Un-Registered Persons are bound to get registered under GST Laws even when their aggregate turnover is less then Rs. 20 Lakhs or Rs. 10 Lakhs in case of non special category states and special category states respectively due to the provisions of RCM.

Issue : Un-Registered Persons are bound to get registered under GST Laws even when their aggregate turnover is less then Rs. 20 Lakhs or Rs. 10 Lakhs in case of non special category states and special category states respectively due to the provisions of RCM.

♠ Provision under Section 22(1) of CGST Act relating to exemption from the registration under GST Laws:

“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.”

Θ Explanatory Note on the above provision:

The following persons are not liable to registration as per provision of GST Laws:

  • Any supplier if his aggregate turnover in a financial year does not exceed Rs. 20 lakh
  • Any supplier if his aggregate turnover in a financial year does not exceed Rs. 10 lakh from special Category States. Following is the list of aforesaid “Special Category States”
S. No. Special Category States S. No. Special Category States
1 Arunachal Pradesh 7 Nagaland
2 Assam 8 Sikkim
3 Jammu & Kashmir 9 Tripura
4 Manipur 10 Himachal Pradesh
5 Meghalaya 11 Uttarakhand
6 Mizoram

Θ Under Section 9(4) Levy and collection of Tax under RCM-

“The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.”

The above provisions direct to taxable person to pay the tax under RCM on the supplies received from un-registered person. The taxable persons are bound to comply the compliance on the said supplies and they refuse to take the supplies from them. In this scenario, it is very difficult to run the business by the un-registered person under the GST Laws.

Θ Conditions and restrictions for composition levy which are mentioned under Rule 5(c) of CGST Rules

“The goods held in stock by him have not been purchased from an un-registered supplier and where purchased, he pays the tax under sub-section (4) of section 9;”

Due to above provision, the person who has to obtain the registration under composition scheme of GST laws. He will not purchase the goods from the un-registered supplier.

Θ Under Section 12(3) is related to Time of supply of goods under RCM:

“In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earliest of the following dates, namely:—

the date of the receipt of goods; or

the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or

the date immediately following thirty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier:

Provided that where it is not possible to determine the time of supply under clause (a) or clause (b) or clause (c), the time of supply shall be the date of entry in the books of account of the recipient of supply.”

Θ Under Section 13(3) is related to Time of supply of Service under RCM:

“In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the following dates, namely:––

the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or

the date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier:

Provided that where it is not possible to determine the time of supply under clause (a) or clause (b), the time of supply shall be the date of entry in the books of account of the recipient of supply:

Provided further that in case of supply by associated enterprises, where the supplier of service is located outside India, the time of supply shall be the date of entry in the books of account of the recipient of supply or the date of payment, whichever is earlier.”

The both provisions mentioned under section 12(3) and 13(3) are related to time of supply of goods and services respectively. These provisions provide the clarity about the time of GST payable by the registered person under RCM and the said person would like to avoid these provisions resulting avoiding the business with un-registered persons.

Observation – In accordance with the above mentioned provision of GST Laws, there is no doubt about the elimination of business of un-registered person in India due to applicability of RCM against the purchase from un-registered person by registered person.

The registered person would refuse to do the business with the un-registered person and he would like to purchase from the registered persons only to avoid several compliance under GST Laws. RCM’s provisions of GST laws in relation to supply made by un-registered person are creating a nuisance for doing the business by the un-registered person in India.

As you have already given the exemption for registration under GST Laws for small businessmen, the threshold limit fixed under GST laws has no value in the eyes of registered person because they are totally trying to avoid the business with un-registered persons due to applicability of RCM.

Suggestion – In the light of the above discussion, GST laws are silent in relation to this particular transaction. It is cause of hardship in the business scenario to the small businessmen. Overall, the benefit of said threshold limit is not available to those persons who supply goods or service or both to the registered person. Hence, the matter should be reviewed by the GST Council.

The GST Council should understand this practical problem and make the necessary amendment in the GST Laws to motivate small businesses. In the current scenario, every person obtaining registration under GST Acts has to pay GST irrespective of his turnover whether below or above threshold exemption limit. The RCM’s provisions should not be applicable up to threshold limit of registration i.e. 20 lakhs or 10 lakhs for non special category or special category states respectively like the provision of earlier law (Service Tax) for registration for not charging service tax or paying the service tax under RCM except the services mentioned under RCM specially.

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