GST Caselaw

#GSTCase-51-Whether a person would be liable for mandatory registration under Section 24 of CGST Act, 2017 even though only making Exempt Supplies?

#GSTCase-51-Whether a person would be liable for mandatory registration under Section 24 of CGST Act, 2017 even though only making Exempt Supplies?

 

Joint Plant Committee [2018] 92 taxmann.com 208 (AAR-WEST BENGAL)

 

  1. Query:

Whether applicant will be liable for registration under any clause of Section 24 of the GST Act even if it is not making any taxable supply.  The question is relevant in the context of the Applicant only with respect to Section 24(iii) of the GST Act when the person is required to pay tax under the Reverse Charge.

 

  1. Facts:

Applicant is a non-profit organisation set up by the Central Government under Clause 17 of the Iron & Steel (Control) Order vide SO 1567 dated 07/04/1971. The functions of the Applicant, as specified in the above notifications of the Ministry of Steel, Government of India, include management and operation of the Steel Development Fund and other funds accumulated under the Iron & Steel (Control) Order, 1956, study and analysis of and maintenance of a comprehensive database on market situation in the Iron & Steel Sector including fluctuation in market price, production, availability and movement of material etc.

 

  1. Observation by AAR: Observation of AAR can be divided into two parts:
  • Applicant is exclusively making supply of exempted goods or services therefore not Liable to be registered under Section 22 of CGST Act, 2017

The main source of the Applicant’s income is interest accrued on the deposits and on the loans provided from the Steel Development Fund. A secondary source of income is the consideration received from sale of journals and periodicals and from renting accommodation in its guest houses. The aggregate turnover from these sources well exceeds the threshold of twenty lakh rupees and makes it liable for registration under Section 22 (1) of the GST Act, but the applicant is engaged in exclusive supply of goods or services that are not liable to tax or wholly exempt from tax under the GST Act.

  • Whether provisions of Section 24 are subject to provisions of Section 23 of CGST Act, 2017

With regard to Section 24, AAR observed that provisions of Section 24 are not subject to provisions of Section 23 of the GST Act. If a person, therefore, is not liable to be registered for making exclusively exempt supplies but is liable to pay tax under Reverse Charges under Section 9(3) of the GST Act or 5(3) of the IGST Act, he shall be required to get himself registered under the GST Act, irrespective of the quantum of the aggregate turnover.

 

  1. Held:

 Applicant is engaged exclusively in supplying goods and services that are wholly exempt from tax, and, therefore, not liable to be registered in accordance with the provisions under section 23(1) of the GST Act, subject to the condition that the Applicant is not otherwise liable to pay tax under the Reverse Charge mechanism under Section 9(3) of the GST Act or 5(3) of the IGST Act. As the applicant is unregistered and not liable to be registered, the provisions of Reverse Charge under section 9(4) of the GST Act or 5(4) of the IGST Act will not apply.

  1. Comment:

 Judgement by AAR is on the one of the most controversial issues in CGST Act. The controversy is regarding Section 22, 23 and 24 of CGST Act, 2017. In the backdrop of above provisions, issue now arises that for situations provided in Section 24, whether a person is required to take registration irrespective of the exemption provided in Section 23 or whether provisions of section 23 grants exemption from registration even in cases given in section 24 of CGST Act, 2017. Let’s try to analyse the situation this way-

a) Section 22 provides for registration of supplier of taxable goods or services or both on the basis of satisfaction of condition regarding making of taxable supply up to a specific limit of turnover. Therefore, emphasis is on the registration of the person who makes taxable supply of goods or services on satisfaction of certain conditions.

 

b) Section 24 provides mandatory registration for category of persons as provided under the section who might be supplier of goods or services or not. The emphasis is on the category of persons whether or not making taxable supply of goods or services or both.

(i) Category of persons who are required to be registered on the condition of making certain specific kind of supplies or certain specific person making supplies of taxable goods or services or both are as follows:

  • persons making any inter-State taxable supply;
  • casual taxable persons making taxable supply;
  • non-resident taxable persons making taxable supply;
  • persons who make taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise;
  • persons who supply goods or services or both, other than supplies specified under sub-section (5) of section 9, through such electronic commerce operator who is required to collect tax at source under section 52;
  • every person supplying online information and database access or retrieval services from a place outside India to a person in India, other than a registered person.

(ii) Other category of persons required to be registered by virtue of provisions of section 24 although not on account of making any taxable supply but purely out of other reasons are as follows:

  • persons who are required to pay tax under reverse charge;
  • person who are required to pay tax under sub-section (5) of section 9;
  • persons who are required to deduct tax under section 51, whether or not separately registered under this Act.
  • Input Service Distributor, whether or not separately registered under this Act;
  • every electronic commerce operator required to collect tax under section 52;

(c) Section 23 provides exemption from registration to person or category of persons. Section 23(1) comprises of specific exemptions for two persons e. person exclusively supplying exempted goods or services or both and exemption to agriculturists to the extent of supply of produce out of cultivation of land.

 Section 23(2) gives power to the Government which may, on the recommendations of the Council, by notification, specify the category of persons who may be exempted from obtaining registration under this Act. Following category of persons have been exempted from taking registration vide notification issued under Section 23(2) of CGST Act, 2017.

