Introduction:
Understanding how to cancel Goods and Services Tax (GST) registration is important, especially when unexpected things happen, like the owner of a business passing away. Circular No. 96/15/2019-GST, dated 28-3-2019, gives clear guidelines to make this cancellation process smoother. It helps both the current and new owners of the business transition without any hiccups.
I. Registration Liability of Transferee/Successor:
When a business undergoes a change in ownership, as is often the case with the unfortunate demise of the proprietor, the transferee or successor is mandated to register under the GST Act. According to the provisions outlined in sub-section (3) of section 22 of the CGST Act, the transferee must initiate the registration process by electronically submitting FORM GST REG-01 on the common portal. Notably, the reason for registration should be explicitly stated as the “death of the proprietor.”
II. Cancellation of Registration Due to Death of Sole Proprietor:
In the event of the death of a sole proprietor, legal heirs have the authority to apply for the cancellation of GST registration. This application is to be submitted electronically through FORM GST REG-16 on the common portal. The reason for cancellation, in this case, must be specified as the “death of sole proprietor.” This meticulous documentation ensures a transparent linkage between the GST Identification Numbers (GSTINs) of the transferor and the transferee.
III. Transfer of Input Tax Credit and Liability:
The continuation of a business under a transferee or successor due to the death of the sole proprietor is considered a transfer of business. Section 18(3) of the CGST Act empowers the registered person to transfer unutilized input tax credit to the transferee, adhering to the rules articulated in rule 41 of the CGST Rules. It is imperative to note that both the transferor and the transferee bear joint and several liability for any outstanding tax, interest, or penalty from the transferor. This liability extends to situations where the transfer is instigated by the death of the sole proprietor.
IV. Manner of Transfer of Credit:
The formalized transfer of unutilized input tax credit is facilitated through FORM GST ITC-02, submitted electronically on the common portal by the transferee or successor. In instances where business transfer is a consequence of the death of a sole proprietor, FORM GST ITC-02 must be filed before initiating the cancellation of the corresponding registration. Upon acceptance by the transferee, the unutilized input tax credit specified in FORM GST ITC-02 is seamlessly credited to their electronic credit ledger.
V. Procedure for Cancellation of Registration by the Proper Officer:
The cancellation process initiated by the proper officer involves a structured series of steps:
- Issue of Notice (FORM GST REG-17): The proper officer, prompted by a belief that a person’s registration is liable for cancellation, issues a notice in FORM GST REG-17. This notice compels the person to provide a satisfactory response within 7 working days, justifying why the registration should not be canceled.
- Reply to Notice (FORM GST REG-18): The registered person is required to furnish a response within the stipulated time frame using FORM GST REG-18.
- Satisfactory Reply or Full Payment: If the reply is found to be satisfactory, the proper officer drops the proceedings, issuing an order in FORM GST REG-20. Alternatively, if the registered person submits all returns and fulfills tax obligations, including interest and late fees, the proceedings can be dropped.
- Cancellation Order (FORM GST REG-19): When the registration is deemed liable for cancellation, the proper officer issues an order in FORM GST REG-19 within 30 days from the date of the reply to the Show Cause Notice, officially canceling the registration.
Conclusion:
In conclusion, the streamlined procedure outlined for the cancellation of Goods and Services Tax (GST) registration, particularly in the event of a sole proprietor’s death, is a crucial aspect of maintaining business continuity and compliance. Circular No. 96/15/2019-GST, issued on 28-3-2019, serves as a valuable guide, simplifying what might otherwise be a complex process. By emphasizing the necessity of registration for transferees or successors, providing a clear path for cancellation due to the demise of a sole proprietor, and establishing a methodical transfer of input tax credit, the circular ensures a seamless transition for both the outgoing and incoming entities.
This comprehensive framework not only adheres to legal requirements but also promotes transparency between the involved parties. The clarity in procedures, from registration to cancellation, contributes to the overall efficiency of the GST system. Ultimately, this initiative strikes a balance between regulatory compliance and facilitating a smooth transfer of business ownership, reinforcing the adaptability and resilience of businesses in the face of unforeseen events.
How CA firm can Help?
Engaging a Chartered Accountant (CA) firm can be instrumental in navigating the intricate procedures associated with the cancellation of Goods and Services Tax (GST) registration, particularly in the case of a sole proprietor’s death. Here’s how a CA firm can assist throughout the entire process:
- Expert Guidance on Legal Compliance: A CA firm can provide expert guidance on the legal intricacies of GST laws. They ensure that all actions, from registering a transferee to filing the necessary forms for cancellation, adhere to the statutory requirements outlined in Circular No. 96/15/2019-GST.
- Accurate Documentation: Ensuring proper and accurate documentation is a critical aspect of the process. CA professionals are well-versed in preparing and submitting the required forms, such as FORM GST REG-01 for registration and FORM GST REG-16 for cancellation, with precise details.
- Input Tax Credit Management: The transfer of unutilized input tax credit demands meticulous management. A CA firm can facilitate the seamless transfer of this credit from the transferor to the transferee, following the guidelines in rule 41 of the CGST Rules.
- Liability Assessment and Management: Managing liabilities, especially the joint and several liabilities of the transferor and transferee, requires careful evaluation. CA professionals can assess the tax, interest, or penalty due and ensure that both parties are informed and compliant with their obligations.
- Timely Compliance: The GST cancellation process involves responding to notices and filing replies within specific timelines. A CA firm ensures that all necessary steps are taken promptly, helping avoid delays and potential penalties.
- Proactive Approach to Changes: In case of any changes or updates in GST laws, a CA firm stays informed and can adapt swiftly, ensuring that your business remains in compliance with the latest regulations.
- Representation During Audits or Disputes: If there are audits or disputes arising during the cancellation process, a CA firm can represent your business, providing professional assistance to address any concerns raised by tax authorities.
- End-to-End Support: Engaging a CA firm offers comprehensive support from the beginning of the registration process to the conclusion of the cancellation process. They act as a reliable partner, offering insights, addressing concerns, and facilitating a smooth transition for your business.
In summary, a CA firm plays a crucial role in ensuring that the GST registration and cancellation process is not only legally compliant but also efficient and well-managed. Their expertise helps businesses navigate the complexities involved, providing peace of mind and allowing business owners to focus on the seamless continuation of their operations.
