Section 23 Vs Section 24 of CGST Act, 2017: Which Is Supreme?

i. It has been more than 7 years since the GST was implemented in India still there are various grey areas which exists. One such issue pertains to the conflict between Section 23 and Section 24 of the CGST Act. Before understanding the gravity of this issue in detail and analyzing the same let us first try to find out solutions to the below case studies:-

a) A charitable trust which is registered under Section 12AA/12AB of the Income Tax Act, 1961 is engaged in rendering services which are exempted from GST liability by virtue of exemption notification No. – 12/2017 – CTR dated 28.06.2017. During the financial year 2024-2025 it has received consideration of Rs. 2 crores against the services rendered by it. The trust has not taken GST registration so far in light of exemption granted by Section 23(1) of the CGST Act, 2017. Some party has sued the trust before the judicial court in case of a land dispute and the Trust has engaged a Ld. Advocate to represent it before the Hon’ble Court. The Advocate has charged professional fees of Rs. 5 lakhs from the Trust against the representation services before the Court. Determine whether the Trust is required to seek GST registration.

b) A firm of Advocates rendering advisory & representation services has yearly receipts of Rs. 3 Crores. The firm has not availed GST registration since the services rendered by it are covered under RCM and the firm is availing benefit of notification issued under Section 23(2) which grants immunity to the firm from GST registration. The firm has availed a research software service from a Singapore based company has remitted the payment to the software company is USD. Determine whether the firm is required to seek GST registration.

c) A School imparting education to students having yearly turnover of Rs. 15 Crores has not taken GST registration in line with Section 23 of the CGST Act. The said school is affiliated to a foreign board and is remitting various kind of fees & charges like affiliation fees, examination fees, training fees, etc. in foreign currency to the foreign board. Determine whether the firm is required to seek GST registration.

To figure out the solutions to the above cases, the fundamental question that is required to be answered is whether Section 24 would prevail over Section 23 and the person getting exclusion from GST registration by virtue of Section 23 can be covered under Compulsory registration under Section 24.

ii. Section 23 provides specific exemptions for persons who are not required to seek GST registration. This includes, but is not limited to, agriculturist, persons supplying exempt goods or services or certain other specified categories of persons. Section 24 that mandates compulsory registration in certain cases starts with a non-obstante clause overriding sub-section (1) of Section 22 of the CGST Act. The said section does not specifically override the provisions of Section 23 and thus there exists a conflict between these two sections in cases where a person covered under Section 23 becomes liable for registration under Section 24.

iii. This matter about the conflict between the provisions of Section 23 vs. Section 24 was taken up in the agenda of 48^th GST Council Meeting held on 17^th December 2022 under Agenda Item 7(viii): Amendments which stated as under:

“B. Amendment to Section 23 to provide overriding effect over Sections 22(1) & 24

4. Section 22 of the CGST Act, 2017 provides for persons liable for registration and Section 24 provides for compulsory registration in certain cases. On the other hand, Section 23 provides for persons not liable for registration and exemption of specified categories of persons from obtaining registration.

5. However, existing Section 23 does not have any clause overriding the registration requirement imposed vide Section 24 and Section 2(1). Therefore, a doubt arises whether provisions of compulsory registration under Section 24 prevail over the exemption under Section 23.

6. Accordingly, the Law Committee in its meeting held on 05.11.2022 recommended that to avoid any conflict within the said provisions and to provide more clarity, Section 23 may be amended retrospectively w.e.f. 01.07.2017 as under:

Section 23. Persons not liable for registration.-

(1) Notwithstanding anything to the contrary contained in sub-section (1) of Section 22 or Section 24, the 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, notwithstanding anything to the contrary contained in sub-section (1) of Section 22 or Section 24, but subject to such conditions and restrictions as may be specified in the notification, may be exempted from obtaining registration under this Act.”