Notification for giving benefit of registration limit  (Rs 20 Lakh or 10 Lakh as the case may be) as provided in Section 22 of CGST Act, 2017 to following category of persons

S. No. Notification No Date For giving benefit of registration limit as provided in Section 22 of CGST Act, 2017 to following category of persons
1. 7/2017-Integrated Tax 14th September 2017 Job workers engaged in making inter-state supply of services to a registered person
2. 8/2017—Integrated Tax 14th September 2017 Persons making inter-State taxable supplies of handicraft goods and persons making inter-State taxable supplies of the products mentioned in column (2) of the Table provided in the said Notification.
3. 32/2017-Central Tax 15th September 2017 Casual Taxable Persons making inter – state taxable supplies of handicraft goods
4. 10/2017-Integrated Tax 13th October 2017 Persons making Inter-State Supplies of taxable services
5. 65/2017-Central Tax 15th November 2017 Persons making supplies of services through e-commerce platform, other than supplies specified under sub-section (5) of section 9 of the said Act

 

Notification for giving benefit of exemption from registration

S. No. Notification No For giving benefit of exemption from registration
1. 5/2017-Cenral Tax Persons who are only engaged in making supplies of taxable goods or services or both, the total tax on which is liable to be paid on reverse charge basis by the recipient of such goods or services or both under sub-section (3) of section 9 of the said Act

 

d) Harmonious reading of provisions of Section 22, 23 and 24 of CGST Act, 2017: Lets try to arrive at the conclusions:

 Conclusion 1: Section 24 provides list of certain category of persons required to be registered under the Act which may or may not be linked with the condition of making taxable supply of goods or services or both.

Conclusion 2: Section 23(1) and 23(2) give exemption from registration to a certain category of persons. This exemption in Section 23(1) and vide notifications issued under section 23(2) are presently till date is on the basis of nature of supply made by them. The exemption from registration can be upto a certain threshold limit or a blanket exemption.

Conclusion 3: It is possible that a person might fall into two categories at the same time i.e. making taxable supply of goods or services or both and liable to pay tax under reverse charge or liable to deduct TDS under Section 51.

Conclusion 4: The exemptions provided under Section 23(1) or under Notifications issued under Section 23(2) till date are specific supply based exemptions. If a person falling under a particular category as provided under Section 23(1) or under the Notifications issued under Section 23(2) starts making any other supply not covered therein like inter-state supply of taxable goods or gets covered in the category of persons which do not require any kind of supply of goods or services or both like payment of tax under reverse charge, then provision under Section 23(1) and notifications issued till date under Section 23(2) do not provide any exemption from liability from registration in relation to that supply or category.

Therefore, conditions which are provided in section 22 and 24 (in Para 5(b)(ii) above) which require person to be registered under the CGST Act, 2017 on account of satisfaction of condition of making certain kind supply of goods or services or both would be covered by the exemption provided in Section 23 but only to the extent and capacity of making those specific kinds of supply of goods or services or both. If the person starts making any other supply not covered therein like inter-state supply of taxable goods or gets covered in the category of persons which do not require any kind of supply of goods or services or both like payment of tax under reverse charge, then provision under Section 23(1) and notifications issued till date under Section 23(2) do not provide any exemption from liability from registration in relation to that supply or category.

Example 1: Section 23(1) provides exemption from registration to persons exclusively engaged in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under CGST Act or under IGST Act. This exemption would apply to conditions provided in Section 22 and to the conditions which provide for mandatory registration in Section 24 on account of making supply of goods or services or both. Therefore for example, if a person in the course on interstate trade or commerce supplies exempted goods or an agent supplies exempted goods on behalf of principal, they would not be required to get registered by virtue of exemption provided under section 23(1) even though provisions of Section 24(i) and 24(vii) of CGST Act, 2017 require such persons to get registered mandatorily.

Example 2: Taking a step further, supposedly person is engaged exclusively in the supplying goods or services or both wholly exempt from levy of tax becomes liable to deduct TDS under section 51 of CGST Act. Can he claim that since he is exempted from registration by virtue of provisions of Section 23(1) of CGST Act, 2017 on account of being engaged in supply of exempted services and goods, therefore he cannot be made liable to be registered under any of the situations in Section 24 for deduction of TDS.

The answer would be No, since the exemption in Section 23(1) is only for category of persons exclusively making supply of goods or services or both that are not liable to tax or wholly exempt from tax under CGST Act or under IGST Act but not for the category of persons required to deduct tax. Hence, as the person is simultaneously falling under two categories i.e. making supply of goods or services or both and liable to deduct TDS and one out of two require him to get registered mandatorily in GST, therefore even though he might be exempted under Section 23(1) in the capacity of making exempted supplies but since the exemption does not cover the capacity of person wherein he is required to deduct TDS; therefore he would have to get himself registered under GST under Section 24 of CGST Act.

Conclusion 4: It would be incorrect to say that provisions of Section 24 are not subject to provisions of Section 23 of the GST Act. For e.g. by virtue of certain Notification No. 10/2017 dated 13th October 2017 suppliers engaged in making of inter state supply of services have been given the benefit of threshold limit of Section 22 overriding the provisions of section 24(i) of CGST Act, 2017 which provide for mandatory registration for persons making any inter-State taxable supply.

Therefore, provisions of Section 23 or notification issued therein have an overriding impact on provisions of Section 24 subject to the fact that the benefit of exemption given vide provisions of Section 23(1) or notification issued under Section 23(2) have to be analysed on a case to case basis and on the basis of category of persons and nature of supply covered therein and whether the relevant provision of section 24 are covered thereunder.

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