Suspension of GST registration

The national GST legislation has established a strong compliance network. Regulations are regularly updated to simplify the GST system and ensure fairness for all.
Simultaneously, the government is tightening GST tax legislation. Non-compliance with GST requirements could lead to suspension or cancellation of GST registration. This is a serious matter, as conducting taxable transactions after registration suspension is illegal. Seeking guidance from a tax expert for any GST-related queries is advisable.
 

What is meant by suspension of GST registration?

The government has introduced a new concept of suspending GST registration through Rule 21A in the CGST Rules 2019. Under this rule, a taxpayer applying for GST registration cancellation is exempted from GST return filing obligations during the suspension period.
Suspension of registration can occur if an authorized official anticipates revoking the registration. Prior to suspension, the officer may issue a warning or provide an opportunity to resolve the issue.

Discrepancies are communicated to the taxpayer via Form GST REG-31. The form also indicates that if the taxpayer fails to provide a valid justification, GST registration may be revoked. Additionally, if the officer deems the explanation insufficient or unacceptable, suspension may still be imposed.
 

Period of suspension of GST registration

The suspension of GST registration becomes effective from the date the registered person applies for cancellation. The effective date of suspension is determined by the later of the following:
    The date of submission of the registration cancellation application.
    The date from which the cancellation is requested.
 

Effect of suspension of GST registration

Cancellation or suspension of GST registration can have significant implications for taxpayers and businesses:
    Inability to file tax returns.
    Inability to claim GST credits.
    Damage to the business reputation.
    Negative impact on business operations.
    Loss of rights under GST laws.
    Difficulty in obtaining GST registration again.
    Requirement to reapply for GST registration.
    Loss of credibility and reliability in the market.
    Harm to the business goodwill.
 

Whose GST registration or GSTIN can get suspended?

A proper officer has the authority to cancel a registered person's GSTIN if there's a valid reason for cancellation. The officer must first provide the registered person with a chance to explain their side, following the procedure outlined in Rule 22 of the CGST Rules 2017. Meanwhile, during the cancellation process, the officer can suspend the registration.

Suspension can also happen if the officer discovers discrepancies in the GST returns. Under Rule 21A(2A) introduced via notification 94/2020, if the officer finds inconsistencies in outward supplies (GSTR-1) compared to summary return (GSTR-3B), inward supplies (GSTR-2B) compared to GSTR-3B, or through any other analysis, they issue Form GST REG-31 to notify the taxpayer. If the discrepancies aren't adequately explained, the registration may be cancelled.
The officer has the authority to suspend the registration from the date of issuing Form GST REG-31. However, upon receiving a satisfactory response from the taxpayer, the suspension can be lifted. This provision has been appreciated by taxpayers as it eases their compliance burden until the cancellation proceedings are finalized.
 

Cause / Reasons to Suspend GST

Section 29 of the Central Goods and Services Tax, implemented in 2017, outlines various grounds for suspending or cancelling GST registration. Some key reasons include:

    Death of the Owner
    Discontinuation of Business
    Full Transfer of Business Ownership
    Merger or Amalgamation Resulting in a New Business Entity
    Business Disposal by Legal Heir
    Changes in Business Constitution
    Business No Longer Liable for GST Payment
    Voluntary Withdrawal from Registration Obligation
    Potential Suspension During Cancellation Proceedings
    
Additionally, registration may be suspended or cancelled for violations such as:

●    Actions against the Goods and Services Tax Act of 2017
●    Violations of Goods and Services Tax Rules and Regulations
●    Non-filing of GST returns beyond three months from the due date
●    Failure to commence business within six months of GST registration
●    Obtaining GST registration through fraud or misstatement
●    Registration obtained by suppressing facts

Conclusion

GST registration is crucial for businesses in India, and its suspension or cancellation can have significant consequences. Reasons for such actions vary from changes in business ownership to non-compliance with GST rules. To avoid suspension, taxpayers must diligently follow regulations. Once suspended or cancelled, reinstatement can be challenging, causing disruptions in tax returns, operations, and reputation. Therefore, adherence to GST laws is vital for businesses to maintain market credibility and benefits.