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CA Intermediate · Taxation · Registration

Mehta Enterprises, a regular taxpayer, wants to voluntarily cancel its GST registration because its business has been discontinued. It has closing stock of inputs on hand. Which statement about the consequences of cancellation is correct?

On cancellation the person must pay the higher of the input tax credit on stock and capital goods held or the output tax payable on them. Voluntary cancellation gives no exemption from this payment, and the lower-of rule is not the law.

  1. AIt must pay an amount equal to the input tax credit on stock held, or the output tax on such stock, whichever is higherCorrect
  2. BIt must pay only the tax on capital goods
  3. CNo payment is required if cancellation is voluntary
  4. DIt must pay the ITC on stock or the output tax on stock, whichever is lower

Explanation

On cancellation, a registered person must pay an amount equal to the ITC in respect of inputs held in stock, inputs contained in semi-finished or finished goods, and capital goods, or the output tax on them, whichever is higher. Voluntary cancellation does not remove this. The 'lower' option reverses the rule.

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