A haunting issue under GST is the determination of liability to register. Among a plethora of Notifications, even professionals are failing to keep up with the pace at which GST is growing.
“Section 22 (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.”
“As per Section 2(6) of the Central Goods and Services Tax (CGST) Act, 2017, unless the context otherwise requires, the term “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.”
Registration under GST is governed by Section 22(1) and is divided into 3 stages
Following observations can be made:
This section, therefore, establishes the rule that for the purpose of threshold limit Entire turnover shall be considered however no registration shall be required unless taxable supplies are made.
“Section 24(1) 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) a person who is 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 the 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;
(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.”
Section 24 (1) however overrides the provisions of section 22(1) and prescribes circumstances where irrespective of Section 22(1) person shall be required to obtain the registration. The point that still remains unclear is that out of the three assertions stated above in respect of section 22(1) does the provisions mean to override.
In our opinion, stating that even the “Non-suppliers” will be liable to register is absurd.
Also assuming that people not making taxable supplies shall also be liable to registration doesn’t seem to be a proposition the lawmakers would make. In support of the second argument section 23(1) specifically provides for non-registration of persons who are making supplies of goods or services that are not liable to tax or are specifically exempt under the Act.
Here it can be reiterated that under Section 22 also only persons making taxable supplies were liable to Register. More-so Section 24 overrides only
section 22 and not section 23.
Continuing with the intent of section 24, the last point under section 22 is the threshold limit of 20/10 Lakh, which seems to be a fair point to overpower.
The intent of legislation can be to cover some transactions that are already taking place in organized sector and do not need the cover of thresholds.
Generally, a Non-obstante clause cannot exceed the bounds of Section. It simply limits the operation of a particular section.
RC Pondyal v Union of India
In RC Pondyal v Union of India, it was held that a provision beginning with the words ‘notwithstanding anything in this constitution ‘ added in the Constitution by a Constitution Amendment Act could not be constructed as taking away the provision outside the limitations of the amending power and it has to be harmoniously construed consistently with the foundational principles and basic features of the constitution.
Further Section 23(2) Provides the power to the government to exempt any class of persons to be exempt from registration under GST
“Central Goods and Services Tax Act, 2017 (12 of 2017) (hereafter in this notification referred to as the said Act), the Central Government, on the recommendations of the Council, hereby specifies the persons making supplies of services, other than supplies specified under sub-section (5) of section 9 of the said Act through an electronic commerce operator who is required to collect tax at source under section 52 of the said Act, and having an aggregate turnover, to be computed on all India basis, not exceeding an amount of twenty lakh rupees in a financial year, as the category of persons exempted from obtaining registration under the said Act:
Provided that the aggregate value of such supplies, to be computed on all India basis, should not exceed an amount of ten lakh rupees in case of “special category States” as specified in sub-clause (g) of clause (4) of article 279A of the Constitution, other than the State of Jammu and Kashmir.”
In exercise of such power notification 65/2017 was released on 15-11-2017 whereby all the persons having an aggregate turnover of up to 20 Lakh, except persons covered under section 9(5) shall not be required to register. In such case, turnover has been taken to be on all India basis.
Now the issue can be drilled down into 3 categories on the question of registration, assuming all of the following make payments classifiable under section 9(3)
The first case shall be exempt due to the operation of Section 23(2) and Notification 65/2017
The second case shall be Exempt from obtaining registration due to the operation of section 23(1).
The third case shall be liable to tax, as the making of taxable supplies made them fall into the trap of Section 22(1).
It can be argued on the language of 9(3), where the provision deems the person receiving the services covered under 9(3) as the person supplying such services when a person receives such service shall be supplying taxable service and hence 22(1) shall be applicable.
But it is well established in law that deeming provisions do not alter the nature of the transaction and are only meant for giving effect to the transaction only in that particular case.
In Dominion of India v Shrinbai A Irani – The supreme court observed :
Although ordinarily there should be a close approximation between the nonobstante clause and the operative part of the section, the non-obstante clause need not necessarily and always be co-extensive with the operative part, so as to have the effect of cutting down the clear terms of an enactment. If the words of the enactment are clear and are capable of only one interpretation on a plain and grammatical construction of the words thereof, a non-obstante clause has not to be read as clarifying the whole position and must be understood to have been incorporated in the enactment by the legislature by way of abundant caution and not by way of limiting the ambit and scope of the operative part of the enactment.
(Article is contributed by Firmsap Excel utilities and can be reached at [email protected])