Article 279A of the Constitution of India (hereinafter referred to as the Constitution) provides for constitution of the Goods and Services Tax Council, by the President of India, under Chairmanship of the Union Finance Minister. The Union Minister of State in charge of Revenue or Finance, and the Minister in charge of Finance or Taxation or any other Minister nominated by each State Government, shall be members of the Council. The Council shall discharge functions conferred by the said Article 279A. Article 279A also lays down the procedure which shall be followed by the Council in taking its decisions.
Clauses (4) and (6) of Article 279A of the Constitution run as follows:–
“(4) The Goods and Services Tax Council shall make recommendations to the Union and the States on—
(a) the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax;
(b) the goods and services that may be subjected to, or exempted from the goods and services tax;
(c) model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-State trade or commerce under article 269A and the principles that govern the place of supply;
(d) the threshold limit of turnover below which goods and services may be exempted from goods and services tax;
(e) the rates including floor rates with bands of goods and services tax;
(f) any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster;
(g) special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and
(h) any other matter relating to the goods and services tax, as the Council may decide.”
“(6) While discharging the functions conferred by this article, the Goods and Services Tax Council shall be guided by the need for a harmonised structure of goods and services tax and for the development of a harmonised national market for goods and services.”
Reading of clause (4), and clause (6), of Article 279A of the Constitution reveals that-
(i) provisions of clause (4) are of mandatory nature, i.e. it is mandatory for the Council to make recommendations to the Union and the States on the matters mentioned in various sub-clauses of clause (4);
(ii) in between sub-clause (g), and sub-clause (h), of clause (4) of said Article 279A, word “and” has been used to indicate that various sub-clauses of clause (4) of Article 279A of the Constitution are mutually exclusive;
(iii) sub-clause (b) of clause (4), inter-alia, requires recommendation on the goods and services that may be exempted from goods and services tax;
(iv) sub-clause (d) of clause (4) does not require recommendation on any specific kind of supply of any goods, or services, or both which may be exempted from goods and services tax;
(v) sub-clause (d) of clause (4) requires recommendation on the threshold limit of turnover below which goods and services may be exempted from goods and services tax;
(v) sub-clause (d) of clause (4) does not require recommendation on the threshold limit of turnover below which any specific goods or services may be exempted from goods and services tax;
(vii) sub-clause (d) of clause (4) also does not require recommendation on the threshold limit of turnover below which any specific kind of supply of few, or all goods and services may be exempted from goods and services tax;
(viii) sub-clause (d) of clause (4) requires recommendation on the threshold limit of turnover below which all kinds of supplies of all goods and all services may be exempted from goods and services tax.
Exemption provided to any goods or services from goods and services tax makes all kinds of supplies of such goods or services exempt from goods and services tax, and exemption provided to any specified goods or services from goods and services tax makes all kinds of supplies of such specified goods or services exempt from goods and services tax.
Clause (6) of Article 279A of the Constitution provides that while discharging functions conferred by the said Article 279A, the GST Council shall be guided by the need of a harmonic structure of goods and services tax and development of a harmonised national market for goods and services. Prior to implementation of GST, there had existed barriers, both fiscal (like, difference in VAT rates in different States, exemptions provided by the States under VAT, Central Sales Tax, Octroi, etc.) and check posts, barriers, which had been creating hindrance in inter-State trade or commerce. India had remained fragmented in State markets. These restrictions tended to fragment the national market into State Markets, which had adversely affected competition in business and had dented freedom of trade and commerce. Purpose of clause (6) of Article 279A is to ensure free movement of goods and services throughout the country by removing fiscal barriers under GST.
Prior to roll out of GST, Service tax was being levied on rendering of specified services. Service tax, being central levy, had been uniform throughout the country and hence service tax had assured free flow of services throughout the country. For all taxable services, rates of service tax and threshold limit of turnover for providing exemption from services tax to small service providers had been same throughout the country.
On roll out of GST, for a person making inter-State taxable supply of goods, or services, or both, including a person who used to make inter-State taxable supply of services, it was made mandatory to obtain registration, irrespective of value of his aggregate turnover. But by Notification No. 10 / 2017 – Integrated Tax, Dated 13-10-2017, persons making inter-State supplies of taxable services have been allowed benefit of threshold exemption. However, a person who also makes inter-State supply of taxable goods along with taxable services has not been allowed benefit of threshold exemption. At the same time, a person who makes supply of goods, or services, or both within a State or a Union Territory, has been allowed benefit of threshold exemption limit with respect to goods and services, both.
Where threshold exemption is admissible to a taxpayer if he makes intra-State supply of goods, and threshold exemption is not admissible if he makes inter-State supply of same goods, small taxpayers (persons having small turnover), whose turnover remains below the threshold exemption limit, are forced by the compliance costs of GST Laws for not making inter-State supply till their turnover does not cross the threshold exemption limit. In such circumstances, supplier fails in availing benefits of national market for goods and services. For goods supplied by him, market gets limited to his State. Such provision of law hits the policy laid down in clause (6) of Article 279A of the Constitution.
