Under the Goods and Services Tax (GST) system in India, registration is mandatory for individuals and businesses that meet specific criteria, such as turnover limits or specific business activities. However, there may arise situations where this registration is no longer needed or where it needs to be revoked.

Section 29 of the CGST Act, 2017, deals with the cancellation and suspension of GST registration, whether initiated by the registered person or the proper officer.

It lays down:

• The conditions under which cancellation is allowed,
• Who can initiate cancellation,
• The procedure and consequences of such cancellation,
• And the financial obligations that follow.

When Can a Registered Person Apply for Cancellation?

This provision allows a registered person or their legal heirs (in case of death) to voluntarily apply for cancellation of GST registration.

Grounds for Application:

Cancellation can be applied for in the following situations:

(a) Discontinuance or Transfer of Business:

• If the business is shut down permanently.
• If the business is sold, transferred, or merged with another entity (due to sale, gift, death of proprietor, amalgamation, demerger, etc.).
• If the business is otherwise disposed of in any manner.

👉Example: A sole proprietor shuts down a small retail shop and has no plans to operate it again — GST registration is no longer needed.

(b) Change in Constitution of Business:

• When there is a change in legal structure of the business.
• E.g., A sole proprietorship is converted into a partnership or a company.

👉 GST registration in the old form becomes invalid and must be cancelled.

(c) Person No Longer Liable to be Registered:

This covers two categories:

1. No longer required to be registered under:
   • Section 22: Threshold-based registration.
   • Section 24: Compulsory registration (like interstate supply, etc.).
2. Voluntarily registered under Section 25(3) but now wishes to opt out.

👉Example: A freelancer whose income drops below the GST threshold and is no longer liable to pay tax.

Suspension During Cancellation Process:

• A key provision allows the suspension of registration while the cancellation process is underway.
• This is to prevent misuse of registration during the transition period.

Suo-Moto Cancellation by Proper Officer

Here, the GST officer can cancel the registration on his own, even if the taxpayer hasn’t applied, in specific cases of non-compliance or fraud.

Conditions Where Officer Can Cancel:

(a) Violation of GST Provisions:

If the registered person has breached the GST Act or rules made under it.

👉 Examples include:

• Issuing fake invoices,
• Claiming ineligible Input Tax Credit (ITC),
• Failing to maintain records, etc.

(b) Non-Filing of Return by Composition Dealer:

• If a person paying tax under the Composition Scheme (Section 10) fails to file return for a financial yeareven after 3 months from the due date.

👉 Example: A composition taxpayer didn’t file the annual GSTR-4 return for FY 2023–24 by July 31, 2024 — the officer may cancel the registration after October 31, 2024.

(c) Non-Filing of Returns by Regular Taxpayer:

• A registered person (not under composition scheme) fails to file GST returns for a continuous period as prescribed in rules.

👉 Earlier, this period was 6 months. Now, it’s as prescribed, generally 3 consecutive tax periods (monthly/quarterly).

(d) Voluntary Registration but No Business Started:

• If a person who took registration voluntarily under Section 25(3) has not started any business within 6 months.

👉 Example: A person got GST registration in January 2024 but hasn’t started operations till July 2024.

(e) Fraudulent Registration:

• If the registration was obtained by:
  • Fraud,
  • Willful misstatement, or
  • Suppression of facts.

👉 Example: Fake PAN, fake documents, fake bank details, or misleading information to get registration.

Right to Be Heard:

• The proper officer must issue a show-cause notice and give the person an opportunity to explain before cancelling the registration.

Tax Liability After Cancellation

Even after the GST registration is cancelled:

• The person is still liable to pay tax, interest, penalty, or any other dues for the period before cancellation.
• This is true whether such dues were determined before or after cancellation.

👉Example: If you cancel your GST registration in June 2024, but haven’t paid tax for April 2024, you must still pay it.

Cross-Effect of Cancellation Under SGST/UTGST

• If your registration is cancelled under:
  • State GST (SGST) law, or
  • Union Territory GST (UTGST) law,

➡️ It will be automatically cancelled under CGST law as well.

👉 This ensures that both Central and State laws stay synchronized.

Final Payment on Cancellation – Input Tax Credit (ITC) Reversal

When registration is cancelled, the person must pay back the higher of the following two amounts:

You must pay:

1. Input Tax Credit (ITC) taken on:
   • Inputs held in stock,
   • Inputs in semi-finished goods,
   • Inputs in finished goods,
   • Capital goods or plant and machinery,

OR

1. Output tax on these items (based on market value under Section 15).

👉Whichever is higher, that amount must be paid.

In Case of Capital Goods:

• You have two options:
  • Pay ITC taken, reduced by a certain percentage (depreciation-based),
  • Or, pay GST on current value of the asset (as per Section 15).

👉 You must pay using your electronic cash ledger or electronic credit ledger.