We are closing the business: how to cancel GST and file the final return

You have decided to wind up the business. Sales have stopped, or will stop soon. The question now is what to do with the GST registration. Many owners think that closing the shop closes the GST account too. It does not. The registration stays alive until it is cancelled, and a live registration keeps asking for returns.

This guide walks through the order of work. It covers the cancellation application, the tax you must pay on stock you still hold, and the last return, Form GSTR-10.

Where you stand today

GST registration does not end by itself when you stop trading. The law lets the tax officer cancel it. The officer can act on his own, or on an application from the registered person or, if the person has died, from his legal heirs (s.29(1), Central Goods and Services Tax Act, 2017).

One of the grounds for cancellation is that the business has been discontinued, transferred fully, amalgamated with another entity, demerged or otherwise disposed of (s.29(1)(a), CGST Act). Another is a change in the constitution of the business (s.29(1)(b), CGST Act). So the closure of your business fits squarely within the section.

Two points should be clear before you start.

First, you must apply. If you simply stop filing, the department may cancel the registration anyway, but on its own terms and on its own date. The law lets the officer cancel from a date he thinks fit, including a retrospective date, where returns have not been filed (s.29(2), CGST Act). It also says the officer cannot cancel without giving you a chance to be heard (proviso to s.29(2), CGST Act).

Second, cancellation does not wipe out the past. The law says cancellation does not affect your liability to pay tax and other dues, or to meet any obligation under the Act, for any period before the date of cancellation. This holds whether those dues are worked out before or after the cancellation (s.29(3), CGST Act). Old notices and old demands survive.

What you can still do today

If you have not yet applied, you can apply now. Here is what you should do first, before opening the portal.

• Fix the closure date in your own mind. This is the date from which you want the registration cancelled.
• Take a stock count as on that date. List the raw material, the semi-finished goods, the finished goods, and the machinery and equipment that you still hold.
• Pull the purchase invoices for that stock. You will need them to work out the credit you took.
• File all pending monthly or quarterly returns up to the closure date. A final return cannot clean up gaps in earlier returns.
• Pay any tax, interest and late fee already due on those returns.

If the officer has already sent you a show-cause notice, do not ignore it. The notice is in Form GST REG-17, and you must reply in Form REG-18 within seven working days of service (rule 22(1) and (2), Central Goods and Services Tax Rules, 2017).

The deadline clock

Three clocks run one after the other.

Clock 1: the application. The rule says you apply for cancellation within thirty days of the event that warrants cancellation (rule 20, CGST Rules 2017). For a closure, count from the day the business was discontinued. If you are already past thirty days, apply at once and take advice on the delay.

Clock 2: the officer's order. After your application, the officer must issue the cancellation order in Form GST REG-19 within thirty days of the date of the application. The order fixes the date from which the registration is cancelled. It also tells you to pay arrears of tax, interest or penalty, including the tax on stock under s.29(5) (rule 22(3), CGST Rules 2017).

While the application is pending, the registration is treated as suspended. The suspension runs from the date of the application, or the date from which cancellation is sought, whichever is later (rule 21A(1), CGST Rules 2017).

Clock 3: the final return. This is the one people miss. A registered person who has to file a return under s.39(1) and whose registration is cancelled must file a final return within three months of the date of cancellation or the date of the cancellation order, whichever is later (s.45, CGST Act).

An example makes this plain. Suppose the cancellation takes effect from 31 December, but the order is passed on 15 January. The later date is 15 January. The three months end on 15 April. Always count from the later of the two dates, and always read the dates off your own REG-19 order.

Step by step on the GST portal

Step 1: Apply for cancellation. Log in to the GST common portal and file the application in Form GST REG-16. The rule asks you to include, in the application itself:

• the details of inputs held in stock, and inputs contained in semi-finished or finished goods held in stock;
• the details of capital goods held in stock on the date from which cancellation is sought;
• the liability on them and the details of any payment already made against that liability.

You may attach supporting documents (rule 20, CGST Rules 2017). Use the figures from your stock count. If the numbers in the application and in the final return differ, expect questions.

Step 2: Watch for the officer's response. The officer may ask for clarification, or pass the order in REG-19. If your reply to a notice is found satisfactory, the officer may drop the proceedings in Form GST REG-20 (rule 22(4), CGST Rules 2017). If the business has in fact closed, say so plainly in your reply.

Step 3: Work out the tax on stock. On cancellation, you must pay an amount through the electronic credit ledger or the electronic cash ledger. The amount is the higher of two figures, for goods held on the day before cancellation:

• the input tax credit on inputs held in stock, inputs in semi-finished or finished goods, and capital goods; or
• the output tax payable on those goods (s.29(5), CGST Act).

For capital goods and machinery, the law uses a different test. You pay the input tax credit you took on them, reduced by the percentage points prescribed, or the tax on the transaction value of those goods, whichever is higher (proviso to s.29(5), CGST Act).

