation of the principles of natural justice.
While the suspension is considered as a positive improvement, the lack of a personal hearing required prior to the suspension of the registration tilts the balance of justice against the Taxpayer’s interests.
From the perspective of a registered person, the principal benefit of suspending GST registration is that he would be liberated from GST return compliance. However, withholding of a return until the suspension is lifted may be harmful to the Taxpayer.
–Team AMLEGALS assisted by Ms. Kirti Dhoke (Intern)
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