Concept of Aggregate turnover and its impact on GST Registration

1.Introduction

Under GST Law a threshold exemption in respect of aggregate turnover has been prescribed and persons (barring few exceptions) who do not transgress such limit are neither required to obtain registration nor need to pay GST. The basic intent of a threshold exemption is to keep the small ticket suppliers away from the compliance rigors of the GST law. Since launch of GST there has been changes in the exemption limits, further certain exemptions from mandatory registration have also been issued. The current law in respect of threshold exemption along with meaning / importance of aggregate turnover have been explained in the succeeding paras.

2.0 Requirement for GST registration is determined from threshold limit of aggregate turnover

Section 22(1) of the CGST Act,2017 provides that 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 breaches a prescribed threshold. Thus registration is required ‘in’ the State ‘from which’ taxable supplies are made and not required in the State ‘to’ which taxable supplies are made.

Various thresholds have been prescribed depending upon State from which supply is being made / goods or services being supplied.

For ready reference the threshold limit of aggregate turnover applicable in various situations along with legal references is tabulated below:

* No such reduction to be made while computing aggregate turnover of Rs 20 lakh / 10 Lakh).

3.0 Liability to pay tax is determined by threshold limit of aggregate turnover

Under GST Law barring few exceptions, the threshold limit not only governs the requirement to take registration but the liability to pay tax also hinges on it, in view of the charging section of CGST Act i.e. Section 9(1) which provides inter- alia that tax shall be paid by the taxable person.

3.1 Taxable Person

As per Section 2(107) of CGST Act “taxable person” means a person who is registered or liable to be registered under section 22 or section 24;

As per Section 22(1) a person is liable to take registration if the aggregate turnover exceeds the prescribed aggregate turnover limit as discussed supra. Accordingly it emerges that any person whose aggregate turnover is below the prescribed limit is not required to take registration and therefore would not be covered under the ambit of definition of a ‘taxable person’ and thus would also not be required to pay tax.

However persons covered under section 24 are required to obtain registration irrespective of their aggregate turnover (within 30 days).

4.0 Aggregate Turnover is to be computed for a financial year

Section 22(1) does not stipulate that the aggregate value of turnover shall be computed for the previous financial year. Thus, it can be inferred that even if in the current year the aggregate turnover exceeds the prescribed limit, the supplier will have to apply for registration on breaching that limit.

5.0 Persons engaged solely in services where tax is payable under RCM, not required to obtain registration irrespective of their aggregate turnover

As per Notification No. 5/2017–Central Tax, dated 19.06.2017 persons engaged in rendering taxable services where GST is payable under reverse charge mechanism (RCM) by the recipient, are not required to take registration. As we all know, under RCM the tax is to be paid by the recipient and therefore law has absolved supplier in such cases from taking GST registration, irrespective of its turnover amount. Example Advocates are not required to obtain registration as their services are either under reverse charge or exempt.

6.0 Benefit of threshold limit for registration and payment of tax not available in all cases

The benefit of threshold limit of aggregate turnover for registration as well as payment of tax as discussed in preceding paras are not available in all the situations and is subject to exceptions as mandated under Section 24 of CGST Act,2017 wherein certain category of persons are compulsorily required to obtain registration irrespective of their turnover. However in this regard certain relaxations have been provided which are given below:

7.0. Meaning of aggregate turnover

We have already discussed the prescribed limits of the aggregate turnover which governs the requirement of registration as well as liability to pay tax along with exceptions thereto. Now it is time to understand what is meant by ‘aggregate turnover’ and how it is computed.

The term aggregate turnover is defined under Section 2(6) of CGST Act,2017 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;

The definition of aggregate turnover is very wide and is analysed below:

7.1 All supply of services to be included in Aggregate Turnover

The definition covers the following supplies within the ambit of ‘aggregate turnover’:-

i) all taxable supplies i.e. supply of goods or services or both on which tax is levied under CGST Act.(Section 2(108) of CGST Act).

ii) exempt supplies i.e. the supply of goods or services or both which attract NIL rate of tax or which are wholly exempted from levy of tax under section 11, or under section 6 of IGST Act and includes non-taxable supply. (Section 2(47) of CGST Act).

Non-taxable supply means supply of goods or services or both which is not leviable to tax under this Act or IGST Act (Section 2(78) of CGST Act). Examples of non taxable supply are supply of alcoholic liquor and the 5 petroleum products currently outside GST.

iii) exports of goods or services or both which are regarded as zero-rated supplies under GST law (Section 16(1) of IGST Act).

iv) inter-State supplies i.e. supply of goods or services or both where the location of the supplier and the place of supply are in two different States / Union territories or in a State and a Union territory. (Section 7(3) of IGST Act). Surprisingly it also includes Export and import of goods or services or both which has also been included in the definition separately. Further supply of goods or services or both to or by a SEZ Developer or SEZ unit will also be included in aggregate turnover being part of the inter-State supplies.

7.2 Why inter-State supply included separately in the definition

A question may blink in our mind that when ‘taxable supplies’ and ‘exempt supplies’ which includes non-taxable supplies, have been incorporated in the definition of aggregate turnover than why inter-State supply has been included separately.

In the opinion of the author the answer to this lies in Section 2(108) of CGST Act which will also be mirrored in SGST Acts according to which “taxable supply means supply of goods or services or both which is leviable to tax under this Act”. Thus there is no reference to IGST Act in said definition.

Further under IGST Act also there is no separate definition of taxable supply except that Section 2(24) of said Act states that words and expressions used and not defined here but defined in other GST Acts would have same meaning as assigned to them in those Acts. Thus even if we use the definition of taxable supply as it is, it won’t serve any purpose as reference of IGST Act is not there in said definition.

