Understanding Section 22 of GST Act 2017: Registration Requirements

Introduction: Section 22 of the GST Act, 2017 outlines the registration requirements for suppliers. This article delves into the meaning, definition, and analysis of Section 22, covering thresholds, exemptions, and implications for businesses.

SECTION 22 OF GST ACT, 2017 : 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.

2. Every person who, on the day immediately preceding the appointed day, is registered or holds a licence under an existing law, shall be liable to be registered under this Act with effect from the appointed day.

3. Where a business carried on by a taxable person registered under this Act is transferred, whether on account of succession or otherwise, to another person as a going concern, the transferee or the successor, as the case may be, shall be liable to be registered with effect from the date of such transfer or succession.

4. Notwithstanding anything contained in sub-sections (1) and (3), in a case of transfer pursuant to sanction of a scheme or an arrangement for amalgamation or, as the case may be, demerger of two or more companies pursuant to an order of a High Court, Tribunal or otherwise, the transferee shall be liable to be registered, with effect from the date on which the Registrar of Companies issues a certificate of incorporation giving effect to such order of the High Court or Tribunal.

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.

ANALYSIS:

a) THRESHOLD LIMIT FOR REGISTRATION:

i) Every supplier of goods or services or both is required to obtain registration.

ii) In the State or the Union territory from where he makes the taxable supply.

iii) If his aggregate turnover exceeds specified threshold limit in a F.Y.

• Aggregate Turnover:

Turnover in common parlance is the total volume of business in monetary terms. The term ‘aggregate turnover’ as defined under section 2(6) has been presented in the diagrammatic form as follows:

Section 2(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 (RCM), 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.

• Analysis of Definition:

a) Aggregate turnover to exclude inward supplies on which tax is payable under reverse charge:

It may be noted that the inward supplies on which recipient is required to pay tax under Reverse Charge Mechanism (RCM) do not form part of the ‘aggregate turnover’.

The law stipulates certain supplies like, Goods Transport Agency services, legal services, sponsorship services, etc. where the recipient of service is required to pay the tax to the Government under RCM. The value of such supplies would not form part of the ‘aggregate turnover’ of recipient of such supplies.

Example: Renuka Private Ltd. pays GST on sitting fees paid to its directors for the services rendered by them, taxable under reverse charge. The value of services provided by the directors to Renuka Private Ltd. will form part of the aggregate turnover of the directors and not of Renuka Private Ltd. even though tax is to be paid by Renuka Private Ltd.

b) Aggregate turnover excludes the elements of tax i.e. CGST, SGST/ UTGST, IGST and compensation cess.

c) Aggregate turnover includes total turnover of all branches (i.e. all GST registrations) under same PAN. Aggregate turnover is calculated by taking together the value in respect of the activities carried out on all-India basis.

Example: A dealer ‘X’ has two offices – one in Delhi and another in Haryana. In order to determine the aggregate turnover of ‘X’, turnover of both the offices would be taken into account subject to provisions of section 24.

d) Value of exported goods/ services, exempted goods/services, inter-State supplies including inter-State supplies between distinct persons having same PAN, to be included in aggregate turnover.

Example: Bhakti Oils, Punjab, is engaged in supplying machine oil as well as petrol. Supply of petrol is not liveable to GST, but supply of machine oil is taxable. In order to determine the aggregate turnover of Bhakti Oils, turnover of both non-taxable as well as taxable supplies would be taken into account.

e) Aggregate turnover to include all supplies made by the taxable person, whether on his own account or made on behalf of all his principals. [Explanation (i) to Section 22].

Example: Ankush Enterprises has appointed M/s. Bestfords & Associates as its agent. M/s. Bestfords & Associates makes supply of goods on its own account as well as on behalf of Ankush Enterprises where invoices are issued in name of M/s Bestfords & Associates only.

All the supplies of goods made by M/s. Bestfords & Associates as agent of Ankush Enterprises as well as on its own account will be included in the aggregate turnover of M/s. Bestfords & Associates.

f) ‘Aggregate turnover’ Vs. ‘Turnover in a State’: The definition of ‘Turnover in a state’ is similar to the definition of ‘Aggregate turnover’ with a difference that the definition of ‘Turnover in a state’ considers the taxable, exempt and export supplies made from the relevant State. Aggregate turnover is used for determining the threshold limit for registration and the eligibility for the composition scheme. However, once a person is eligible for composition levy, GST payable under composition levy would be calculated as a specified percentage of ‘turnover in the State/UT’.

g) Value of goods, after completion of job work, supplied directly from the premises of the registered job worker not to be included in aggregate turnover of the job worker. [Explanation (ii) to Section 22].

• Job-work: Job-work implies undertaking any treatment or process by a person on goods belonging to another registered taxable person. The person who is treating or processing the goods belonging to other person is called ‘job worker’ and the person to whom the goods belong is called ‘principal’. Schedule II of the CGST Act stipulates that job work is a service.

