Sales Tax, VAT, Goods and Services Tax, etc. are indirect taxes. Under such tax laws, businessmen are allowed to collect from customers, the amount of tax payable by them to the Government. Even then such taxes (Sales Tax, VAT or Goods and Services Tax) cast burden on the businessmen due to compliance cost and administrative feasibility. For small businesses, such cost may be significant in view of their earnings, and may also bring adverse effect on their businesses and earnings.
Unemployment is a big problem in our country. Persons, who do not have any other means for their livelihood, start small business in order to earn their bread and butter. Motive of such persons is not of running or establishing big businesses.
Housewives of several families facing financial constraints, help in running their houses by selling small items through e-commerce operators. Some unemployed youth also make sales of petty items in a similar manner. The turnover of such people remains very small.
Many small businessmen sell goods, from time to time, by stalling in markets or fairs held in their home state or outside their home state, in other states.
Even today people of some nomadic races live in different places by putting their tents and earn their livelihood by selling small items. Some other people, like, illusionists, magicians, feat organizers, also earn their livelihood in the same way. Such persons may or may not have their permanent establishment in any State.
In the interest of revenue, it may not be safe to give authority of collecting tax to persons who run small businesses and live hand to mouth. They may use collected tax money for satisfying their own urgent needs.
For these reasons, in most of the countries of the world, VAT, Sales Tax, or Goods and Services Tax laws provide threshold limit of turnover below which small businesses enjoy exemption from compliance of such taxes.
In India, Goods and Services Tax Laws are made on the recommendations of Goods and Services Tax Council. Clause (4) of Article 279A of the Constitution requires the Goods and Services Tax Council to make its recommendations to the Union and the States on various goods and services tax (GST) related matters listed in sub-clauses (a) to (g) of said clause (4) and such other goods and services tax matters as the Council may decide. Said clause (4) of Article 279A of the Constitution runs as follows:–
“(4) The Goods and Services Tax Council shall make recommendations to the Union and the States on—
(a) the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax;
(b) the goods and services that may be subjected to, or exempted from the goods and services tax;
(c) model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-State trade or commerce under article 269A and the principles that govern the place of supply;
(d) the threshold limit of turnover below which goods and services may be exempted from goods and services tax;
(e) the rates including floor rates with bands of goods and services tax ;
(f) any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster ;
(g) special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and
(h) any other matter relating to the goods and services tax, as the Council may decide.”
Sub-clause (d) of above quoted clause (4) of Article 279A of the Constitution mandates Goods and Services Tax Council to make its recommendation to the Union and the States on ‘the threshold limit of turnover below which goods and services may be exempted from goods and services tax.
Issue of the threshold limit of turnover, below which goods and services may be exempted from goods and services tax, was discussed by the Goods and Services Tax Council in its very first meeting held on September 22-23, 2016. After detailed discussion, it was agreed that threshold exemption for the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand shall be 10 lakh rupees, and for other States, it shall be 20 lakh rupees. In absence of any objection from the Union and the States, the said decision of the Goods and Services Tax Council was approved by it in its second meeting held on September 30, 2016.
Sub-clause (c) of clause (4) of Article 279A of the Constitution mandates that the Goods and Services Tax Council shall make recommendation to the Union and the States on ‘model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-State trade or commerce under article 269A and the principles that govern the place of supply’. In view of this, the Goods and Services Tax Council was expected to incorporate its decision of the threshold limit of turnover, below which goods and services were to remain exempt from goods and services tax, in the model Goods and Services Tax Laws recommended by it under sub-clause (c) of clause (4) of Article 279A of the Constitution.
Drafts of model Central/ State Goods and Services Tax Laws, and the Integrated Goods and Services Tax Law were put in public domain in November, 2016. Reading of these drafts of Model GST Laws reveal that no provision was proposed / included in those Model GST Laws for allowing exemption to goods and services from goods and services tax where turnover of a person would have been below the threshold limit of turnover (20 lakh rupees, or 10 lakh rupees) as decided by the Goods and Services Tax Council under clause (4) (d) of Article 279A of the Constitution. Also reading of the Goods and Services Tax Laws, made by the Parliament for the Union, and Goods and Services Tax Law, made by the Legislature of each State for its State, reveal that no provision has been made to allow exemption to goods and services from goods and services tax where turnover of a business is below the threshold limit of turnover as decided by the Goods and Services Tax Council.
Clause (12A) of Article 366 of the Constitution defines expression ‘goods and services tax’ to mean any tax on supply of goods, or services, or both, except taxes on supply of alcoholic liquor for human consumption. Article 246A of the Constitution, which gives powers to Parliament and the Legislatures of the States to make laws with respect to goods and services tax, is, in respect of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel, to come into force from the date as may be recommended by the Goods and Services Tax Council under clause (5) of Article 279A of the Constitution. Therefore, ▬
(i) expression “goods and services” used in sub-clause (d) of clause (4) of Article 279A of the Constitution refers to any goods and services, except alcoholic liquor for human consumption, petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel;
(ii) expression “goods and services tax” used in clause (4)(d) of Article 279A of the Constitution refers to any tax on supply of goods, or services, or both, except on supply of alcoholic liquor for human consumption, petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.
