At present, the manufacturers/dealers registered under the Central Excise Act,1944 have the option to surrender their registration if they intend to close their operations but there is no liability or legal compliance to be discharged on cancellation of the registration. However, the situation is not same in the proposed GST regime as the assessee is required to discharge tax and is also required to file final return under section 40 of the Revised GST Law.
According to section 26(7) of the Revised GST Law, every registered taxable person whose registration is cancelled shall pay an amount equivalent to credit of input tax credit held in stock of goods (including inputs, semi-finished goods and finished goods) immediately preceding the date of cancellation or the output tax payable on such goods whichever is higher. Moreover, the assessee will also be required to pay an amount equal to input tax credit taken on capital goods reduced by prescribed percentage points or tax on transaction value, whichever is higher. Apart from making the payment of tax, the assessee is also required to file final return within three months from the date of cancellation or date of cancellation order, whichever is later.
It is also worth noting that if the draft format of Final Return released in GSTR-10 is observed, it is found that payment of amount as discussed above is required to be made for inputs as such, inputs contained in semi-finished goods, inputs contained in finished goods, capital goods and even input services. The assessee can compute the value of inputs contained in the stock of goods as on the date of cancellation but it is extremely difficult to compute the input tax credit of input services contained in the stock of goods. Moreover, there might be dispute as regards whether reversal of credit of input services directly related to the stock of goods is required like transportation services for bringing inputs in the premises or whether input service credit indirectly pertaining to the stock of goods such as telephone services, security services etc. is also required to be reversed. Furthermore, there will be immense litigation as regards the quantum of input tax credit to be reversed in case of input services. At present, there is no such provision as there is no requirement to pay any amount on stock of goods held on the date of surrender of registration. The incorporation of above provision will lead to more litigation, even on exit by the assessees. It is also submitted that determination of transaction value may also be a point of dispute as assessee may treat the value of goods held in stock as of lower value but the revenue department may argue that the said goods will fetch the same value as before. This will make the exit procedure also cumbersome for the assessees.
If the old draft of GST law is pursued, it is found that Schedule-I of the Old GST Law prescribed matters to be treated as supply without consideration which also mentioned the assets retained after deregistration which meant that assets on which no credit was taken were also treated as supply on deregistration. Not only this, permanent transfer or disposal of business assets was also considered as supply without consideration so as to levy tax irrespective of fact whether input tax credit was availed on such assets or not. However, this provision has been dispensed with in the revised GST law and now, only permanent transfer or disposal of business assets where input tax credit has been availed has been mentioned in Schedule-I thereby meaning that tax would be leviable by treating such assets as supply without consideration only if input tax credit has been availed. This provision is welcomed and appreciated by the assessees.