Further, the minutes of the 48^th GST Council Meeting stated as under:

“B. Amendment to Section 23 to provide overriding effect over Sections 22(1) & 24

8.8.2 Section 22 of CGST Act, 2017 provides for persons liable for registration and Section 24 provides for compulsory registration in certain cases. On the other hand, Section 23 provides for persons not liable for registration and exemption of specified categories of persons from obtaining registration. However, existing Section 23 does not have any clause overriding the registration requirement imposed vide Section 24 and Section 22(1). Therefore, it was discussed that doubts had arisen as to whether provisions of compulsory registration under Section 24 prevail over the exemption under Section 23.

8.8.3 Accordingly, the Law Committee deliberated on this issue and recommended that to avoid any conflict within the said provisions and to provide more clarity, Section 23 may be amended retrospectively w.e.f. 01.07.2017 as detailed in agenda.

The Council agreed with the recommendation of the Law Committee.”

 Therefore, the GST Council in its 48^th meeting had reached to the decision that Section 23 would be amended in a manner so as to override the provisions of Section 24 in cases where there would be conflict between these two sections of the Act.

iv. In furtherance of GST Council’s decision taken in 48^th meeting and to bring the required amendments in Section 23 of CGST Act, corresponding changes were proposed by the Finance Bill 2023. Clause 131 of the Finance Bill 2023 proposed the following amendment in CGST Act:

 “23. Notwithstanding anything to the contrary contained in sub-section (1) of section 22 or section 24,––

(a) the following persons shall not be liable to registration, namely:––

(i) 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, 2017;

(ii) an agriculturist, to the extent of supply of produce out of cultivation of land;

(b) the Government may, on the recommendations of the Council, by notification, subject to such conditions and restrictions as may be specified therein, specify the category of persons who may be exempted from obtaining registration under this Act.”.

v. In the Goods & Services Tax section (At Page 85) of Memorandum explaining the provisions in the Finance Bill, 2023, Entry No. 4 of the table in Part I states as under:

 “Sub-section (1) and sub-section (2) of section 23 of the CGST Act are being amended, with retrospective effect from 01st July, 2017, so as to provide that persons for compulsory registration in terms of sub section (1) of section and section 22 of the Act need not register if exempt under sub section (1) of section 23.”

vi. While the above amendments were proposed by Finance Bill 2023, but before the said proposals could be enacted by Finance Act, the said proposals were again taken up for discussion in 49^th Meeting of GST Council held on 18^th February 2023. The agenda of the 49^th GST Council Meeting stated as under:

“Agenda Item 4(i): Amendment in Section 23 of the CGST Act, 2017

In the 47th meeting of GST Council, the Council gave in-principal approval for allowing intra-state supply of goods by unregistered persons and composition taxpayers through e-commerce operators (ECOs), subject to certain conditions and restrictions, and mandated the Law Committee to draft the requisite changes for implementation of the said scheme. Subsequently, this issue was deliberated by the GST Council in its 48th meeting, wherein the recommendations of the Law Committee for implementation of the scheme were deliberated vide Agenda item number 7(vii) of Vol.-I of the Agenda for the said meeting. It was also felt that there is a need to overcome the requirement of compulsory registration in respect of such persons, which is mandated by clause (ix) of Section 24 of CGST Act, for any person making supplies through ECOs who are required to collect tax at source under section 52 of CGST Act. It was, accordingly, proposed that a notification under section 23(2) of CGST Act will be required to be issued for conditional exemption from registration in respect of such persons making intra-State supply of goods through ECOs, with turnover within the threshold limit specified under section 22 of CGST Act.

2. It was observed that there is no non-obstante clause in section 23 of CGST Act and therefore some doubts/ ambiguities may emerge as to whether exemption granted by section 23 overrides the requirement of mandatory registration under section 24 of CGST Act. The recommendation of the Law Committee to make amendment in section 23 retrospectively to provide overriding effect to the same over sub-section (1) of section 22 and section 24 of CGST Act was put up for the approval of the Council vide Agenda item number 7(viii) of Vol.-I of the Agenda for the 48th meeting of the Council.

