New GST Registration Suspension rule: Explained

Honourable Finance Minister, Nirmala Sitharaman, stated during the Budget 2021 presentation that, "we do not need to increase the Income Tax Rates and/or GST rates but a strict implementation of the current law would yield healthy collection of taxes". This article explaining the new provision to suspend GST Registration in case of certain anomalies.

With the new direction from the Budget 2021, Central Board of Indirect Taxes and Customs (CBIC) has issued a new Circular No. 145/01/2021-GST on Feb 11th, 2021, to all the GST commissioners in India, to include a new provision that states ... "immediate suspension of GST registration of a person, as a measure to safeguard the interest of revenue on violation of Act and Rules"

New GST Registration Suspension rule: Explained

A strict implementation of the current law would yield healthy collection of taxes

This document covers

Summary
Frequency of Validation
Types of GST holders covered under this rule ?
Cause / Reasons to Suspend GST?
Intimation of Suspension of GST Registration
What to do after Suspension of GST Registration?
Practical Problems in the field

1. Summary

The GST Registration Suspension rules states that an immediate suspension of GST registration of a person, as a measure to safeguard the interest of revenue on violation of Act and Rules

Further the rules states the violations / anomalies, where, a comparison of the returns furnished by a registered person under section 39 with

the details of outward supplies furnished in FORM GSTR-1; or
the details of inward supplies derived based on the details of outward supplies furnished by his suppliers in their FORM GSTR-1

Explained in Simple Terms

In essence, the sales that you record in GSTR-1 will be compared with the purchases recorded (related to your sales) with your customer. If any significant anomaly in such a situation may lead to issuance of suspension notice through Form REG-31.

2. Frequency of Validation

While the data collection frequency to notice such an anomaly is unknown but can be safely assumed to be a Quarter as that is the maximum duration with which most GST taxpayers file their return.

3. Types of GST holders covered under this rule ?

The rules of the provision haven't identified any specific list of types of GST registrations, but the rule might be confined to GST Registrations who deal with Products but may not be Services.

4. Cause / Reasons to Suspend GST?

Refer #1 above on the cause and reasons to suspend GST under this provision.

5.Intimation of Suspension of GST Registration

The GST registration shall be suspended, and the said taxpayer shall be intimated in following ways by highlighting the said differences and anomalies and asking them to explain, within a period of thirty days (30 days), as to why their registration shall not be cancelled.

Form GST REG-31 will be sent electronically and made available on the GST portal.
or by sending a communication to taxpayer e-mail address provided at the time of registration.

6. What to do after Suspension of GST Registration?

The taxpayers who get notice of suspension of GST need to follow

6.1 In case of intimation on Discrepancies

After the issuance of the intimation, the taxpayer would be required to furnish a reply to the jurisdictional tax officer within thirty days (30 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 should not be cancelled.

6.2 Notice of cancellation of registration

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 GST Portal within the time limit of thirty days (30 days) from the receipt of notice / intimation.

6.3 Cancellation due to non-filing of returns

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.
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.

7. Practical Problems in the field

There are many practical problems in the field to interpret the differences between inward and outward supplies .. our understanding and interpretation made us believe that the below are a concern.

Services: While there is a way to measure the differences between inward and outward supplies for those who are in trading community who sell products etc., such measure is not possible with the Services Sector.
Timing: Many traders purchase large stock in anticipation of future sales, in this situation, GST Returns may not reflect outward supplies (Sales) for several months to quarters there by mismatch between outward and inward supplies. Few cases it could be other way where businesses book Sales Invoices, but supplies are expected to be ordered after receiving the advance and the inward supplies may be delayed due to several reasons.
Working Capital: Due to pressure in cash flow or working capital requirements, businesses expect to delay in booking the sales (or include in the GST Returns) there by mismatch between Sales and Purchases recorded by the customer. Though GST Law is clear that the sales have to be booked irrespective of whether the delivery of such goods are in future or not.