Beware of 'Suspension of GST Registration'

Before the amendment of CGST Amendment Act,2018 there was no such concept of suspension of GST Registration under GST law. This amendment Act introduced suspension of registration by inserting a proviso to section 29 (2) of the CGST Act, 2017 effective from 01.02.2019. The proviso reads as –

Provided further that during the pendency of the proceedings relating to cancellation of registration, the proper officer may suspend the registration for such period and in such manner as may be prescribed.

Even the title of Section 29 was changed from 'Cancellation of Registration' to 'Cancellation or Suspension of Registration'

At the same time Rule, 21A was inserted in CGST Rules with respect to Suspension of Registration. The Rule 21A reads as –

Suspension of registration

21A. (1) Where a registered person has applied for cancellation of registration under rule 20, the registration shall be deemed to be suspended from the date of submission of the application or the date from which the cancellation is sought, whichever is later, pending the completion of proceedings for cancellation of registration under rule 22.

(2) Where the proper officer has reasons to believe that the registration of a person is liable to be cancelled under section 29 or under rule 21, he may[***], suspend the registration of such person with effect from a date to be determined by him, pending the completion of the proceedings for cancellation of registration under rule 22.

As you will notice from the above, under sub rule (1), in a case where cancellation is applied by the taxpayer the suspension provision is a deeming provision effective the date of the application or the date from which the cancellation is sought whichever date falls later. For example, if a registered person makes an application for cancellation of registration on 2nd February 2021 but seeks cancellation from 1st March 2021 then his GST registration will automatically get suspended from 1st March 2021, This is good from the taxpayer standpoint because he does not need to continue GST compliances till the cancellation takes place.

Whereas under sub rule (2) where the Cancellation is to be done suo-motto by the Proper Officer then the discretion to suspend is with the proper officer as the word used is 'may'.

A very unwelcome change was effected w.e.f. 22.12.2020 in the above sub rule (2) that the words 'after affording the said person a reasonable opportunity of being heard' were omitted. This defeats the established principle of ‘natural justice’. The taxpayer who is going to be deprived of GST registration and stop him from raising tax invoice and charge GST definitely needs to know in advance such drastic proposed action and an opportunity to clarify and defend his case. He will get only intimation of suspension in Form REG-31. We hope that this provision is only used in the cases of 'fake invoicing' and fraudsters for which, to our understanding, this change has been brought in.

The suspension will be in operation till the order of cancellation is passed or the proceedings for cancellation of registration are dropped.

Another change was effected to rule 21A by inserting new sub-rule 2A which reads as under-

[2A) Where, a comparison of the returns furnished by a registered person under section 39 with

or such other analysis, as may be carried out on the recommendations of the Council, show that there are significant differences or anomalies indicating contravention of the provisions of the Act or the rules made thereunder, leading to the cancellation of registration of the said person, his registration shall be suspended and the said person shall be intimated in FORM GST REG-31, electronically, on the common portal, or by sending a communication to his e-mail address provided at the time of registration or as amended from time to time, highlighting the said differences and anomalies and asking him to explain, within a period of thirty days, as to why his registration shall not be cancelled.]

Important points under sub-rule 2A

The above sub-rule suggests that on comparison of GSTR3B with GSTR1 or GSTR2A show significant variations or differences are noticed by the proper officer which cause a contravention of the provisions of the Act or the rules and which lead to one or more of the situations prescribed for cancellation of registration then only the proper officer can suspend the registration and not otherwise, in my opinion. Also, only 2 situations have been provided in the rule. 'Such Other analysis' has to be recommended by the GST Council, so until then these are the only 2 situations provided under sub-rule 2A.

Further, the variation or differences should be significant which will depend upon the facts of each case but cannot be for minor or petty differences.

Procedure to be followed for suo-motto suspension of Registration

The officer has to intimate the suspension of Registration in the Form REG-31 to taxpayer electronically, on the common portal, or by sending a communication to his e-mail address. REG-31 also a form in which SCN is issued to the registered person purposing to cancel his registration for the reasons to be stated therein and giving him 30 days time to file his reply.

Form REG-31 has not yet been activated on the GST portal and the CBIC has issued Standard Operating Procedure (SOP)/ guidelines, vide Circular No. 145/01/2021-GST dated 11^th February 2021, to be followed for implementing the provisions of rule 21A(2A). The SOP is reproduced below

'On the recommendation of the Council, 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 of suspension, shall be sent to such taxpayers on their registered e-mail address. Till the time functionality for FORM REG-31 is made available on portal, such notice/intimation shall be made available to the taxpayer on their dashboard on the common portal in FORM GST REG-17. The taxpayers will be able to view the notice in the 'View/Notice and Order' tab post login.

4. The taxpayers, whose registrations are suspended (hereinafter referred to as 'the said person') under the above provisions, 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, if any, and shall furnish the details of compliances made or/and the reasons as to why their registration shouldn’t be cancelled: a. The said person would be required to reply to the jurisdictional officer against the notice for cancellation of registration sent to them, in FORM GST REG-18 online through Common Portal within the time limit of thirty days from the receipt of notice/ intimation. b. In case the intimation for suspension and notice for cancellation of registration is issued on ground of non -filing of returns, the said person 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.

5.1 Post issuance of FORM GST REG-31 via email, the list of such taxpayers would be sent to the concerned Nodal officers of the CBIC/ States. Also, the system generated notice can be viewed by the jurisdictional proper officers on their Dashboard for suitable actions. Upon receipt of reply from the said person or on expiry of thirty days (reply period), a task would be created in the dashboard of the concerned proper officer under 'Suo moto cancellation proceeding'.

5.2 Proper officer, post examination of the response received from the said person, 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.

5.3 Till the time, independent functionality for FORM GST REG-31 is fully ready, it is advised that if the proper officer considers it appropriate to drop a proceeding anytime after the issuance of FORM GST REG-31, he may advise the said person to furnish his reply on the common portal in FORM GST REG-18.

5.4 It is advised that in case the proper officer is prima-facie satisfied with the reply of the said person, he may revoke the suspension by passing an order in FORM GST REG-20. Post such revocation, if need be, the proper officer can continue with the detailed verification of the documents and recovery of short payment of tax, if any. Further, in such cases, 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.'

What are the effects of Suspension?

A registered person, whose registration has been suspended, during the period of suspension-

1. He cannot issue a tax invoice or charge GST on his supply means thereby that he will be as if unregistered.
2. He shall not be required to furnish any return under section 39.
3. He shall not be granted any refund under section 54.

Note: The views expressed above are strictly personal of the author.