The Parliament has, with respect to goods and services tax, enacted following goods and services tax (GST) laws, namely:-
1. The Central Goods and Services Tax Act, 2017. The said law provides levy and collection central goods and services tax on intra-State supply of goods, or services, or both, where expression “inter-State supply” has the meanings assigned to it in section 8 of the Integrated Goods and Services Tax Act, 2017;
2. The Integrated Goods and Services Tax Act, 2017. The said law provides levy and collection integrated goods and services tax on inter-State supply of goods, or services, or both, where expression “inter-State supply” has the meanings assigned to it in section 7 of the Integrated Goods and Services Tax Act, 2017;
3. The Union Territory Goods and Services Tax Act, 2017. The said law provides levy and collection union territory goods and services tax on intra-State supply of goods, or services, or both where such supply of goods or services, or both takes place inside a Union Territory as defined in section 8 of the Integrated Goods and Services Tax Act, 2017;
4. The Goods and Services Tax (Compensation to States) Act, 2017. The said law provides levy and collection of cess on such intra-State supplies of goods, or services, or both, and inter-State supplies of goods, or services, or both as may be specified on the recommendation of the Goods and Services Tax Council, where─
(i) expression “inter-State supply” has the meanings assigned to it in section 7 of the Integrated Goods and Services Tax Act, 2017;
(ii) expression “intra-State supply” has the meanings assigned to it in section 8 of the Integrated Goods and Services Tax Act, 2017; and
(iii) word “cess” refers to the goods and services tax compensation cess levied under section 8 of the Goods and Services Tax (Compensation to States) Act, 2017.
The Legislature of each State has, with respect to goods and services tax, made State (name of the State) Goods and Services Tax Act, 2017. The said law provides levy and collection of tax on intra-State supply of goods, or services, or both, where expression “Intra-State supply”, has meanings assigned to it in section 8 of the Integrated Goods and Services Tax Act, 2017.
All goods and services tax laws made by the Parliament, and the Legislatures of the States, although provide levy of tax in different names on supply (s) of goods, or of services, or both (whether of the same nature, or of different nature), yet tax levied under all those laws, is a tax levied on the event of supply of goods, or of services, or both. Therefore, in view of the definition of expression “goods and services tax” provided in clause (12A) of Article 366 of the Constitution, taxes levied under various Goods and Services Tax Laws are covered under the expression “goods and services tax”. Expression “supply of goods, or services, or both”, used in the definition of expression “goods and services tax”, is a general expression and may refer to any or all kinds of supply(s) of goods, or services, or both.
In clause (4) (d) of Article 279A of the Constitution words “turnover”, and “threshold” have been used in the expression “threshold limit of turnover” have. . In the business of supply of goods, or services, or both, turnover is understood as aggregate value of all supplies of goods, or services, or both made by a supplier in any specified period. Clause (6) of section 2 of the Central Goods and Services Tax Act, 2017, an Act made by the Parliament on recommendation of the Goods and Services Tax Council, defines the expression “aggregate turnover” as follows:-
“(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), 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;”
So far as it relates to word “threshold”, the said word has been defined neither in any provision of the Constitution, nor in any Goods and Services Tax Law. Dictionary meaning of word ‘threshold’ is ‘a strip of wood or stone forming the bottom of a doorway and crossed in entering a house or room’. In various dictionaries, definitions of word ‘threshold have been provided as follows:–
(a) Oxford Dictionary: The magnitude or intensity that must be exceeded for a certain reaction, phenomenon, result, or condition to occur or be manifested’.
(b).Cambridge Dictionary: The level or point at which you start to experience something, or at which something starts to happen;
(c) Merriam Webster: A level, point, or value above which something is true or will take place and below which it is not or will not;
(d) Collins Dictionary: A threshold is an amount, level, or limit on a scale. When the threshold is reached, something else happens or changes.
For the purpose of clause “the threshold limit of turnover below which goods and services may be exempted from goods and services tax”, expression “threshold limit of turnover” may, in view of these meanings and definitions of word ‘threshold’, be understood as a point on the vertical scale of turnover below which goods and services tax (GST) does not apply to any goods or services. We can say that below the threshold limit of turnover, goods and services are not liable to goods services tax. Once the turnover of a business reaches this point, change occurs and goods and services become liable to goods and services tax. At this point person, carrying on business of supply of goods or services, enters into the domain of goods and services tax.
