Under the GST regime, assessees are required to obtain registration under the GST law based on their aggregate turnover. There is a threshold exemption provided to all taxpayers (suppliers of goods and services). If the aggregate turnover exceeds such threshold limit, registration under GST is mandatory.

Controversy over what to be included in aggregate turnover for GST

Recently an issue came up before Authority for Advance Ruling (AAR), Gujarat in Re: Shree Sawai Manoharlal Rathi (2020) 6 TMI 449; (2020) 117 taxmann.com 497 (AAR, Gujarat).

The AAR came to conclusion that the applicant is required to aggregate the value of exempted interest income earned by way of extending deposits in PPF & bank saving accounts and loans and advances given to his family/friends along with the value of the taxable supply i.e. ‘Renting of immovable property’ for the purpose of calculating the threshold limit of Rs.20 lakh for obtaining registration under GST law. While ruling that interest income would be included for calculating registration threshold, the applicant is required to consider the value of both taxable supply i.e. ‘renting of immovable property’ and exempted supply of service provided by way of extending deposits, loans or advances for which he earned interest income, to arrive at ‘aggregate turnover’ to determine the threshold limit for the purpose of obtaining registration under the GST Act.

In the instant case, applicant was an individual, not engaged in any business and income / receipts comprising of savings, personal loans and advances and deposits, duly reflected in books of accounts. It was submitted that tax total receipts for financial year 2018-19 were  likely to be a total of Rs. 20,12,000/-, which includes, (i) Rent receipts: Rs. 9,84,000/,  (ii) Bank interest: Rs. 3,000/-,  (iii) Interest on PPF deposit: Rs. 2,76,000/- and (iv) Interest on personal loans and advances: Rs. 7,49,000/-.

He contended that if interest is received on loans and advances, deposits and savings bank account by an individual person, who is not engaged in any such business and who is not a money lender, then such interest receipts is not a supply and does not attracts GST, as the same is neither ‘in the course of business’ nor ‘in the furtherance of business’. Further, he relied on the definition of ‘scope of supply’ given under Section 7 of the CGST Act, 2017, clearly states that the receipts should be ‘in the course or furtherance of business’. The receipts from personal loans and advances, deposits and bank Interest are not covered under ‘business’ as per the definition  given under section 2(17) of the CGST Act, 2017.

He sought advance ruling on the following issues:

(1) Whether interest received in form of PPF would be considered for the purpose of calculating the threshold limit of Rs. 20.00 lakh for registration under GST law?

(2) Whether interest received on personal loans and advanced to family/friends would be considered for the purpose of calculating the threshold limit of Rs. 20.00 lakh for registration under GST law?

(3) Whether interest received on saving bank account would be considered for the purpose of calculating the threshold limit of Rs. 20.00 lakh for registration under GST law?

The AAR observed, and rightly so, that the  moot point to be decided is as to whether interest received on deposit in Public Provident Fund (PPF), personal loans & advances to family/friends and deposit in saving bank accounts, would be considered for the purpose of calculating the threshold limit of Rs. 20.00 lakh for registration under GST law?

‘Aggregate Turnover’ as defined in section 2(6) is relevant to a person to determine the threshold limit to obtain registration under the Act.

While exempt supply has been defined in section 2(47) of CGST Act, 2017, ‘Nil rated supply’ is nowhere defined in GST Law. The basic difference between nil rated and exempt supply is that the tariff is higher than 0% in case of exempt supply. But there is no tax payable due to exemption notification. Whereas in case of NIL rated supply, the tariff is at NIL rate so there is no tax without the exemption notification.

Thus, the different kinds of supplies covered under the ‘aggregate turnover’ can be as follows:

(i) Taxable Supplies;

(ii) Supplies that have a NIL rate of tax;

(iii) Supplies that are wholly exempted from SGST, UTGST, IGST or Cess; and

(iv) Supplies that are not taxable under the Act (alcoholic liquor for human consumption and articles listed in section 9(2) and in Schedule III);

(v) Export of goods or services or both, including zero-rated supplies.

In GST ‘supply’ as defined in section 7 of the CGST Act, 2017 has to be considered as a taxable event for charging GST. The liability to pay tax arises at the ‘time of supply of goods or services’. Thus, determining whether or not a transaction falls under the meaning of supply, is important to decide GST’s applicability. Accordingly, the supply includes sale, transfer, exchange, barter, license, rental, lease and disposal. If a person undertakes either of these transactions during the course or furtherance of business for consideration, it will be covered under the meaning of supply under GST.

To be taxable, the following tests are essential :

a) Supply is done for a consideration, and

b) Supply is done in course of furtherance of business.

Notification No. 12/2017-Central Tax (Rate) and Notification No.9/2017-Integrated Tax (Rate), both dated 28.06.2017,as amended, provides a list of services exempted from payment of Central Tax on intra-State supply and Integrated Tax on inter-state supply. Entry 27(a) of the Notification No. 12/2017 and Entry 28(a) of the Notification No. 9/2017 relates to services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest.

The services regarding interest income are covered under the above Notification. Therefore, such services are exempted from payment of GST and the individual is not required to discharge GST on the activity of providing services by way of extending deposits, loans or advances where the consideration is represented by way of interest. Therefore, in given case GST was not leviable on interest income earned by the Applicant.

However, in this case, the applicant also supplied services of ‘renting of immovable property’ along with activity of providing services by way of extending deposits, loans or advances where the consideration is represented by way of interest. His turnover from the rent income was Rs. 9.84 lakh but the transaction of ‘renting of immovable property’ is chargeable to GST.

The AAR observed that going by the definition of aggregate turnover in section 2(6),  the applicant is required to consider the value of both the taxable supply i.e. ‘renting of immovable property’ and exempted supply of service provided by way of extending deposits, loans or advances for which they earned interest income, to arrive at ‘Aggregate Turnover’ to determine the threshold limit for the purpose of obtaining registration under the GST Act.

It thus concluded that in view of the above, the Applicant is required to aggregate the value of exempted interest income earned by way of extending deposits in PPF & bank saving accounts and loans and advances given to his family/friends along with the value of the taxable supply i.e. ‘renting of immovable property’ for the purpose of calculating the threshold limit of Rs. 20.00 lakh for obtaining registration under GST law. All the three questions were answered in affirmation and against the applicant.

A similar view was taken by AAR, Karnataka in Re: Anil Kumar Agarwal (2020) 5 TMI 221 (AAR, Karnataka).

It can therefore, be concluded on the basis of Advance Ruling that interest, irrespective of nature is part of aggregate turnover and therefore, to be considered for the purpose of registration.

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