Thus we can conclude that the term ‘taxable supply” as appearing in definition of aggregate turnover is referring only to intra-State supplies and therefore in order to include the inter-State supplies within the ambit of aggregate turnover they have separately been included in the definition. However there seems to be no need to specifically mention exports in the definition as it is anyway part of the inter-State supplies.

7.3: Supplies of person with same Permanent Account Number (PAN) to be computed on all India Basis:

It has been mandated that the aggregate turnover of person having a same PAN would be computed on all India basis.

Illustration 1: A person has a branch in Bhopal and Jaipur and a Corporate office at New Delhi with all having the same PAN. The aggregate turnover of Bhopal, Jaipur and New Delhi are Rs 10 lakh, Rs 8 lakh and Rs 5 lakh respectively. In this case aggregate turnover is to be computed on PAN India basis and thus all three will be added up which comes to Rs 23 lakh and it exceeds the threshold exemption limit of Rs 20 lakh registration would be required in all the three States.

Illustration 2: A person has a HO in Delhi and branch in Manipur (same PAN). The aggregate turnover of Delhi and Manipur are Rs 8 lakh and Rs 4 lakh respectively. In this case aggregate turnover will be Rs 12 lakh and as it exceeds the threshold exemption limit of Rs 10 lakh (as person has branch in Manipur where threshold exemption limit is Rs 10 lakh) registration would be required in both States.

However the turnover of persons having different PAN would not be aggregated. For example turnover of holding company and its subsidiary company would not be added for computing aggregate turnover of the holding company as they are separate entities and would be having different PAN under Income Tax Act.

7.4: Aggregate Turnover will not include the Central tax, State tax, Union territory tax, integrated tax and cess

It has specifically been mandated in the definition of aggregate turnover that it excludes central tax, State tax, Union territory tax, integrated tax and cess. Therefore it can be said that only the ‘transaction value’ of all supplies will be aggregated to compute the aggregate turnover.

It is important to note here that any taxes other than Central tax, State tax, Union territory tax, integrated tax and cess, if charged by the supplier would be included in the aggregate turnover. Similarly as per the valuation principles given in GST Law such taxes are also required to be included in the transaction value also.

7.5 Aggregate Turnover of agent to include supply made on behalf of principal

For calculating the threshold limit, the turnover shall 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 of CGST Act.

The term ‘on behalf of principals’ means situations where the supply is made by agent, on behalf of its principal, wherein invoice has been issued by such agent in his name. Such supply will be included in the turnover of the agent. Naturally in instant case the event of sending of goods by principal to agent would also be treated as supply and quantum thereof included in turnover of principal. It is pertinent to mention here that in such cases, even if transfer of goods by principal to agent is without consideration, it would be treated as supply, as per para 3(a) of the Schedule I of the CGST Act,2017.

However in cases where invoice is issued by agent in name of principal, such supply will not be included in the turnover of the agent and rather only his commission earned from the supply will be included in its turnover. Further in such cases the sending of goods by principal to agent will also not be regarded as supply.

7.6 Supply of goods from job worker premises to be included in aggregate turnover of principal

Further, 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 (i.e. Job work procedure) of CGST Act. The value of such goods shall not be included in the aggregate turnover of the registered job worker and rather be included in the turnover of the principal. However the job work charges charged by job worker will be included in its turnover.

7.7: Inward supplies on which tax is payable by a recipient on reverse charge basis is not included while computing aggregate turnover:

The aggregate turnover will not include the value of inward supplies on which tax is paid on reverse charge basis by the recipient of supply.

It may be noted that recipients of supply liable to pay tax under reverse charge will have to take registration and pay tax under reverse charge in respect of notified services or the services obtained from unregistered person (notified cases u/s 9(4)) and the threshold exemption limit in regard to aggregate turnover is not available to such persons.

7.8: Activities / transactions which are not supplies not be included in aggregate turnover

It may be noted that the activities / transactions included in Schedule III of CGST Act, 2017 are not treated as supply and thus would not be included while computing aggregate turnover. The above can be illustrated by means of following example:

Mr X is working as a manager of a Company from where he is drawing an annual salary of Rs 15 lakhs. Further he owns a shop which he has rented out for Rs 10 lakhs p.a. Whether Mr Xis required to obtain registration?

As per para 1 of Schedule III of CGST Act, 2017 services by an employee to the employer in the course of or in relation to his employment is not treated as supply of services. As employee services are not treated as ‘supply’ it cannot be regarded as exempt supply or non-taxable supply and therefore the salary income would not be included in the aggregate turnover. However rental income being a supply would be included and as in this case the aggregate turnover would only be Rs 10 lakhs Mr X will not be required to obtain registration under GST Law.

7.9 Definition of aggregate turnover- At a glance

‘Aggregate turnover’ means value of all outward supplies (taxable supplies + exempt supplies + exports + inter-state supplies) of a person having the same PAN and computed on all India basis MINUS central tax (CGST), State tax (SGST), Union territory tax (UTGST), integrated tax (IGST) and compensation cess.

Non taxable supply viz supply of alcoholic liquor and the 5 petroleum products currently outside GST, will be included in aggregate turnover as same are covered under the definition of exempt supply.

Also, the value of inward supplies on which tax is payable under reverse charge is not taken into account for calculation of ‘aggregate turnover’.Further activities / transactions included in Schedule III of CGST Act, 2017 will also not be included in aggregate turnover.

It shall include supply made by an agent on behalf of its principal in cases where invoice is issued by him in his name. Further in case a person is engaged solely in supply of goods (barring few goods) , the aggregate turnover shall not include interest on deposits, loans and advances.

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Frah Saeed

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.