Suppose, GST Law provides threshold limit of turnover of 50 lakh rupees to be computed on financial year basis. Suppose that aggregate turnover of a person, who has commenced business with effect from April 01, 2021, for financial year 2021-2022, remains 15 lakh rupees, and during financial year 2022-2023, value of his aggregate turnover computed from beginning of the said financial year, at 11.00 AM of September 25, 2022 becomes equal to threshold limit of turnover, i.e. 50 lakh rupees. In this case, during the financial year 2021-2022, turnover of the person will remain below the threshold limit of turnover and therefore, during whole of the financial year 2021-2022, all goods and services shall be treated exempt from goods and services tax (GST). During the financial year 2022-2023, at 11.00 AM of September 25, 2022, turnover of the person becomes 50 Lakh rupees. Rupees 50 lakh is threshold limit of turnover. Therefore, change will occur at this point of time, and goods and services will no longer remain exempt from goods and services tax. For any subsequent period of time, benefit of threshold limit of turnover shall not apply.
Generally, threshold limit of turnover is provided for a period of─
(a) one calendar year; or
(b) 12 consecutive calendar months; or
(c) a financial year.
Such a decision takes into account occasional variations in turnover on account of seasonal trades, fairs, festivities and / or other events.
In my personal opinion, clause (4) (d) of Article 279A of the Constitution requires a provision, in all Goods and Services Tax Laws which should─
(i) override the tax levy provision (charging section) of the Goods and Services Tax Law; and
(ii) declare all goods and services exempt from, or not liable to, goods and services tax, for the period during which aggregate turnover of a person remains below threshold limit of turnover. Such provision may be of the following nature:-
*Notwithstanding anything contained contrary to in any other provision of this Act, ─
(a) for any financial year, prior to the first financial year in which aggregate turnover of a person exceeds the threshold limit of turnover; and
(b) in relation to first financial year in which aggregate turnover of a person exceeds the threshold limit of turnover, for such part period of the financial year during which aggregate turnover of a person remains below the threshold limit of turnover,
all goods and services shall be deemed to be exempt from, or not liable to, goods and services tax.
Explanation. – For the purpose of this section, ▬
1. threshold limit of turnover shall be, ─
(a) ten lakh rupees for a person who carries on business of supply of goods, or services, or both from any place located in the State of —; and
(b) twenty lakh rupees for a person who carries on business of supply of goods or services or both from any place outside the States, referred to in clause (a) above.
2. Values of threshold limit of turnover and aggregate turnover shall be computed on all India basis, and shall include values of all supplies of goods, or services, or both made by all persons having the same Permanent Account Number issued under the Income Tax Act, 1961.
The Central Goods and Services Tax Act, 2017 (an Act made by Parliament) provides that tax shall be levied on intra-State supply of goods, or services, or both and tax shall be paid by, or collected from, taxable person. Taxable person has been defined to mean a person who either is registered, or is liable to be registered under section 22, or section 24 of the said Act. Provision is also applicable to other GST Laws made by the Parliament for the Union. Legislature of each State has also similar provision.
Section 22 and section 24 of the State Goods and Services Tax Laws, and section 22 and section 24 of the Central Goods and Services Tax Act, 2017 relate to persons who shall be liable for obtaining registration, and consequently, liable for payment of goods and services tax. They do not provide exemption to goods and services from goods and services tax. Persons referred to in clauses (i) to (xi) of section 24, and such other persons, who are notified, under clause (xii) of the section 24 of the said Acts, on recommendation of the Goods and Services Tax Council, have, irrespective of their turnovers, been made liable for obtaining Registration, and consequently liable for payment of tax. Section 24 of the Central Goods and Services Tax Act, 2017, and the State Goods and Services Tax Laws, also includes persons whose turnover is below the threshold limit of turnover.
My personal opinion is that clause (4(d) of Article 279A of the Constitution has been made to provide exemption from goods and services tax, to small businesses whose turnover remains below the threshold limit of turnover. I am also of the view that said clause (4) (d) of Article 279A is about exemption of goods and services from goods and services tax. The said provision is not meant to provide exemption to any specified goods, or services. The provision is also not meant to provide exemption from tax on any specific supply of goods, or services, or both.
Powers of the Goods and Services Tax Council, provided in Article 279A of the Constitution, are subject to provision of clause (6) of said Article 279A of the Constitution. The said clause (6) runs as follows:–
“(6) While discharging the functions conferred by this article, the Goods and Services Tax Council shall be guided by the need for a harmonised structure of goods and services tax and for the development of a harmonised national market for goods and services.”
Clause (4) (h) of Article 279A of the Constitution also gives powers to the Goods and Services Tax Council to make its recommendations to the Union and the States on any other matter related to goods and services tax, as it may decide. In my opinion, this power can be used in respect of a matter which different from the matters listed in sub-clauses (a) to (g) of clause (4) of Article 279A of the Constitution.
*****
Disclaimer: Except the quoted versions, interpretations made and all other views expressed here are my personal views and are meant only for academic discussion. Readers are advised to follow the provisions of the law and to seek opinion of their legal advisors before acting upon the views expressed here. I and the publishers of this article disown any liability on account of any loss or damage that may be caused on account of use of views expressed here.
Author Bio
