Gujarat AAR Ruling in the case of Shree Sawai Manoharlal Rathi (GST AAR Gujarat) on Inclusion of Interest in Turnover for GST Registration is not in line with Spirit of Legislation.
Historic Tax Regime i.e. Goods and Service Tax opens the umbrella of litigation for the professionals as well as brings the ray of hope in the field of judicial proceedings. There are lots of grey areas which require special consideration or attention by revenue authorities in order to achieve the entire objective of this regime i.e. “Good and Simple Tax”.
Recently, the Gujarat Authority for Advance Rulings (AAR) has directed that any interest or income earned on Public Provident Fund (PPF), savings bank account, and extended deposits/advances shall be included while computing the aggregate turnover under GST. This AAR propounded broadens the horizon of litigation under indirect tax. This ruling requires each one of us to reconsider all our assessee for the purpose of GST Registration.
Let us see what legislation tells to include in the definition of ‘aggregate turnover’. Section 2(6) of CGST Act defined the term ‘aggregate turnover’ as a cumulative value of the following:
- All taxable supplies
- All exempt supplies
- Exports of goods and services or both
- Inter-state supplies
of persons having the same Permanent Account Number, to be computed on all India Basis. But it would exclude the following from the items listed above:
- Inward supplies taxed on a reverse charge basis
- Tax portion, such as CGST, SGST/UTGST, IGST, and the Cess
Point for discussion magnetizing Litigation
The above ruling could potentially put individuals into jeopardy with no clear distinction between personal and business purpose as outlined by the authorities. The ruling requires each one of us to reconsider the definition of aggregate turnover and analyze whether ruling was in line with Legislation or it requires further clarification from revenue authorities between personal and business purpose.
Author’s Eyeshot
Before discussing whether personal exempt supply (i.e. Interest on PPF, SB A/c, FDR etc) are to be included in Aggregate Turnover or not. Firstly, we need to analyze the definition of Exempt supply as provided in Sec 2 (47) as “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply.
As we go with the true spirit of legislation, we analyze that definitions nowhere specify that we need to consider exempt supply of personal nature also. Legislation doesn’t want to put any layman into hardship by invoking such heinous provisions and opens the door for litigation at every step. Therefore, authorities need to make clear the distinction between personal and business purpose through notification, circular, Press Release in order to reduce the debatable point.
One school of thought says we need to consider all the supplies that relate to PAN No. whether consist of business or personal supply whereas another school of thought tells each one of us that we need to consider only business exempt supply.
Let us analyze various instances through Example:
Ex 1 : Mr. X a retired government employee, earns rental income of Rs 15,00,000/- and Rs 5,10,000/- as exempt income from interest on PPF.
Whether he is required to get GST Registration?
Revenue Views: Mr. X requires to get GST Registration as Aggregate Turnover exceeds Rs. 20 Lakh. All Supply whether Business (Rs. 15 Lakh) or Personal (Rs 5.1 Lakh) needs to be clubbed for the purpose of GST Registration. (Reference above AAR).
Author’s Views: We have to consider only business taxable & exempt supply and not the personal exempt supply. Therefore, in the above example Mr. X is not required to get registered as business supply is below the threshold limit.
Ex 2: Mr. A is a Trader of Shoes and his turnover is Rs 39,80,000 and he also earns Rs 25,000/- as SB A/c Interest.
Whether he is required to get GST Registration?
Revenue Views: Mr. A requires to get GST Registration as Aggregate Turnover exceeds Rs. 20 Lakh. In case of supply of both goods and services the threshold limit is Rs 20 Lakh not Rs 40 Lakh.
Author’s Views: Mr. A is not required to get registration as his business turnover is below the threshold limit i.e. Rs 40 Lakh in case of goods. Thus, if we go with the AAR propounded by Gujarat then we need to consider the personal exempt supply also and consequently limit for registration will revised from 40 Lakh to Rs 20 Lakh and he is required to get registration.
We depict that this would not be the intention of the lawmaker to put an individual into hardship and consequently bring him under the ambit of GST regime intentionally. We hope so that the authorities will clear the position as soon as possible so that litigation will not occur in near future.
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In example 1, why you are treating rental income as business income. It may be personal income.