The Principal can supply the goods directly from the premises of the job worker without bringing it back to his own premises.

In case the job worker is unregistered, principal should declare job worker’s premises as his additional place of business and remove goods from the same.

If the job worker is a registered person/ principal supplies notified goods, goods can be supplied directly from the premises of the job worker.

Supply of goods, after completion of job work, directly from a registered job worker’s premises is treated as supply of goods by the principal.

Further, the value of such goods supplied will be included in the aggregate turnover of the principal and not job worker.

• Applicable threshold limit:

1. The threshold limit prescribed under section 22(1) is Rs. 20 lakh in a F.Y. i.e. every supplier, whose aggregate turnover in a financial year exceeds Rs. 20 lakh, is liable to be registered under GST in the State/ Union territory from where he makes the taxable supply of goods and/or services.

2. However, the limit of Rs. 20 lakh will be reduced to Rs. 10 lakh if the person is carrying out business in Special Category States.

3. As per Article 279A(4)(g) of the Constitution, there are 11 Special Category States: States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.

4. However, as per the explanation (iii) to section 22, for the purposes of registration, only Mizoram, Tripura, Manipur and Nagaland are Special Category States. Therefore, the threshold limit of Rs. 10 lakh is applicable for Mizoram, Tripura, Manipur and Nagaland.

5. Government is empowered to enhance the threshold limit of Rs. 20 lakh up to Rs. 40 lakh for a supplier engaged exclusively in the supply of goods, at the request of a State and on the recommendations of the Council. This shall be subject to such conditions and limitations, as may be notified.

6. For the purposes of section 22(1), 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.

b) Notification No. 10/2019 CT DATED 07.03.2019:

The Notification Exempts certain person who is engaged exclusively in supply of goods and whose aggregate turnover in the financial year does not exceed Rs. 40 lakh, from the requirement to obtain a registration.

Exceptions to Exemptions:

a) Persons required to take compulsory registration under section 24.

b) Persons engaged in making supplies of:

i) Ice Cream and other edible ice, whether or not containing cocoa.

ii) Pan Masala.

iii) All goods of Chapter 24, i.e. Tobacco and manufactured tobacco substitutes.

iv) Fly Ash Bricks; fly ash aggregates; fly ash blocks.

v) Bricks of fossil meals or similar siliceous earths.

vi) Building bricks.

vii) Earthen or roofing tiles.

c) Persons engaged in making intra-State supplies in the States of Arunachal Pradesh, Uttarakhand, Meghalaya, Sikkim, Telangana, Puducherry and Special Category States as per section 22 [Nagaland, Mizoram, Manipur, Tripura]. Inter-State supplies of goods are nevertheless liable to compulsory registration under Section 24 and are already covered in exception (a) above.

d) Person who has opted for voluntary registration or such registered persons who intend to continue with their registration under the CGST Act.

SUMMERY:

Examples: Set A:

• Prem of Assam is exclusively engaged in intra-State supply of shoes. His aggregate turnover in the current financial year is Rs. 22 lakh. In view of the discussion in the above paras, the applicable threshold limit for registration for Prem in the given case is Rs. 40 lakh. Thus, he is not liable to get registered under GST.
• If in the above example, all other things remaining the same, Prem is exclusively engaged in the supply of Pan Masala instead of shoes, he will not be eligible for higher threshold limit of Rs. 40 lakh and the applicable threshold limit for registration in that given case will be Rs. 20 lakh. Thus, Prem will be liable to get registered under GST.
• If instead of pan masala, Prem is exclusively engaged in supply of taxable services, the applicable threshold limit for registration will still be Rs. 20 lakh. Thus, Prem will be liable to get registered under GST.
• If Prem is engaged in supply of both taxable goods and services, the applicable threshold limit for registration will still remain Rs. 20 lakh only. Thus, Prem will be liable to get registered under GST.

Examples: Set B:

• Komal of Telangana is exclusively engaged in Intra-State supply of toys. Its aggregate turnover in the current financial year is Rs. 22 lakh. Since Miss. Komal is making taxable supplies from Telangana, he will not be eligible for higher threshold limit available in case of exclusive supply of goods. The applicable threshold limit for registration for Miss. Komal in the given case is Rs. 20 lakh. Thus, he is liable to get registered under GST.
• If in the above example, all other things remaining the same, if Miss. Komal is exclusively engaged in supply of taxable services instead of toys or is engaged in the supply of both taxable goods and services, the applicable threshold limit for registration will still be Rs. 20 lakh. Thus, Shivaji will be liable to get registered under GST in such cases.

