The Gujarat Authority of Advance Ruling (AAR) has recently ruled that a franchisee (M/s Patrator) is liable to take GST registration and pay GST on supply of goods and services even if its aggregate turnover is less than the threshold exemption limit of Rs 40 lakhs.
Facts of the case:
- “Aloha” a business brand is operated by Explore Knowledge Resources LLP, Rajkot. It charges Royalty from its franchisees for using its brand name and sells its product under its brand through its franchisees.
- Patrator is a partnership firm, unregistered under the GST Act and one of the franchisees of Explore Knowledge Resources LLP, Rajkot.
- They sell their products and provide services under the brand name of “Aloha” to customers. They sell products like books, stationary etc. without having a profit margin under the brand name of “Aloha”.
- They offer various courses to students of Mental Arithmetic, English Smart under the brand name of “Aloha”. All receipts of product sale or services are being taken in the name of their partnership firm and deposit the fees in their partnership firm bank account.
- At the end of every fifteen days, they pay royalty to their franchisor based on fees they collect from their customers.
- The applicant submitted that total yearly receipt of their partnership firms PATRATOR does not exceed Rs. 20 lakhs in any financial year; however an annual receipt of the franchisor exceeds Rs. 20 lakhs.
Issues on which ruling was sought:
The applicant sought the advance Ruling on the following questions
1.) Is PATRATOR required to take GSTIN ?
2.) Is PATRATOR required to pay tax under GST Act?
Gujarat AAR: Deliberation & Ruling on requirement of GST registration of franchisee
- As per Section 22(1) of CGST Act, 2017, if a person makes a taxable supply of goods or service or both and on account of said supply his aggregate turnover in a financial year exceeds of Rs. 20 lacs, then he is liable for GST Registration.
- According to clauses of the agreement, it is crystal clear that the applicant is only authorized to supply the goods and service under the brand name of “ALOHA” and cannot supply the other goods and service. Hence applicant is supplying the goods and service on behalf of the taxable person i.e. Xplore Knowledge Resources LLP.
- Accordingly, we rule that applicant covers under the Sr. No. (vii) of the Section 24 of CGST Act, 2017. Therefore, applicant is liable for taking GST registration. Since applicant is liable for GST registration, he is required to pay GST on supply of goods and services.
In view of above deliberations, the two-member bench of Sanjay Saxena and Mohit Agarwal ruled that in terms of Sr. No. (vii) of Section 24 of CGST Act, 2017, the applicant is liable to take GSTIN (GST registration) and liable to pay GST on supply of goods and services.
It is worth mentioning here that as per Section 24(vii) of the CGST Act, 2017, persons who make taxable supply of goods or services or both on behalf of other taxable persons whether as an agent or otherwise are compulsorily required to obtain GST registration even if their aggregate turnover does not exceed the threshold limit prescribed under Section 22(1) of the CGST Act, 2017.
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