Cancellation of GST Registration and Repository of Non-genuine Taxpayers: Delhi GST Dept issues SOP [Read Circular]

In Circular No.F.3(479)/GST/Policy/2023/346, dated March 1, 2023, the Delhi Department of Trade and Taxes (Policy Branch) published Standard Operating Procedure (“SOP”) for Cancellation of Registration and for Repository of False Taxpayers.

The circular is divided into different sections including background, relevant legal provisions, SOP for cancellation of registration ..etc.

Standard Operating Procedure for cancellation of Registration

The following guidelines must be followed by all ward in charges/proper officers in order to maintain consistency in the cancellation of registration procedure:

Cases where cancellation is initiated by the Proper Officer on his own motion

The first step in eradicating this problem is to identify the companies that produce “false invoices”. The identification of generators and users is another step in this process. The following risk factors can be utilised to locate the producers of false invoices.

         a) Multiple GSTIN registrations for a given address

         b) Multiple GSTIN for a given PAN

         c) GSTIN using incomplete or wrong addresses

         d) Tax payer using sensitive commodities.

     e) Common Email, common mobile numbers, common address, common authorised signatories, common promoters for multiple GSTIN.

        f) Mismatch between the premises declared and the volume of goods transacted.

      g) Mismatch between the quantum or transactions and the e-way bills generated. If there are, no e-way bills or less c-way bills generated compared to the details of transactions as per the GST returns.

      h) PAN involved in any “fake invoice” fraud or any other GST frauds appear as either in GSTR 1 A or GSTR 2A.

       i) Abnormal ITC utilization (for example above 95%)

The registration should be cancelled from the date of registration, or “ab-initio,” in cases when the Appropriate Officer initiates a cancellation process on the aforementioned grounds. As a result, the Revenue has the advantage because all of the taxpayers’ activities are rendered invalid. The recipient’s GSTR-2A reflects the date of cancellation, allowing the proper officer to refuse input tax credit on any deliveries from the cancelled taxpayer. But, before making a decision, the taxpayer must be given the chance to appear personally.

When application for cancellation is submitted by the registered taxpayer :-

In order to protect government revenue, the appropriate person must make sure that as soon as an application is made by a registered taxpayer on the GST site, action is done.

(A) Checking registration profile of the taxpayer thoroughly to find out:

• Nature of constitution i.e. proprietorship, partnership.
  • Age of stakeholders.
  • Whether the business premises were rented or self owned.
  • Whether documents uploaded on the portal are complete and genuine.
  • Whether field visit was conducted at the time of registration.
  • Number of nature of amendments carried out during the registration tenure.

(B) Brief scrutiny of returns to find out:-

• Volume of business transactions conducted by the taxpayer.
  • Whether returns upto date from which cancellation has been sought are filed.
  • Whether there is any mismatch between output tax liabilities as per GSTR 1 & GSTR 3B and/or mismatch between input tax credit as claimed in GSTR 3B and that is auto populated in GSTR 2A.
  • Whether 2A of the taxpayer contains supplies received from cancelled dealers/non —genuine taxpayers.

(C) Status of refund claims/processed/granted to the registered person.

(D) Any other information/documents received from internal or external sources:

            If the Appropriate Officer decides that the taxpayers’ activities were suspicious, he may instruct the GSTI to make local inquiries to find out whether such a firm existed and conducted business operations on the scale described in returns.

• If the GSTI report is negative one, then necessary action with respect to imposition of penalty may be initiated including cancellation of registration ab-initio.
• Application for cancellation has to be accepted only when the dues arc cleared by the taxpayers and rejection of an application needs to be followed by cancellation proceeding under Section 29(2).

Note: It is necessary that action on the application be taken within 30 days.

(E) Details of authorized signatory/ GSTPICA/Advocate etc. In his/her registration details shall be taken on record for future correspondence.

The order issued by the proper officer should be a detailed one that explains the circumstances of the case and the reasons why the registered taxpayer’s argument was rejected.

Whether or not tax and other dues are determined before or after the date of cancellation, the cancellation of registration shall not affect the person’s obligation to pay tax and other dues for any time prior to that date.

The taxpayer whose registration has been terminated must submit GSTR-10 within three months of the cancellation or, if later, the date of the cancellation order. In this regard, compliance must be ensured by the proper authority.

Repository of Non-genuine taxpayers:

The BIU will serve as a repository for non-genuine taxpayers; it will create a list of these non-genuine taxpayers in accordance with Annexure-A and save an electronic record of the evidence that it receives from proper officers or investigators.

The BIU will also serve as a repository for information about fake or nonexistent taxpayers that other State Tax authorities or CBIC authorities, as applicable, identify and communicate. The list of these fake, nonexistent tax payers will be kept on file by BM together with supporting documentation in the form of communications from the relevant State Tax/CBIC Authorities.

As directed by the Commissioner, BIU must periodically provide the list and details of State non-genuine/existing taxpayers to the GST Council/GSTN.

Relevant Legal Provisions

In accordance with Section 29 of the GST Act and Rule 20 of the Goods and Services Tax Regulations, a taxpayer has the following grounds for requesting the cancellation of their registration:

            a. Discontinuance of business or closure of business;

        b. Transfer of business on account of amalgamation, merger, de-merger, sale, lease or otherwise;

          c. Change in constitution of business leading to change in PAN;

       d. Taxable person (including those who have taken voluntary registration) is no longer liable to be registered under GST;

        e. Death of sole proprietor;

      f. Any other reason (to be specified in the application).

The following details are required to be entered by the applicant in full by the common site when starting the application for cancellation of registration in Form GST REG-16:

1. Address for future correspondence with mobile number and email address;
2. Reason for Cancellation;
3. Date from which cancellation is sought;
4. Value and the input taxi tax payable on the stock of inputs, inputs contained in semi- finished goods, input contained in finished goods, stock of capital goods/ plant and machinery;
5. In case of transfer, merger of business, etc., particulars of registration of the entity in which the existing unit has been merged, amalgamated, or transferred (including the copy of the order of the High Court/ transfer deed);
6. Details of the last return filed by the taxpayer along with the ARN of such return filed.

Further, the cancellation proceeding can also be initiated by the Proper Officer on his own motion.

The following situations, starting from the date he deems appropriate and including any retroactive date, give the proper officer the authority to terminate registration:

(a) a registered person has contravened such provisions of the Act or the rules made thereunder as maybe prescribed; or

(b) a person paying tax under section 10 (Composition dealer) has not furnished returns for three consecutive tax periods; or

(c) any registered person, other than a person specified in clause (b), has not furnished returns for a continuous period of six months; or

(d) any person who has taken voluntary registration under sub-section (3) of section 25 has not commenced business within six months from the date of registration; or

(e) registration has been obtained by means of fraud, wilful misstatement or suppression of facts: However, the proper officer shall not cancel the registration without giving the person an opportunity of being heard in these cases.

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