There is a lot of debate as to whether registration is necessary in case of entities supplying “ONLY” Exempt supply of goods or services.
Let us analyze the provisions of the CGST Act, 2017.
Sec.22(1) deals with the requirement of registration reads as follows:
“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.”
Section 24 deals with Compulsory registration which specifies the cases where compulsory registration has to be obtained:
“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 1;
(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.”
From the reading of the above two sections, there is no iota of doubt that registration would be required even if the turnover is well within the threshold limit if the Supplier falls under any of the twelve conditions mentioned in Sec.24. Sec.24 overrides the provisions of Sec.22 as it begins with the “Non-obstanate” clause.
Let us look at the provisions of Sec.23:
“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) an agriculturist, to the extent of supply of produce out of cultivation of land.
(2) 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.”
The above sections deals with the exemptions from registrations if the taxable person is exclusively engaged in supplying goods/services that are wholly exempt or are non-taxable or if he is an agriculturist.
The confusion arises when a person supplies goods/services which satisfies both Sec 23 and Sec.24. For instance, a person dealing in exempt goods deals in Inter-state supplies or those who deal in goods/services subject to Reverse charge Mechanism.
There are varied views for the same topic and it has been a well litigated one.
In the AAR Ruling of Sonaka Publications (India) Pvt Ltd(AAR-Kol), it has been held that GST Registration would be compulsory if there is any RCM liability even if the supplier is engaged only in supply of exempt goods. The bench ruled that Sections 22,23 and 24 have to be read together and the combined reading of the same that registration was compulsory.
In the AAR Ruling of Jalraam Feeds (AAR-Maharashtra), again it was held that registration would be compulsory if RCM liability exists for an exempt supplier. By applying the principles of harmonious construction and rule of redundancy, it was held that registration shall be compulsory.
In the AAR Ruling of Medivision Scan and Diagnostic Research Centre Private Ltd. (GST AAR Kerala), again it was held that the even though the supplier may be in the field of Health care service which is totally exempt, registration would be liable if he is liable for Sec. 9(3) or 9(4).
In all the above 3 cases it has been held that registration has been made compulsory, despite the obvious fact that what has been over-ridden is the fact that the word used in the section 22(1) is “taxable supplies” . If there is no taxable supply, then there won’t be any need for applying Sec.24. Both become in-operative and Sec.23 will become operative. Unfortunately, in neither of the 3 cases the argument has been based on the wordings of Sec.22(1) with specific reference to “taxable supplies”, though all efforts were made to emphasise on Non-obstante clause being used. Hence, the logical view concludes that registration is not compulsory, even if Sec.24 conditions are applied provided Sec.23 conditions are satisfied. However, one exposes himself to litigation if such aggressive stand is taken.