How is the credit worked out? Rule 44 gives the method:

• For inputs and goods in stock, the credit is calculated proportionately, on the basis of the invoices on which you took credit.
• For capital goods, the credit for the remaining useful life, in months, is computed pro rata. The useful life is taken as five years. A part of a month is ignored (rule 44(1), CGST Rules 2017).
• The amount is determined separately for central tax, State or Union territory tax and integrated tax (rule 44(2), CGST Rules 2017).
• If the purchase invoices are not available, you estimate the amount using the prevailing market price of the goods on the effective date (rule 44(3), CGST Rules 2017). That estimate must be certified by a practising chartered accountant or cost accountant (rule 44(5), CGST Rules 2017).

The amount you work out becomes part of your output tax liability. For cancellation, you show the details in Form GSTR-10 (rule 44(4), CGST Rules 2017).

Step 4: File Form GSTR-10. The final return is filed electronically in Form GSTR-10 through the common portal, either directly or through a Facilitation Centre notified by the Commissioner (rule 81, CGST Rules 2017).

The form asks for your GSTIN, legal name, trade name and address for future correspondence. It also asks for the effective date of cancellation, the reference number of the cancellation order and the date of that order. Then comes the stock table. It lists inputs held in stock, inputs in semi-finished or finished goods, and capital goods, with the credit or the tax payable, whichever is higher, under central tax, State or Union territory tax, integrated tax and cess (Form GSTR-10, CGST Rules 2017).

Step 5: Pay and file. Pay the stock tax from your ledgers before you submit. Keep the acknowledgement. Then check the portal status to make sure the return shows as filed and the registration shows as cancelled.

What the late fee looks like

If you miss the due date for the final return, a late fee applies. The Act sets it at one hundred rupees for every day the failure continues, subject to a maximum of five thousand rupees (s.47(1), CGST Act). The same provision covers returns under s.39 and s.45.

The text we relied on does not show whether the fee is split or reduced for any class of filer. Check the current position on the GST portal before you file late.

What not to do

• Do not just stop filing. Non-filing can lead the officer to cancel from a back date. In some situations, such as a composition-scheme taxpayer who has not filed the return for a financial year beyond three months from the due date, the Act specifically allows this (s.29(2)(b), CGST Act). For others, the rules list non-filing for a continuous period of months or tax periods as a ground (rule 21, CGST Rules 2017).
• Do not sell or write off stock before counting it. The tax on stock is worked out on the day before cancellation. A clean count on that date protects you.
• Do not forget the capital goods. Machinery, computers and furniture that carried credit are part of the calculation.
• Do not assume the final return replaces earlier returns. Earlier returns still have to be filed. Cancellation does not affect your liability for earlier periods (s.29(3), CGST Act).
• Do not assume State cancellation is separate. Cancellation under the State or Union territory GST law is deemed to be cancellation under the central Act (s.29(4), CGST Act). Still, check that the portal shows the same position for both.

What to do now

• Next step: File the application for cancellation in Form GST REG-16, with your stock and capital goods details (rule 20, CGST Rules 2017).
• Deadline: The application is due within thirty days of the event that warrants cancellation (rule 20, CGST Rules 2017). The final return in Form GSTR-10 is due within three months of the date of cancellation or the date of the cancellation order, whichever is later (s.45, CGST Act, and rule 81, CGST Rules 2017).
• Consequence of delay: The Act provides a late fee of one hundred rupees a day, up to five thousand rupees (s.47(1), CGST Act). Your liability for earlier periods continues (s.29(3), CGST Act).

Have a CA review your facts before you act or file.

Frequently asked questions

Do I have to file GSTR-10 if I had no stock?
The law requires a final return from every registered person who must file under s.39(1) and whose registration is cancelled (s.45, CGST Act). It makes no exception for nil stock. File the return and show nil where nothing is held. Check on the portal whether any category of registered person is exempt, since the text we relied on does not list one.

Can my legal heirs apply if the proprietor has died?
Yes. The Act allows the legal heirs to file the application in case of death (s.29(1), CGST Act). The officer's order rules apply to them as if the proprietor had applied himself (rule 22(5), CGST Rules 2017).

What if I lost the purchase invoices for my stock?
Estimate the credit using the prevailing market price of the goods on the effective date. A practising chartered accountant or cost accountant must certify those details (rule 44(3) and (5), CGST Rules 2017).

Can I just let the department cancel the registration?
You can, but it is not wise. The officer may cancel from a retrospective date after hearing you (s.29(2), CGST Act). Your liability for the period before cancellation stays (s.29(3), CGST Act). Applying yourself keeps the closure date in your hands.

Which form do I use to apply, and which to file the last return?
Apply in Form GST REG-16 (rule 20, CGST Rules 2017). File the final return in Form GSTR-10 (rule 81, CGST Rules 2017).

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See Also

• ASMT-10 scrutiny notice: how to reply within 30 days
• Do we pay GST under reverse charge on freight, advocate fees and director fees?
• Supplier invoice rejected or pending in IMS: what it means for your input tax credit