Goods and Services Tax Laws enacted by Parliament and the Legislature of each State provide when a supplier shall be liable to registration . These Laws define expression “taxable person” to mean a person who is registered or liable to be registered under sections 22 and 24 of the Central Goods and Services Tax Act, 2017, or section 22 or 24 of the State Goods and Services Tax Act, as may apply. Under all GST Laws, taxable person has been made liable for making payment of tax and for making other compliances under the said Laws. Section 22 (1) and section 24 of the said Acts run as follows:–
22. Persons liable for registration.— (1) 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:
Provided that where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees:
Provided further that the Government may, at the request of a special category State and on the recommendations of the Council, enhance the aggregate turnover referred to in the first proviso from ten lakh rupees to such amount, not exceeding twenty lakh rupees and subject to such conditions and limitations, as may be so notified:
Provided also that the Government may, at the request of a State and on the recommendations of the Council, enhance the aggregate turnover from twenty lakh rupees to such amount not exceeding forty lakh rupees in case of supplier who is engaged exclusively in the supply of goods, subject to such conditions and limitations, as may be notified:
Explanation.––For the purposes of this sub-section, a person shall be considered to be engaged exclusively in the supply of goods even if he is engaged in exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.
Explanation.––For the purposes of this section,––
(i) the expression “aggregate turnover” shall include all supplies made by the taxable person, whether on his own account or made on behalf of all his principals”;
(ii) the supply of goods, after completion of job work, by a registered job worker shall be treated as the supply of goods by the principal referred to in section 143, and the value of such goods shall not be included in the aggregate turnover of the registered job worker;
(iii) the expression ―special category States‖ shall mean the States as specified in sub-clause (g) of clause (4) of article 279A of the Constitution [except the State of Jammu and Kashmir and States of Arunachal Pradesh, Assam, Himachal Pradesh, Meghalaya, Sikkim and Uttarakhand.”
24. Compulsory registration in certain cases.— 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;
(iv) person who are required to pay tax under sub-section (5) of section 9;
(v) non-resident taxable persons making taxable supply;
(vi) persons who are required to deduct tax under section 51, whether or not separately registered under this Act;
(vii) persons who make taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise;
(viii) Input Service Distributor, whether or not separately registered under this Act;
(ix) 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;
(x) every electronic commerce operator [who is required to collect tax at source under section 52;
(xi) 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; and
(xii) such other person or class of persons as may be notified by the Government on the recommendations of the Council.”
Here we see that section 22(1) makes a person liable for registration if his aggregate turnover during a financial year exceeds certain limit of such turnover (20 lakh, or 10 lakh, rupees). Section 2(6) of the CGST Act defines the expression “aggregate turnover” as follows:–
“(6) “aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess;”
Clause (i) of explanation of section 22 of the CGST Act provides that for the purpose of said section 22, the expression “aggregate turnover” shall include all supplies made by the taxable person, whether on his own account or made on behalf of all his principals.
Let us take an example of a person “A” who exclusively deals in supply of some taxable goods within the State and whose aggregate turnover at end of 30th day of June in the first financial year of business is 5 lakh rupees. Till June 30, the person has made all his supplies of goods within his State. Person “A” is located in a State “P”, for which threshold exemption of 20 lakh rupees has been fixed. On first day of July of the said financial year, the person receives first order for supply of the goods for 10,000.00 Rupees from another person “B”. As per order; goods are to be delivered at place of business of person “B”. There may be two situations depending on location of place of business of “B”. In first situation, place of business of person “B” may be located within the State “P”, (the State in which supplier is located), and in second situation, place of business of person “B” may be located in another State “Q”. In first situation, supply of goods will be an intra-State supply, and in second case, supply of goods will be an inter-State supply. Looking into provisions of section 22(1) and section 24 (i) of the CGST Act, if supply of 10,000.00 is intra-State supply, the supply will not make person “A” liable for registration. This situation will continue till he continues to make intra-State supplies of goods and till his turnover in the said financial year or in any subsequent financial year does not exceed 20 lakh Rupees. In second situation, supply being an inter-State taxable supply of goods, the supply of 10,000.00 Rupees will make person “A” liable for registration under section 24(i) of the CGST Act and liable for payment of GST on this supply of 10,000.00 rupees and all other supplies which are made by the supplier thereafter, either in the same financial year or any other financial year to come, even if all supplies of goods made thereafter are intra-State supplies which will be made within his own State “A”. What is noticeable in second situation is that inter-State supply of taxable goods will make him liable for obtaining registration, making payment of tax on all his supplies including supplies made within his own State, and making other compliances under GST Laws. These compliances involve expenditure of money (fiscal costs) and self efforts (time costs) as compliance costs of GST Laws. In first situation, supply of 10,000.00 Rupees, being a supply within his own State, person A will not be liable for making any compliance under GST Laws. Being small supplier, being unable to bear compliance costs of GST Laws, the supplier will not make any inter-State supply of goods. He will continue to make all his supplies within the State till his aggregate turnover does not exceed 20 lakh rupees in any financial year. Compliance costs of GST Laws will force person “A” for not making inter-State supply of goods. Compliance costs will hinder free flow of goods throughout the nation. In this case, national market for goods supplied by person “A” will stand shrunk to his own State.
