Exemption under GST v/s RCM

1. Section 22 of the CSGT Act (PERSON LIABLE FOR REGISTRATION)

√ It provides that every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees.

2. Section 23 of the CGST Act ((PERSON NOT LIABLE FOR REGISTRATION)

√ It provides that the following persons shall not be liable to registration, namely-

(a) any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the Integrated Goods and Services Tax Act;

(b) The Government may, on the recommendations of the Council, by notification, specify the category of persons who may be exempted from obtaining registration under this Act.

3. Section 24 of the CGST Act (COMPULSORY REGISTRATION) starts with “Non-Obstante Clause” and states that-

√ Notwithstanding anything contained in sub-section (1) of section 22, the following categories of persons shall be required to be registered under this Act,–

(i) persons making any inter-State taxable supply;

(ii) casual taxable persons making taxable supply;

(iii) persons who are required to pay tax under reverse charge;

………………….

• It is clear from the above that Section 24 is superseding/overriding provisions of section 22 and not the provisions of section 23.
• It means if a person is exclusively engaged in the business of supplying of goods or services that are not liable to tax or wholly exempt from tax, there is no requirement of registration irrespective of the provisions of section 24, which is stipulating cases for “compulsory registration”.
• Similarly, if the Govt., by notification, specify the category of persons, who may be exempted from obtaining registration, provisions of section 24 shall not apply on those persons.

The Central Govt., by virtue of provisions of Sec.23, has issued Notification No. 5/2017-Central Tax dt. 19.06.2017, wherein it has exempted persons from obtaining registration 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  

4. Section 9(3) of CGST Act provides that-

The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

5. Section 9(4) of CGST Act provides that-

The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both

As per section 2(98) of CGST Act, “reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act;

In view of the powers vested by virtue of provisions of section 9(3), the Govt. has notified certain services at it as shown in the table appended herewith (Exhibit # 1) , that tax on which is payable under reverse charge by the recipient of supply.

It is clear that in above cases, the service tax liability is to be paid by the recipient of service and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such services.

Now, from the above provisions, we can take inference that-

(a) If a person is only engaged in supplying goods or services, which are wholly exempt from tax or which are not leviable to tax under GST, he is not required to take registration in any case and irrespective of any provisions of the act including provisions of section 24, 9(3); & 9(4). [Sec. 23(1)]

(b) If a person in only engaged in making supply of goods or services, the total tax on which is liable to be paid on reverse charge basis by the recipient of such goods or services under section 9(3), he is not required to take registration. [Notification # 05/2017-CT issued under section 23(3)].

Hence, a conclusion may be drawn that a person, let say, is engaged only in providing Goods Transport Agency to persons covered under the table above (a factory; any person registered under SGST/CGST/UTGST Act; a partnership firm; a cooperative society; any registered society; any body corporate, casual taxable person), the liability for total payment of tax is vested with the recipient, and not on person providing services. Therefore he is not required to take registration in any case, by virtue of the exemption provided under notification No. 05/2017. In that case, it shall also be immaterial that this person is taking any nature/sort of inward supplies from any other registered/unregistered person.

SERVICES UNDER REVERSE CHARGE AS APPROVED BY GST COUNCIL

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