New GST Registration with Inactive GSTIN: What to Know

Introduction

The Goods and Services Tax (GST) regime in India mandates businesses to obtain GST registration and comply with periodic filing requirements. However, many businesses inadvertently let their GST registration become inactive due to non-filing of returns, leading to complications when they apply for a new GST registration for a different business. This article provides an in-depth analysis of the legal and procedural aspects of handling such situations, considering the latest provisions under the GST law and guidelines issued by the Central Board of Indirect Taxes and Customs (CBIC) and the Institute of Chartered Accountants of India (ICAI).

Understanding the Status of the Old GST Registration

Before applying for a new GST registration, it is crucial to ascertain the status of the previous registration. Non-filing of returns can lead to the following consequences:

1. Suspension of GST Registration: If a taxpayer fails to file returns for a continuous period (currently two consecutive tax periods for monthly filers and one tax period for quarterly filers), the registration may be suspended.
2. Cancellation of GST Registration by the Department: If non-compliance persists, the department may cancel the GST registration under Section 29 of the CGST Act, 2017.
3. Pending Liabilities and Late Fees: A cancelled GST registration does not absolve the taxpayer from past liabilities, including tax dues, penalties, and late fees.
4. Restriction on Fresh Registration: As per Rule 8 and Rule 9 of the CGST Rules, 2017, the GST portal tracks prior registrations. In cases where an old registration is inactive, the GST department may scrutinize fresh applications more rigorously.

Applying for a New GST Registration While an Old Registration is Inactive

If you are seeking new GST registration while having an inactive or cancelled GSTIN, the following aspects must be considered:

1. Compliance with Outstanding Liabilities

• If the old GST registration was cancelled due to non-filing of returns, it is advisable to clear all outstanding liabilities before applying for a new GSTIN.
• File all pending returns, including GSTR-3B, GSTR-1, and any other applicable forms.
• Pay interest and penalties accrued due to late filings.
• Revocation of cancellation (if within time limits) under Section 30 of the CGST Act, 2017 may be an option if cancellation was initiated by the department.

2. Legitimacy of the New Business Entity

• The GST department examines whether the new registration is for a genuinely distinct business or an attempt to circumvent liabilities under the previous GSTIN.
• Ensure proper business documentation, including:
  • Proof of business existence (Incorporation Certificate, Partnership Deed, etc.)
  • Lease/rent agreement for the business premises
  • Bank account details
  • Identity and address proof of promoters/directors

3. Possible Objections and Clarifications Required

• The GST authorities may issue a clarification notice in Form GST REG-03, seeking explanations on why a new registration is applied for while an old GSTIN is inactive.
• A well-prepared reply must be submitted in Form GST REG-04, providing valid reasons for the new registration.

4. Rule 9 Scrutiny of Registration Applications

• Rule 9 of the CGST Rules, 2017 empowers the GST authorities to verify the details before granting registration.
• If an applicant has an inactive GSTIN, there is a higher probability of additional scrutiny.

Revocation of Cancelled GST Registration: An Alternative Approach

If the previous GST registration was cancelled by the department but is required to be reinstated for any reason (e.g., pending liabilities, legal proceedings, or continued business operations), revocation of cancellation can be requested:

• Time Limit for Revocation:
  • Under Section 30 of the CGST Act, the revocation request must be made within 30 days from the date of service of the cancellation order.
  • Recent amendments allow extensions up to 90 days under special circumstances.
• Procedure for Revocation:
  • File an application for revocation in Form GST REG-21.
  • The department may issue a notice in Form GST REG-23, seeking additional information.
  • The applicant must respond via Form GST REG-24 within 7 working days.
  • The officer will process the revocation request and may approve or reject it.

Recent Legal and Procedural Developments

1. Circular No. 183/15/2022-GST (Clarification on Multiple GSTINs)
   • Clarifies that businesses operating in distinct states or different business verticals can obtain separate GST registrations.
   • However, misuse of multiple GST registrations to evade liabilities is subject to legal scrutiny.
2. Amendment in Rule 8 (Restriction on New Registrations for Defaulters)
   • New applicants with previously cancelled GST registrations may be required to furnish additional documentation and security deposits in some cases.
3. E-Invoicing and ITC Restrictions
   • Businesses obtaining a new GST registration may be subject to Input Tax Credit (ITC) restrictions under Rule 36(4) if their old GSTIN had compliance issues.
   • E-invoicing mandates (for businesses above ₹5 crores turnover) must be adhered to for new registrations.

Conclusion

Handling an old, inactive GST registration while applying for a new one requires careful compliance management. It is essential to clear past liabilities, understand legal provisions, and ensure legitimate business operations. Non-compliance with past registrations may lead to complications in obtaining a new GSTIN. As a best practice, businesses should maintain a robust compliance framework to avoid such issues and ensure smooth business operations under the GST regime.

Key Takeaways:  Clear past liabilities before applying for a new GST registration.  Maintain proper documentation to justify a new business entity.  Be prepared for enhanced scrutiny by the GST authorities.  Explore revocation options if reinstating the old GSTIN is beneficial.  Stay updated with legal amendments and compliance requirements.

By adopting a proactive approach, businesses can navigate the complexities of GST registration and compliance effectively, ensuring a hassle-free regulatory experience under India’s GST framework.