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GST Registration Challenges: Understanding Physical Verification Disputes

GST registration is a critical requirement for businesses in India. However, one challenge that businesses often face is the cancellation of their GST registration due to issues arising from physical verification. This problem can stem from a variety of factors, including failure to follow the proper procedure outlined in Rule 25 of the 2017 CGST Rules.

Rule 25 allows tax authorities to conduct physical verification of business premises if Aadhaar authentication is not completed or is not opted for, even after registration has been granted. The proper officer is required to conduct the verification in the presence of the business owner and then upload the verification report, along with other documents and photographs, to the GST portal in Form GST REG-30 within 15 working days. When these steps are not followed correctly, the resulting irregularities can lead to unjust cancellation of GST registrations.

Here are some common problems that businesses encounter:

  • No Notice Given: Taxpayers are not notified about the upcoming physical verification, leaving them unaware and unprepared.
  • Absence During Verification: Inspections are carried out without the business owner’s presence, which goes against Rule 25.
  • Delayed or Missing Reports: Verification reports are not uploaded to the GST portal within the required 15 working days, creating uncertainty and confusion.
  • Inadequate Evidence: Cancellations are sometimes based on insufficient or inaccurate intelligence reports, leading to unjust outcomes.

These issues can result in significant disruptions to a business’s operations, including the inability to issue GST invoices, claim input tax credit, or continue normal business activities. In some cases, court intervention is required to correct these problems and restore the GST registration.

Below are some court cases that highlight these common problems and demonstrate the consequences of not following Rule 25:

1. Gupta & Co. Case

GST registration was cancelled due to discrepancies noted during physical verification. The High Court of Punjab and Haryana found that the impact of cancellation outweighed the procedural flaws. As a result, the court reinstated the GST registration.

2. Micro Focus Software Solutions Case

In this High Court of Delhi case, physical verification was carried out without the taxpayer’s presence, and the report was provided only during ongoing legal proceedings. The court ruled that cancelling GST registration with retrospective effect was improper and reinstated the registration.

3. Bimal Kumar Case

GST registration was cancelled based on physical verification without notice and without uploading the verification report to the GST portal. The High Court of Delhi found this cancellation unsustainable and overturned it.

4. Balaji Enterprises Case

This Delhi High Court case involved physical verification without prior notice, and the inspection report wasn’t uploaded to the GST portal. The court deemed the cancellation invalid due to non-compliance with Rule 25 and set it aside.

5. KPM Enterprises Case

This case involved a physical verification carried out without the taxpayer’s presence, violating Rule 25. The Delhi High Court overturned the cancellation, citing procedural errors.

6. F.R. Trade Links Case

In this High Court Of Kerala case, GST registration was cancelled due to an intelligence report indicating the business was in an incomplete building without a building number. The petitioner presented evidence of building tax payments, leading the court to reinstate the GST registration.

These cases underscore the importance of following Rule 25’s procedures for physical verification. At I.P. Pasricha & Co, we specialize in helping businesses navigate GST compliance. If you’re experiencing issues with GST registration, we can guide you through the proper processes and help you resolve your challenges effectively.

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