3. The aforesaid agenda was approved by the Council in its 48th meeting and, consequently, amendment in section 23 of CGST Act has been proposed vide the clause 131 of the Finance Bill, 2023.The said clause reads as under:-

‘131. For section 23 of the Central Goods and Services Tax Act, the following section shall be substituted and shall be deemed to have been substituted with effect from the 1st day of July, 2017, namely:––

“23. Persons not liable for registration. Notwithstanding anything to the contrary contained in sub-section (1) of section 22 or section 24,––

(a) the following persons shall not be liable to registration, namely:––

(i) 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, 2017;

(ii) an agriculturist, to the extent of supply of produce out of cultivation of land;

(b) the Government may, on the recommendations of the Council, by notification, subject to such conditions and restrictions as may be specified therein, specify the category of persons who may be exempted from obtaining registration under this Act.”.’

 4. However, subsequent to presentation of Finance Bill, 2023, in post-Budget interactions with various stakeholders, doubt shave been expressed regarding the impact of this amendment on taxpayers who are liable to pay tax on reverse charge basis. It is to be noted that clause (iii) of Section 24 of the Act mandates compulsory registration of persons required to pay tax under reverse charge irrespective of their turnover. The said provision reads as under:-

“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) ……..

(ii) ……..

(iii) persons who are required to pay tax under reverse charge;

……”

4.1 It has been pointed out that after the amendment in section 23 of CGST Act proposed vide clause 131 of the Finance Bill, 2023 referred in para 3 above, a person dealing exclusively in exempt goods and/or services is no longer required to obtain registration under the Act even if he is liable to pay tax under reverse charge on some supply of goods or services received by him. It may be noted that this was never the intention behind proposing the amendments in Section 23. As stated in Para 1 and 2 above, the reason why the aforesaid amendment was proposed is to overcome the requirement of mandatory registration in respect of such small suppliers, with turnover less than the threshold, making intra-State supply of goods through ECOs.

5. The issue was deliberated by the Law Committee in its meeting held on 08.02.2023. The Law Committee recommended that in order to avoid the interpretation issues arising out of the said proposed amendment in section 23 of CGST Act as highlighted in Para 4.1 above, the proposed amendment in Section 23 be limited to giving over-riding effect to sub-section (2) of section 23 over sub-section (1) of section 22 and section 24 of CGST Act. Law Committee observed that the over-riding effect of sub-section (2) of section 23 over sub-section (1) of section 22 and section 24 of CGST Act is required to ensure that a person specifically exempted from registration vide a notification issued under sub-section (2) of section 23 of CGST Act, subject to the conditions specified in the said notification, may not be subjected to the requirement of the provisions of sub-section (1) of section 22 and section 24 of CGST Act for taking registration, as the same may in effect nullify the effect of the said notification.

6. The Law Committee, accordingly, recommended that the following further amendment may be made in the proposed amendment in section 23 of CGST Act vide clause 131 of Finance Bill, 2023:-

‘131. In section 23 of the Central Goods and Services Tax Act, sub-section (2) thereof shall be amended and shall be deemed to have been amended with effect from the 1st day of July, 2017, namely:––

“23. Persons not liable for registration. Notwithstanding anything to the contrary contained in sub-section (1) of section 22 or section 24,––

(1)(a)Tthe following persons shall not be liable to registration, namely:–

(i) 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, 2017;

(ii) an agriculturist, to the extent of supply of produce out of cultivation of land;

 (2)(b) Notwithstanding anything to the contrary contained in sub-section (1) of section 22 and section 24, the Government may, on the recommendations of the Council, by notification, subject to such conditions and restrictions as may be specified therein, specify the category of persons who may be exempted from obtaining registration under this Act.”.’

7. The agenda is placed before the Council for approval.”

vii. Further the minutes of the 49^th GST Council Meeting held on 18^th February 2024 stated as under:

