Impacts of de-registration on a de-registered person

De-Registration [21 & Rule-11]

A process of cancellation of sales tax registration as a result of application filed for cancellation of registration by a registered person or on recommendation of LRO due to any other reason is called deregistration.

Reasons for De-Registration:

1) Discontinuance of business:

A registered person may apply for de-registration as a result of discontinuance of its business.

2) Exemption of supplies:

A registered person may apply for de-registration, if the supplies made by such person are declared exempt from sales tax by the Federal Government.

3) Turnover remains below the taxable limit:

A retailer whose value of supplies, in any period during the last (12) months does not exceed Rs. 5 million.

4) Discontinuance of export business:

An exporter may apply for de-registration after the discontinuance of export business.

5) Failure in filing a return for 6 month:

The CRO may cancel the registration of a registered person, if such person fails to file his tax return for a consecutive period of six months.

Note: Before such cancellation, the registered person shall be provided an opportunity of being heard.

Procedure for De-Registration:

The following procedure shall be adopted for de-registration:

1) Application to LRO:

The person, who wants to be de-registered, shall apply to concerned LRO.

2) Audit of Records:

An officer of sales tax shall examine and audit the records and ascertain the position of the case.

3) Demand of Final Return:

Where the LRO is satisfied that the registered person is liable to be registered, he shall demand final return from applicant and direct to settle his tax liability.

4) Recommendation of case to CRO:

Where final return is filed and tax liability is settled by a person liable to be de- registered the LRO shall recommend to CRO for cancellation of registration. After such recommendation, CRO shall cancel the registration.

5) Time period for de-registration:

The order for de-registration shall be made within the time specified under rule-11 of the Sales Tax Rules, 2006.

6) Opportunity of Hearing:

Where de-registration becomes necessary as a result of failure in filing of tax return for a period of consecutive 6 months; the CRO shall not cancel the registration unless the person has been provided with an opportunity of being heard.

Impacts of De-Registration:

Where de-registration is awarded to a person by the Sales Tax Department, it has following impacts:

1) Exemption of sales tax record:

After de-registration, a person has no compulsion regarding maintenance of sales tax record.

However, the previously maintained record has to be kept safely for a period of three years.

2) Limitation regarding charge of sales tax:

A de-registered person may not charge sales tax to his customers after de- registration.

3) Limitation on claim of tax credit:

A de-registered person may not claim the input tax credit after de-registration.

4) Limitation on claim of refund:

A de-registered person may not claim the refund on zero-rated basis even if the goods are exported.

Suspension of Registration and Blacklisting of a Registered Person: [Sec.21& Rule-12]

1) Who may blacklist the person?

The collector or any other authorized officer may blacklist a registered person or suspend his registration.

2) Why blacklisting of a registered person is declared:

A registered person is declared blacklisted, if the collector is satisfied that the registered person has:

i) Issued fake tax invoices; or

ii) Evaded tax; or

iii) Committed tax fraud; or

iv) Failed to deposit the tax due on his supplies despite having recovered from the respective buyers.

3) Suspension of registration:

Before blacklisting, the collector shall suspend the registration of the concerned person in writing.

4) Enquiry after suspension:

After suspension of registration by the Collector, he shall initiate such enquiry, as deemed appropriate.

5) Decision regarding blacklisting:

Where the Collector is satisfied (after complete inquiry and investigation) that such person has committed any of the offences as aforesaid, may blacklist such person through an order in writing.

6) Time period for communication of blacklisting order:

An order may be issued within 90 days of completion of inquiry. It may be extended upto further 90 days if the person has not provided the necessary record.

7) To whom blacklisting order is communicated:

It shall be communicated to:

i) Blacklisted person.

ii) The CRO; and

iii) The central sales tax database.

Impacts of Suspension or Blacklisting:

i) During the period of suspension, the invoices issued by such person shall not be entertained for sales tax refund or input tax credit.

ii) When a person is declared blacklisted, the refund or input tax credit claimed against tax invoices issued by such person, whether prior or after the blacklisting, shall be rejected.