By CA Dr Sanjay Burad and Anish S Burad
1. Introduction
Rule 14A of the CGST Rules, 2017 was introduced to operationalise automatic registration and simplified compliance for eligible persons whose B2B tax liability does not exceed ₹2.5 lakh per month. The underlying objective appears to be administrative convenience — enabling smaller taxpayers to function within a structured threshold while maintaining tax discipline.
At first glance, the scheme seems balanced. It allows a registered person to opt into the framework and also provides a statutory mechanism to withdraw from it under Rule 14A(5).
However, a closer examination of the rule in conjunction with GST return mechanics and portal functionality reveals two significant structural defects:
- The withdrawal mechanism under Rule 14A(5) is practically incapable of being exercised; and
- The rigid month-wise ₹2.5 lakh cap creates disproportionate consequences for genuine compliance errors.
This article examines both these structural concerns.
2. Relevant Provision – Rule 14A(5)
Rule 14A(5) provides that a registered person intending to withdraw from the option exercised under sub-rule (1) must file an application in FORM GST REG-32 on the common portal.
The first proviso to sub-rule (5) prescribes mandatory pre-conditions. It states that the registered person shall not be allowed to file such application unless he has furnished:
(a) returns for a minimum period of three months where the application is filed before 1st April 2026;
(b) returns for a minimum of one tax period where the application is filed on or after 1st April 2026; and
(c) all returns due from the effective date of registration till the date of application for withdrawal.
A further proviso restricts withdrawal where proceedings under section 29 have been initiated.
The critical condition is contained in proviso (c).
3. How Proviso (c) Makes Withdrawal Practically Impossible
Proviso (c) requires that all returns due up to the date of application must be furnished before the withdrawal application can be filed.
Under the GST framework:
- A return for a tax period becomes due only after the end of that period; and
- The GST portal does not permit filing of returns for an ongoing tax period.
This leads to a structural deadlock.
On any date during a tax period:
- The return for the current period is not yet due;
- Since it is not due, it cannot be filed;
- Therefore, the condition that “all returns due till the date of application” must be furnished cannot be satisfied.
If the registered person waits until the return is filed after the end of the month, the option has already operated for that entire tax period. In such a situation, withdrawal ceases to have any practical effect for that period, as the taxpayer would already have complied under the scheme for the full tax cycle.
Accordingly, there is no identifiable point in time at which the conditions under Rule 14A(5), particularly proviso (c), can be fulfilled on the GST portal.
The rule permits withdrawal in wording, but the system design prevents it in operation. The right therefore becomes illusory.
4. Structural Impossibility Created by Proviso (c)
Under the GST system:
- A return for a tax period becomes due only after the end of that period;
- Returns for an ongoing month cannot be filed on the portal;
- The portal architecture does not permit advance filing of future returns.
Therefore, on any given date during a tax period:
- The return for the current period is not yet due;
- Since it is not due, it cannot be furnished;
- The condition requiring “all returns due till the date of application” cannot be satisfied in real time.
If the taxpayer waits until the end of the month and files the return, the scheme has already operated for that entire tax period. Withdrawal thereafter does not undo its effect for that period.
This creates a continuous compliance paradox:
- During the month — withdrawal cannot be applied for;
- After the month — withdrawal becomes commercially redundant.
There is no practical window during which the statutory conditions can be fulfilled.
In effect, Rule 14A (5) grants a right in form but denies it in function.
5. Practical Illustration of the Deadlock
Consider a taxpayer who wishes to withdraw effective from mid-January.
On 15 January, the return for January cannot yet be filed.
- Since all returns “till the date of application” must be furnished, the portal will not permit filing of REG-32.
- If the taxpayer waits until February to file the January return, the option has already applied for January.
Thus, the taxpayer is compelled to continue within the scheme for the entire tax period, irrespective of business needs.
The withdrawal provision becomes temporally inaccessible.
4. Monthly ₹2.5 Lakh Cap – Hardship in Case of Genuine Errors
Apart from the withdrawal issue, the scheme creates a substantive compliance hardship due to the rigid month-wise ₹2.5 lakh B2B tax cap.
The threshold applies independently to each tax period. Eligibility depends upon the tax payable for that particular month not exceeding the prescribed limit.
In practical business operations, however, genuine omissions may occur. For example:
- A December B2B invoice may inadvertently remain unreported;
- The omission may be discovered in January;
- The taxpayer may attempt to include the missed invoice in a subsequent return.
However, since the ₹2.5 lakh limit applies strictly on a monthly basis, inclusion of the missed invoice in the subsequent month may cause the monthly tax liability to exceed the prescribed cap.
This results in disproportionate consequences:
- A genuine clerical mistake leads to breach of the threshold;
- The taxpayer risks losing eligibility under the scheme;
- There is no structured rectification window to regularise such prior-period omissions without affecting compliance status.
The rigidity of the month-wise cap, without flexibility for genuine corrections, operates harshly against compliant taxpayers.
5. Legal Principle Involved
It is a settled principle of law that the statute does not compel performance of an impossible act. Where statutory conditions are framed in a manner that makes compliance unattainable due to system design or procedural constraints, such conditions defeat legislative intent.
Similarly, where a scheme imposes rigid thresholds without reasonable rectification flexibility, it risks operating disproportionately against bona fide taxpayers.
A statutory right rendered incapable of exercise due to procedural impossibility becomes illusory.
6. Conclusion
Rule 14A was introduced with the objective of facilitating simplified compliance for smaller taxpayers. However, two structural concerns undermine its practical utility:
- The withdrawal mechanism under Rule 14A(5) cannot be exercised due to the combined effect of proviso (c) and GST return-filing mechanics; and
- The rigid month-wise ₹2.5 lakh cap does not accommodate genuine billing omissions, creating unintended hardship.
Unless the rule is aligned with system realities and accompanied by a structured rectification mechanism, the withdrawal provision will remain non-functional and the compliance framework will continue to operate inflexibly.
A scheme designed to ease compliance should not, in its implementation, penalise genuine mistakes or create rights that cannot be exercised.
This Article was Published on TIOL (Tax India Online)