Discerning the compliance burden faced by the Trade and Industry (huh?), the Central Government vide Notification No. 08/2017-CT (Rate) (‘the Notification’), decided to put a cap on the Intra State supplies on which GST leviable under section 9 (4) of the CGST Act, (‘the Act’) viz. RCM on unregistered inward supplies, shall be exempt in case the aggregate value of such supplies doesn’t exceed INR 5,000 a day.
The horrendous drafting has left the notification open to many horrendous outcomes. Let us deliberate what “5,000 – A day” means. Two important questions that need resolution are discussed;
1. Constituent of 5,000 threshold
The Notification provides a threshold of INR 5,000 through the proviso contained therein. However it has not been provided what shall constitute the 5,000 threshold, what supplies need to aggregated to see the daily cap and what supplies should be ignored. It will be accommodating to reproduce the relevant extracts of the Notification and Section 11 (1) of the Act under which the Notification has been issued.
Notification 8/2017-CT (Rate) dated 28 June 2017
“In exercise of the powers conferred by sub-section (1) of section 11………….in Public Interest…………..hereby exempts intra- State supplies of goods or services or both received by a registered person from any supplier…………….from the whole of the central tax leviable thereon under sub-section (4) of section 9.
Provided that the said exemption shall not be applicable where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the suppliers, who is or are not registered, exceeds five thousand rupees in a day.”
“Section 11.
- …….it is necessary in the public interest……….by notification, exempt…..goods or services or both………y be specified in such notification…..”
Proviso to the First Paragraph (‘para’) gives us the 5,000 threshold, the threshold depends on the aggregate value of “such supplies” consequently recourse again needs to be made to the para noscitur a sociis. Therefore any comprehension of threshold must necessarily have to be from the coverage of supplies provided under the para.
- Non GST Supplies
Non-taxable supplies are supplies which do not satisfy the levy under Section 9 (1) in consonance with Section 9 (4), for example,
- Supplies of alcoholic liquor for human consumption or
- Supplies of Petroleum Products u/s 9 (2) or
- Supplies being Non-taxable for want of consideration
The para has many limbs, all of which needs to be given honored. The last limb covers the supplies that are leviable to central tax under Section 9(4) of the Act, therefore any supplies which are not leviable to tax are not included in the purview of the notification. It can be said that something which can be exempted should prima facie be leviable to tax, and an exemption thereof tends to the position that such thing was leviable to tax before such exemption.
Although there have been divergent views by the Courts as to sanctity of an exemption notification vis-à-vis levy of tax. The Courts in case of International Conveyors Ltd 1983 (13) ELT 1216 (CEGAT), Hindustan Motors Ltd. 1993 (63) ELT 0723 (Tribunal), New Shorrock Mills 2006 (202) ELT 0192 (Tri. – LB), have held that “existence of exemption notification doesn’t any inference on the levy of tax, in a contrary view, the Hon’ble Tribunal in case of Kesar Enterprises Ltd. 2001 (130) ELT 0093 (Tribunal) and Hi-tech Carbon 2003 (161) ELT 407 (Tri. – Del.) has held that something which is non-excisable cannot be called exempted.
Considering the overall approach, it will be rationale to say that inward supplies which are not leviable to GST, shall not be included in the daily cap, merely because the daily cap is intended to reduce the compliance and not increase the same. Hence, even if one buys, petrol of 10,000 in a day, the aggregate value of 5,000 shall be independent of the said, petrol purchase.
- Inter-State Supplies
Section 5 (4) of IGST Act is para materia to Section 9 (4) ibid. The exemption above is given with respect to Intra- State supplies. Section 20 of IGST provides list of provisions of CGST Act, which shall mutatis mutandis under IGST Act, alas however section 20 ibid do not enlist therein provisions of exemption, therefore the 5,000 a day cap is not extendable to Inter-State supplies.
Reverting to the subject, whether the threshold of Inter-State supplies will be included in the daily cap, the answer more likely is in negative, because, the proviso to the notification is noscitur a sociis to para, and para refers to only “Intra- State” supplies, hence all Inter-State supplies should be ignored for counting the daily cap of 5,000. Illustratively, if one receives Inter-state supplies of INR 10,000 from unregistered suppliers, although IGST at appropriate rate will have to be under Reverse charge under section 5 (4) ibid, however this 10,000 will have no impact over the daily cap qua Intra-State supplies received from unregistered suppliers.
- Inward Supplies under Section 9(3)
With the same rationale as above, the words such supplies inclines towards the fact that supplies which falls under section 9 (4) ibid are only to be counted towards the daily cap. Applying expressio unius est exclusio alterius the words such supplies leviable to tax under section 9 (4) necessarily excludes the operation over supplies notified under Section 9 (3) of the Act.
