Background:
Rule 21 of the CGST Rules, 2017 lists the circumstances in which the registration of a person is liable to be cancelled by the proper officer under Section 29(2) of the CGST Act. Over the years, several grounds were added to the rule, including availment of ITC in violation of Section 16, violation of the anti-profiteering provisions of Section 171, violation of Rule 86B (restriction on use of ITC beyond 99% of output liability), and furnishing of outward supplies in FORM GSTR-1/1A in excess of those declared in FORM GSTR-3B. These grounds were widely invoked by field formations to suspend and cancel registrations for what were often reconciliation or timing differences, resulting in a large volume of litigation before High Courts, where cancellation orders were frequently set aside as disproportionate or for being passed without recording reasons.
The 57th GST Council (08.10.2026) recommended amendment of Rule 21 to omit certain grounds of cancellation of registration by tax officers. The FAQs issued with the Council recommendations specified the four grounds to be omitted: (i) availment of ITC in violation of Section 16; (ii) violation of Section 171 (anti-profiteering); (iii) violation of Rule 86B; and (iv) outward supplies in FORM GSTR-1/1A in excess of those declared in FORM GSTR-3B.
What the Notification provides:
Now, the CBIC vide Notification No. 05/2026-Central Tax dated 26.10.2026 has substituted Rule 21 in its entirety. Under the substituted rule, the registration of a registered person is liable to be cancelled only if the person:
- paying tax under Section 10 (composition levy) has not furnished the return for a financial year beyond three months from its due date;
- violates the third or fourth proviso to Rule 23(1) (conditions regarding furnishing of returns and payment of dues after revocation of cancellation);
- being required to file monthly returns under Section 39(1), has not furnished returns for a continuous period of six months;
- being required to file quarterly returns under the proviso to Section 39(1) (QRMP), has not furnished returns for a continuous period of two tax periods; or
- violates the provisions of Rule 10A (non-furnishing of bank account details).
Accordingly, the grounds relating to availment of ITC in violation of Section 16, violation of Section 171, violation of Rule 86B and excess outward supplies in GSTR-1 vis-à-vis GSTR-3B no longer figure in Rule 21. The earlier clauses relating to not conducting business from the declared place of business and issuing invoices without supply of goods or services also do not find place in the substituted rule; such cases would be dealt with under the substantive provisions of Section 29(2) of the CGST Act read with Rule 22, where registration has been obtained by fraud, wilful misstatement or suppression of facts.
Effective date:
The substituted Rule 21 is effective from 1st November, 2026. The rationalised list of grounds is aligned with the system-based suspension and cancellation mechanism under the revised Rules 21A, 22 and 23A (effective 01.04.2027), under which non-filing of returns and non-furnishing of bank details are to be handled by the common portal itself. Taxpayers facing cancellation proceedings initiated on the omitted grounds may consider placing the amendment on record in their replies and appeals.
The Notification can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2026/10/CBIC-NN-05-2026–Central-Tax.pdf
