One of the several doubts in the arena of GST compliance is whether a person who is solely engaged in exempt supplies will be required to obtain GST registration if it receives any supply of goods or services or both which is subject to payment under reverse charge mechanism i.e. cases where the recipient of supply is liable to pay tax on supplies notified under Section 9(3) / 9(4) of the CGST / SGST Act)(s).
Above doubt arises due to interplay of Section 22(1) , 23 and 24(iii) of the CGST Act,2017. Lets discuss what each of above three Sections mandate and solution to the issue.
Person required to obtain Registration if its aggregate turnover exceeds prescribed limit (Section 22):
As per Section 22(1) of the CGST Act, 2017, if aggregate turnover of a supplier in a financial year exceeds Rs 40 lakh / Rs 20 lakh / Rs 10 lakh as may be applicable, such a supplier is liable to take registration in the State / Union territory from where he makes a taxable supply of goods or services or both.
The expression “Aggregate Turnover” has been defined under Section 2(6) of the CGST Act,2017 as under:
“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;
The provisions of Section 22(1) are in a way contradicting the definition of the aggregate turnover in view of fact that it mandates that a supplier is liable to take registration from where he makes taxable supply of goods or service or both , thus the thrust is on taxable supplies. On the other the threshold limit of exemption in said Section is linked to the ‘aggregate turnover’ whose definition as stated above includes exempt supplies.
Read Article: Concept of Aggregate turnover and its impact on GST Registration: Detailed Analysis
Person solely engaged in exempt supplies not required to obtain Registration (Section 23(1)):
Section 23(1) of the CGST Act, 2017 provides relief to the persons exclusively engaged in exempt supplies. The said section is reproduced below for ready reference:
23. (1) 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.
In view of clause (a) of Section 23(1) of the CGST Act,2017, the persons exclusively engaged in exempt supplies of goods or services or both are not required to obtain GST registration even if its aggregate turnover exceeds the limit prescribed under Section 22(1).
Persons receiving supplies subject to reverse charge, mandatorily required to obtain registration (Section 24(iii))
Section 24 of the CGST Act, 2017 provides for certain cases where compulsory registration is required. Such cases include the case where the persons are required to pay tax under reverse charge.
For ready reference of our readers the relevant extract of Section 24 is reproduced below:
24. Notwithstanding anything contained in sub-section (1) of section 22, the following categories of persons shall be required to be registered under this Act,––
(iii) persons who are required to pay tax under reverse charge;
From above Section, two important legal points emerges as under:
- Section 24 overrides Section 22, which means that the persons specified in Sec 24 are required to obtain registration, irrespective of their aggregate turnover.
- Persons who are required to pay tax under reverse charge are required to be obtain GST registration as per Sec 24(iii).
The Notification in respect of services notified under Section 9(3) of the CGST Act are Notification No. 13/2017-Central Tax (Rate) dated 28-6-2017 and Notification No. 10/2017-Integrated Tax (Rate) dated 28-6-2017.
Refer to Reverse Charge Ready Reckoner
Are 100% exempt suppliers required to obtain GST registration upon receiving of any supplies subject to Reverse Charge
After going through the three relevant Sections, it time to take on the question of GST registration of 100% exempt suppliers upon receiving of RCM supplies, head on.
This question seems to be clash of Section 23 and Section 24 of the CGST Act, 2017, in a way that Section 23 mandates that no GST registration is required for for 100% exempt suppliers, whereas Section 24 prescribes for mandatory registration for persons liable to pay tax under reverse charge.
The issue becomes more interesting when we note that Section 24 only overrides Section 22, which may mean that benefit of not taking GST registration granted to 100% exempt suppliers cannot be taken away by Section 24, if such supplier receives supplies subject to payment of tax under reverse charge.
On the other hand, another view on the issue can be that Section 23 and 24 are independent Sections and operate in different aspects, thus 100% exempt suppliers would be required to obtain GST registration, if they receive any supplies subject to reverse charge. Thus there can be two views on the issue before us. Now the question is to go with which view. In this regard a ruling of Maharashtra AAR is relevant which is discussed in the succeeding para.
Further it may be noted that in some cases of reverse charge, the supplies are subject to reverse charge if they are received by a registered person for example security services. Thus in such cases the question of obtaining of GST registration by unregistered recipient will not arise.
Person exclusively engaged in exempt supplies need to obtain GST registration if it is liable to pay tax under reverse charge – Ruling of Maharashtra AAR
In view of the two views on the issue as discussed in the preceding para, M/s Jalaram Seeds applied for an advance ruling from Maharashtra AAR, on the question whether the firm exclusively engaged in exempt supplies receiving GTA services (subject to reverse charge) is liable to take registration under section 24 or is exempted from registration under section 24.
The Maharashtra AAR vide order dated 10.04.2019 adjudged that the applicant is liable to take registration in view of provisions of section 24 of the CGST Act, 2017.
The highlights of the order are as under:-
- Without referring to section 23 of the CGST Act, we can say that a person, whose aggregate turnover of all supplies is other than taxable supply, is not liable for registration.
- Section 23 providing exemption inter alia to person engaged exclusively in the business of exempt supplies is not contrary to section 22 but is clear expression of the intent of section 23.
- There is no force in the contention of the applicant that section 23 is a specified section and independent and not over ruled by section 24.
- The argument that section 23 is stand alone section and the provisions of section 24 pertaining to compulsory registration are applicable to a person liable for registration under section 22(1), makes the section 24 redundant.
- It is a well settled principle of law that the law should not be interpreted in such a way to make any part of the statute redundant.
- By application of rule of harmonious construction and the rule against redundancy, the applicant would go out of the scope of section 23 because he is making certain quantity of taxable supply of GTA service by way of reverse charge mechanism and would fall within the scope of section 24 for purpose of registration and hence he would be required to obtain registration in order to discharge his liability under reverse charge.
For ready reference of the readers the above order of Maharashtra AAR can be read / downloaded from below:
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