Illustratively, inward supplies of Goods Transport Agency [which are liable to tax under Reverse Charge under Section 9 (3) ibid] shall be independent of the daily cap provided in the Notification.
- Meaning of aggregate value in a day
Supply is supply, it is neither of the (1) “Receipt” of supply (2) “Payment” of Supply (3) “Invoice Date” of Supply. The levy is on supply, while Sections 12 and 13 of the Act defines the time when the tax on a supply is to be paid, however, the sections don’t define when a supply is said to have occurred. Bigger the problem the occurrence turn out to be in future, the current daily cap is also dependent on the occurrence and not Time of Supply.
Time of supply is function of more than one event different for both goods and services, described as follows;
| Nature of Supply | Time of Supply |
| Goods [Section 12 (3)] | Earlier of;
· Date of the receipt of goods · Date of payment as entered in the books of account of the recipient · Date on which the payment is debited in his bank account · Date immediately following thirty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof Provided that where it is not possible to determine the time of supply above, the time of supply shall be the date of entry in the books of account of the recipient of supply. |
| Services [Section 13 (3)] | Earlier of;
· Date of payment as entered in the books of account of the recipient · Date on which the payment is debited in his bank account · Date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier: Provided that where it is not possible to determine the time of supply above, the time of supply shall be the date of entry in the books of account of the recipient of supply |
The daily cap can be looked upon from various point of views discussed below;
- Determination of aggregate value on the basis of clauses of Section 12 (3) and 13 (3)
As seen from above, there are at least 3 events which must kept in mind if the 5,000 daily cap is to be determined on the basis of Time of supply. For a meagre amount of 5,000, if one were to keep a track of (1) Payment in books of accounts (2) Payment in Bank Account (3) Invoice Date (4) Date of Receipt, the only foreseeable is chaos, rather than a relief, which is the prime objective of the Notification.
- Determination of aggregate value on the basis of Proviso(s) to Section 12 (3) and 13 (3)
Proviso to sub section 3 of section 12 and 13, provides that in case Time of supply is not possible to be determined under the main clauses, it can be said to the “date of entry in the books of accounts of the recipient”. The proviso is a safeguard section which attempts to cure the impractical application of main clauses. The law is well settled that “the sub-sections must be read as parts of an integral whole and as being inter- dependent; an attempt should be made in construing them to reconcile them if it is reasonably possible to do so, and to avoid repugnancy.” Madanlal Fakirchand Dudhediya vs Shree Changdeo Sugar Mills Ltd 1962 AIR 1543.
The method provided under the proviso can be easily implemented than the clauses, viz. only with the determination of “recording in books of accounts”, the exemption eligibility can be claimed. Moreover, unlike the later discussed methods of determination of aggregate value in a day, this method has the sanctity of law. The recourse to this method can perhaps be said to be the safest option.
- Determination of aggregate value on the basis of payments
It can be said that, the exemption aims to reduce the compliance on account of inconsistent daily cash payments by small businesses, the aggregate value of payments in day is another method to determine the eligibility of the exemption notification. The payments method is more suitable for industries which do not necessarily receives invoices from the unregistered supplies, and the cash book is the more preferred way of recording such expenses in the books of accounts.
The payments method is the most easily implementable, however the method doesn’t have the sanctity of law i.e. the amount of payment has nowhere been provided an eligible criteria to determine the aggregate value in the law.
- Determination of aggregate value on the Invoices
Invoice based supplies method is another method which can be considered for determining the daily cap. Recording of supplies on the basis of Invoice Dates is the most common practice among st MSME sector. This is also an implementable practice, but this suffers from the similar shortcoming as that of payment practice viz. profanity of law.
To sum up, it can be concluded though the notification aims to reduce the compliance burden among st the Small and Medium Sector Entities, however the way the compliance has been reduced is open to countless interpretations. Of course there is some twitter handle, telling everyone about the 5,000 limit, however, the twitter bot has no locus standi in the court of law. It is a surprise that even a press release is not issued to explain the 5,000 limit. The 5,000 daily cap is of little assistance where the ITC is not available for e.g. items of personal use, staff welfare etc. The trade will interpret 5,000 in their own wisdom while the Revenue Officers will apply their own wisdom. The final words, 5,000 is a cover of a major botch.
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Great interpretation of notification. whatever be the problems
Sec. 9(4) exemption rs. 5000/- per day limit will save the registered person upto around 18 lacs profit adjustments for income tax. I mean sec 9(4) black money creation provision.