Businesses that have recently obtained a Goods and Services Tax (GST) registration should ensure that their registered business address is correct and accessible. Tax experts warn that GST registrations may be suspended if the physical “welcome kit” sent by the tax department is returned undelivered.
“In many instances, in the case of new GST registrations, the welcome letter returns unserved. This is due to the fact that premises may be locked or the entity, being a new entity, may not yet be located at the premises. In such cases, many times a show-cause notice is served for cancellation of registration, as the department is of the view that such entities are fake or fictitious entities,” an tax expert said.
The issue surfaced after the introduction of a faster GST registration process under Rule 14A of the CGST Rules, which allows low-risk applicants to receive registration quickly through PAN and Aadhaar authentication.
In many cases, GST numbers are issued within hours. However, after registration is granted, the GST department sends a welcome kit through India Post to the declared business address as part of the verification process.
Why the welcome kit matters
If the postal department fails to deliver the welcome kit and is returned to the authorities, the GST system may interpret it as a sign that the business is not operating from the declared address.
“In such cases, officials may suspend the GST registration under Section 29. The provisions empowering the cancellation of GST registration are contained in Section 29 of the CGST Act. The officer is empowered to cancel the GST registration only for one of the reasons mentioned in the said section, and non-delivery of the welcome letter is not one of them. In such cases, the officer generally invokes grounds like obtaining GST registration by means of fraud, wilful misstatement, or suppression of facts, presuming that the dealer is non-existent,” said, joint secretary, Bombay Chartered Accountants’ Society.
Tax professionals say this mechanism is meant to curb fake GST registrations and prevent tax fraud. However, genuine businesses may also face issues if delivery fails due to address formatting errors, courier delays, or local postal problems.
The GST officer is mandated to issue a show cause-notice before cancelling the registration. The officer he has to give reasons for the cancellation. The dealer has give the GST officer a proof of the business and that the GST registration is genuine.
The proof of business existence can be given by way of electricity bills, maintenance bills, photographs of the office, etc.
Impact on businesses
Once a GST registration is suspended, businesses cannot issue tax invoices, generate e-way bills, or file GST returns until the suspension is resolved. This can disrupt operations and affect cash flow, particularly for small businesses and startups that rely heavily on GST compliance for transactions.
What taxpayers should do?
Tax professionals advise businesses to ensure that the address mentioned in their GST application is complete and accurate, including building name, floor number, and nearby landmarks if necessary. They should also keep an eye on postal deliveries after registration and coordinate with the local post office if required.
“An assessee has an option to apply for revocation of cancellation within 90 days in FORM GST REG-21, duly explaining that the business is very well in existence. But the welcome letter was undelivered merely because, at the time when such postal delivery was scheduled, there was nobody present at the office address,” said Indirect Tax Committee Chairperson, CTC.
