Goods and Services Tax (GST) is a one-nation, one-tax regime that was introduced in India in July 2017. It replaced multiple indirect taxes like excise duty, VAT, and service tax with a single tax. GST is a destination-based tax levied on the consumption of goods and services, and it is divided into Central GST (CGST), State GST (SGST), Integrated GST (IGST), and Union Territory GST (UTGST).
Under GST, every taxpayer is required to register under a unique Goods and Services Tax Identification Number (GSTIN) to avail of input tax credit (ITC) and collect tax from customers. The process of GST registration is straightforward, and most taxpayers register at the time of starting a business. However, sometimes, after registration, a taxpayer may want to cancel their GST registration.
Post factum GST registration cancellation is the process of canceling GST registration after a taxpayer has already started using their GSTIN for invoicing and claiming input tax credit. This usually happens when a taxpayer realizes that they do not require GST registration because they fall under the threshold limit or because they are exempted from GST.
However, post factum GST registration cancellation is not allowed if the taxpayer has already availed of ITC. This was clarified by the Authority for Advance Ruling (AAR) in a case involving M/s Alcon Consulting Engineers (India) Private Limited. In this case, the taxpayer had applied for GST registration and started using their GSTIN for invoicing and claiming ITC. Later, they realized that they did not require GST registration and applied for its cancellation.
The AAR observed that the taxpayer had already availed of ITC during the period of GST registration, and therefore, post factum GST registration cancellation was not allowed. The AAR also clarified that the taxpayer could not deny the ITC claimed during the period of registration.
The ruling of the AAR in the Alcon Consulting Engineers (India) Private Limited case has significant implications for taxpayers who wish to cancel their GST registration. It means that if a taxpayer has already availed of ITC during the period of registration, they cannot deny it later on. This is because the ITC is an entitlement that arises as soon as tax is paid on the purchase of goods or services.
Therefore, if a taxpayer cancels their GST registration post factum, they will have to pay back the ITC claimed during the period of registration. This can result in a significant financial liability for the taxpayer, especially if they had availed of a substantial amount of ITC.
Post factum GST registration cancellation is not allowed if the taxpayer has already availed of ITC during the period of registration. This means that if a taxpayer cancels their GST registration post factum, they will have to pay back the ITC claimed during the period of registration. Therefore, taxpayers should be careful while applying for GST registration and ensure that they do not require GST registration before applying for it. It is advisable to seek professional advice before applying for GST registration or canceling it post factum.
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