Article 279A (4)(d) of the Constitution requires the GST Council to make recommendation to the Union and the States on the threshold limit of turnover below which goods and services may be exempted from GST. Had the GST Council decided annual aggregate turnover of 20 lakh rupees as threshold limit of turnover under Article 279A (4)(d) of the Constitution, the Union and the States would have declared all goods and services exempt from GST for those persons, whose aggregate turnover had not exceeded 20 lakh rupees. In those circumstances, supplier, referred to in foregoing paragraph, would not have refused to make inter-State supply of goods, and then for goods supplied by him, it would have been harmonised national market.
Clause (6) of Article 279A of the Constitution, inter-alia, provides that while discharging functions conferred by the said Article 279A, the GST Council shall be guided by the need of a harmonised structure of goods and services tax. In view of this, amount of tax leviable on intra-State supply of any goods or services is the same which is leviable on inter-State supply of such goods or services. Therefore, if threshold exemption benefit is extended to all persons / supplies irrespective of nature and mode of supply, no additional revenue loss will incur to the Government.
Compliance cost of GST Laws is a serious issue for small businesses. Monitoring of small businesses is also a big administrative problem. All of us, as consumer of goods or services, pay GST and there is no difficulty in paying it where it is collected by the supplier. But the consumer will feel difficulty where the Government requires the consumer to pay GST under reverse charge mechanism. Difficulties of consumers will further increase if the Government asks the consumer to make compliances of provisions of GST Laws, including registration, furnishing of periodical returns, submission of annual return, maintenance of accounts, etc. Levy and collection of tax is in public interests. At the same time exemption to small business from compliance costs of GST Laws is also in public interest.
Citizens of this country have their fundamental right to practise any profession or to carry on any occupation, trade or business. Businesses with small turnover are also businesses. Small businesses yield small earnings. There may be cases in which, in the normal circumstances of the business, earnings from business may not be sufficient to bear compliance cost of GST Laws. In such cases, compliance of GST Law makes it impossible to carry on business. This will amount to denial of fundamental right, of Indian citizens to carry on any business, as provided by Article 19(1) (g) of the Constitution.
In my personal opinion, existing provisions of GST Laws for allowing benefit of threshold exemption limit of turnover (provisions of section 22(1) and section 24 of the CGST Act) are not in conformity of Article 279A(4)(d), and Article 279A(6), of the Constitution. For the purpose of providing harmonised national market for goods and services tax, under harmonised structure of goods and services tax, –
(i) exemptions provided to any goods or services from goods and services tax should apply to all kinds of supplies of such goods or services, irrespective of the nature of supply and mode of supply;
(ii) effective rate of tax for each kind of supply of similar goods or services within the territory of the national should be same, irrespective of the nature of supply and mode of supply;
(iii) threshold limit of turnover for exemption from goods and services tax should apply to all businesses irrespective of nature and mode of supply of goods, or services, or both; and
(iv) exemptions if any should only be provided treating the whole nation a single tax territory; and
(v) aggregate turnover should be computed at national level.
In the First Discussion Paper On Goods and Services Tax In India”, the Empowered Committee of State Finance Ministers had found that concept of threshold exemption is to keep small traders out of tax net. The Committee has found following three reasons for allowing threshold exemption, namely:-
(a) It is difficult to administer small traders and cost of administering of such traders is very high in comparison to the tax paid by them.
(b) The compliance cost and compliance effort would be saved for such small traders.
(c) Small traders get relative advantage over large enterprises on account of lower tax incidence.
In my opinion, use of word “trader” in the reasons stated above is incorrect. These reasons apply to every kind of business. Threshold exemption provided in section 22(1) of the CGST Act, does not differentiate in between trader and manufacturer. In my personal opinion, compliance cost and compliance efforts are main reasons for allowing threshold exemption. I am also of the view that compliance cost in cases of manufacturer remains higher than the compliance cost in cases of traders.
Prior to October 13, 2017, threshold exemption was not admissible to persons who used to make inter-State taxable supply of goods, or services, or both, and threshold exemption was admissible to persons who used to make intra-State supplies of goods and services. The Central Government has, on recommendation of the GST Council, by notification no. 10 / 2017 – Integrated Tax, dated: 13-10-2017, allowed threshold exemption also to those persons who make inter-State taxable supply of services. Such decision has not been taken with respect to a person who makes inter-State taxable supply of goods. These decisions are debatable in view of provisions of Article 279A (6) of the Constitution. If, in view of Article 279A (6) of the Constitution, threshold exemption limit is allowable to a person who makes intra-State supplies of services, and inter-State supply of services, both, then, in view of same provision Article 279A (6) of the Constitution, how such benefit of threshold exemption cannot be allowed to a person who makes intra-State taxable supplies of goods, or inter-State taxable supply of goods, or both.
*****
Disclaimer: Except the quoted versions in this article, all other views expressed here are my personal views and are meant only for academic discussion. Readers are advised to obey the law and to seek opinion of their legal advisor before acting upon the views expressed here. I and the publishers of this article disown any liability on account of any loss or damage that may be caused on account of use of views expressed here.
Author Bio