“Agenda Item 4(1): Amendment in Section 23 of the CGST Act, 2017

5.1 The Principal Commissioner, GST Policy Wing gave a presentation (Annexure-4). He stated that Agenda item 4(i) is regarding amendment in the Section 23 of CGST Act. In the 48% GST Council meeting, it was recommended to give overriding effect to Section 23 of CGST Act over Section 24 and sub-section (1) of Section 22 of the CGST Act retrospectively with effect from 01.07.2017 so as to provide exemption from mandatory registration for small traders for intra-state supply of goods through e-commerce operators. However, the said amendment has created an anomaly that persons, who are required to pay duty under reverse charge mechanism on their inward supplies, would not be to get registered if they are otherwise not making any taxable supply themselves, which was not the intention behind the said amendment. To correct this anomaly, the Law Committee has recommended after detailed discussions that the Section 23 of CGST Act be amended retrospectively with effect from 01.07.2017 to give overriding effect only to sub-section (2) of Section 23 (and not to sub-section (1) of section 23) over Section 24 and sub-section (1) of Section 22 of CGST Act This was agreed to in the officer’s meeting held on 17.02.2023 also.

The Council agreed with the said recommendation of the Law Committee.”

Thus, the amendments proposed in Section 23 by the Finance Bill 2023 were reconsidered & revised so as to amend only Sub-section (2) of Section 23 to make the said subsection (2) override the provisions of Section 22(1) & Section 24. Therefore, the Finance Act 2023 passed by Parliament on 27^th March 2023 did not amend Sub-section (1) of Section 23 and the position of the said sub-section stands the same as it was originally before the amendments were proposed.

viii. That from the agenda of the GST Council meeting and the corresponding minutes, it can be inferred that the stand adopted by the Council on the issue of conflict between Section 23 and 24 has changed from the take it had during 48^th GST Council meeting and the decision it took in the 49^th GST council meeting. Further the supremacy of Section 24 over Section 23(1) is still not validated because the non obstante clause of Section 24 still does not override Section 23(1) and thus the conflict between the two sections remains unchanged.

ix. Now while determining whether Section 24 would prevail over Section 23(1), due consideration should be given to the legal maxim lex specialis derogat legi generali meaning the specific law prevails over the general law. This principle is founded on the premise that when the legislature has enacted a law addressing a particular issue with clarity and specificity, it is presumed to have intended for that provision to override any general provisions that might otherwise apply. Section 23(1) deals with particular circumstances, addressing a defined and specific legal framework that is intended to address a particular issue. It is thus considered a “specific” provision, tailor-made to regulate specific situations within its scope. On the other hand, Section 24 is drafted in a more general context. It operates broadly and does not address the particularities that Section 23(1) directly governs. It is a “general” provision that may not supersede the specific provisions of Section 23(1) in cases where the latter provides a more direct and specific solution to a legal issue.

x. Even if it is presumed that the intent of the lawmaker is to establish supremacy of Section 24 over Section 23(1) by considering the agenda approved by GST Council in its 49^th meeting, then also the said interpretation should be considered prospectively and not retrospectively. The Hon’ble Apex Court in the case of CIT .v. Vatika Township Pvt. Limited [2014] 367 ITR 466 (SC) laid down general principles concerning retrospectivity as under:-

“31. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow’s backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips vs. Eyre[3], a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.

32. The obvious basis of the principle against retrospectivity is the principle of ‘fairness’, which must be the basis of every legal rule as was observed in the decision reported in L’Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co.Ltd[4]. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later.

33. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India & Ors. v. Indian Tobacco Association[5], the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra & Ors.[6] It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are confronted with any such situation here.

34. In such cases, retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectively. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors.”

Conclusion:

Although, the said conflict between Section 23 & Section 24 can be best solved by bringing appropriate amendment in the law by the lawmakers to establish the supremacy of anyone section over the other or when the said matter is decided by any court or judicial body, here, in light of the aforesaid discussion following may be considered that:-

a) Section 23(2) will have an overriding effect on Section 22(1) & Section 24 w.e.f. 01-07-2017 and thus those persons who are getting covered by any notification issued under Section 23(2) will not be required to seek registration even if they’re getting covered under Section 24.

b) Section 23(1), being a specific provision addressing particular circumstances, may prevail over the general framework of Section 24, in accordance with the legal maxim lex specialis derogat legi generali.

c) Even if Section 24 is presumed to have supremacy over Section 23(1) based on subsequent legislative developments, such an interpretation must apply prospectively, not retrospectively, adhering to the principles laid down by the Hon’ble Apex Court in CIT v. Vatika Township Pvt. Ltd.