Examples: Set C:

• Rohit of Manipur is exclusively engaged in intra-State supply of paper. Its aggregate turnover in the current financial year is Rs. 12 lakh. Since Rohit is making taxable supplies from Manipur which is a Special Category State, the applicable threshold limit for registration for Rohit in the given case is Rs. 10 lakh. Thus, he is liable to get registered under GST.
• If in above example, all other things remaining the same, Rohit is exclusively engaged in supply of taxable services instead of paper, the applicable threshold limit for registration will still be Rs. 10 lakh. Thus, Rohit will be liable to get registered under GST.
• Further, if Rohit is engaged in supply of both taxable goods and services, the applicable threshold limit for registration in that given case will be Rs. 10 lakh only. Thus, Rohit will be liable to get registered under GST.

Examples: Set D:

• Renuka of Assam is exclusively engaged in Intra-State supply of readymade garments. Its turnover in the current F.Y. from Assam showroom is Rs. 28 lakh. It has another showroom in Tripura with a turnover of Rs. 11 lakh in the current F.Y. Since Renuka is engaged in supplying garments from a Special Category State as per section 22, the applicable threshold limit for him gets reduced to Rs. 10 lakh. Further, Renuka is liable to get registered under GST in both Assam and Tripura on his aggregate turnover crossing the threshold limit of Rs. 10 lakh.

c) REGISTRATION REQUIRED ONLY FOR A PLACE OF BUSINESS FROM WHERE TAXABLE SUPPLY TAKES PLACE:

1. A supplier is required to obtain registration with respect to each of his place of business in India from where he is making a taxable supply. However, a supplier shall not be liable to obtain registration in a State/UT from where he makes only exempt/non-taxable supply.

2. It is pertinent to note here that a supplier is required to obtain registration only in the States “from where taxable supply is made” and not in States “where taxable supply is made”. It may be noted that if goods and/or services are supplied in different States, GST registration is not required in each such States.

3. Further, registration is required to be obtained only in the State(s) where the supplier has a “fixed establishment”. This aspect is more relevant in respect of supply of services like repair & maintenance, transportation, security, erection & commissioning services and construction contracts etc. where the supplier might be required to travel to a different State temporarily in order to provide the services.

4. Thus, if a person has only liaison office or marketing office in a State and if there is no taxable supply from that State, he is not required to obtain registration in that State, even if he is registered in other State/s. Thus, in respect of that State where the liaison office or marketing office is located, but registration is not obtained, he will be treated as ‘unregistered’.

Example: Mr. Raghav having registered office in Delhi, imports goods which are landed in Mumbai sea port. Mr. Raghav enters into a sales agreement with Mr. Gopal located in Mumbai to directly sell the goods from Mumbai port. In this case, Mr. Raghav is not required to obtain registration in Mumbai as he does not have any fixed establishment in Mumbai.

5. Further, the threshold limit of a person having places of business in more than one State/UT in India gets reduced to Rs. 10 lakh only when such person makes taxable supplies of goods or services or both from any of the Special Category States specified under section 22. It is pertinent to note that, in case where a person makes exempt/non-taxable supply from a Special Category State and taxable supplies from a State other than Special Category State, the threshold limit shall not be so reduced.

Examples:

Uday Enterprises is engaged in supply of taxable goods in Maharashtra. It also supplies alcoholic liquor for human consumption from Nagaland. Its turnover in the current financial year is Rs. 34 lakh in Maharashtra and Rs. 8 lakh in Nagaland.

Since Uday Enterprises is exclusively engaged in making taxable supplies of goods from Maharashtra, the applicable threshold limit for obtaining registration is Rs. 40 lakh. Further, the threshold limit will not be reduced to Rs. 10 lakh in this case, as supply of alcoholic liquor for human consumption from Nagaland (one of the Special Category States) are non-taxable supplies.

In the given case, since the aggregate turnover of Uday Enterprises exceeds the applicable threshold limit of Rs. 40 lakh, it is liable to obtain registration. It will obtain registration in Maharashtra, but is not required to obtain registration in Nagaland as he is not making any taxable supplies from Nagaland.

d) PERSON LIABLE FOR REGISTRATION IN CASE OF TRANSFER OF BUSINESS:

Where a business is transferred, whether on account of succession or any other reason [including transfer/change in the ownership of business due to death of the sole proprietor], to another person as a going concern, the transferee/ successor, is to be registered with effect from the date of such transfer/succession.

Where the business is transferred, pursuant to sanction of a scheme/ arrangement for amalgamation/ de-merger of two or more companies, pursuant to an order of a High Court/Tribunal, the transferee is to be registered with effect from the date on which the Registrar of Companies issues a certificate of incorporation giving effect to such order.

Conclusion: Section 22 of the GST Act, 2017 establishes crucial guidelines for supplier registration. Understanding aggregate turnover, threshold limits, and exemptions is vital for businesses to comply with GST regulations. This comprehensive analysis provides clarity on the intricacies of registration under this section.