Registration requirement under GST law in case supplier only supplying exempted goods and services, where they are taking services liable to tax under Reverse Charge Mechanism (‘RCM’) has always been a contentious issue. The Hon’ble Authority for Advance Ruling, Maharashtra (‘AAR’) in the case of In Re: Ms/ Jalaram Feeds (GST-ARA-110/2018-19/B-38) vide order dated 10 April 2019 had an opportunity to adjudicate this contentious issue.
The AAR has undertaken a harmonious interpretation of the law and held that liability to pay tax under RCM was a taxable supply and requires registration under GST law, even if there are only exempt supplies.
It may be noted that Section 23 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) provides an exemption for registration under GST law if there are only exempt supplies. However, the GST law enlists certain transactions/ categories which are liable for registration under GST law. These transactions inter alia which include transactions subject to taxation under RCM. There were divergent views and interpretations on the subject based on combined reading of Sections 22, 23 and 24 of the CGST Act, leading to confusion among the industry at large.
1. Facts of the case
- M/s. Jalaram Feeds (‘Taxpayer’) is a registered Partnership firm engaged in the manufacture of only Compound Animal Feed (HSN Code: 2309). As per the CGST Act, the same is exempt from tax.
- The Taxpayer is not involved in any other kinds of supplies.
- 99% of the customer base of the Taxpayer is ‘Farmers’.
- The Taxpayer had availed services from transporters for carriage and transportation of goods, in the nature of Goods Transport Agency service (‘GTA’).
2. Provisions of GST law
- Section 22 of the CGST Act requires registration under GST law where the aggregate turnover in a financial year in respect of taxable supply of goods or services or both exceeds INR 20 lakhs.
- Section 24(iii) of the CGST Act mandates a compulsory registration under the GST law in case of persons who are required to pay tax under RCM. Section 24 starts with a non-obstante clause over Section 22, i.e., Section 24 overrides the provisions of Section 22 of the CGST Act.
- Section 23 of the CGST Act exempts any person engaged exclusively in the business of supplying exempt goods or services or both, from registration under the GST law.
3. Submissions of the Taxpayer
- Section 23 of the CGST Act is applicable to its case as it is exclusively engaged in the supply of exempt goods.
- Section 24 read with Section 22 of the CGST Act is not applicable as it is specifically covered by Section 23 of the CGST Act. Section 24 of the CST Act overrides Section 22, but not Section 23.
- Section 23 is independent and has a clear expression of intent and is not contrary to Section 24 or Section 22 of the CGST Act.
- Most persons engaged in the supply of exempted goods and services require services on which tax is payable under RCM. If that would be the case, there would not be a case where exemption from registration under GST law would apply as every person would be covered under Section 24 and be subjected to registration under GST law.
- Hence, it is not liable to take registration under the GST law.
4. Submissions of the GST authorities
- The Central Board of Indirect Taxes and Customs (‘CBIC’) on the recommendations of the GST Council could specify the categories of supply of goods or services or both, which could be subject to taxation under RCM
- GTA is one of the service subject to taxation under RCM.
- Section 24 of the CGST Act overrules Section 22 to the extent of the turnover criteria for registration, but not from the purview of registration itself.
- The Taxpayer is exempt from registration under Section 22 of the CGST Act, but is required to register by virtue of Section 24, irrespective of the turnover or taxability under GST law.
- Taking registration for payment of GST under RCM does not mean that the Taxpayer would have to pay taxes on his exempted supplies.
- As per Notification No. 05/2017 – CT dated 19 June 2017, suppliers exclusively involved in providing services covered under RCM are exempted from registration under GST law.
- If the Taxpayer’s contention is accepted, then neither the supplier (GTA) nor the recipient (Taxpayer) would make payment of tax. This interpretation defeats the very purpose of Section 24 of the CGST Act and would be cause a significant loss of revenue to the Government.
5. Ruling of the AAR
- It is a well-settled principle of interpretation that law should not be interpreted in such a way to make any part of the statute redundant.
- If the argument of the Taxpayer is accepted, Section 24 of the CGST Act would become redundant and fall outside the scope of Section 23 of the CGST Act.
- The tax liability in respect of GTA services availed by the Taxpayer and otherwise subjected to tax under RCM would not be subject to tax at all.
- By the combined application of two principles of jurisprudence – Rule of harmonious construction and Rule against redundancy, Sections 23 and 24 are to be read together and not independently.
- While the Taxpayer would not be required to obtain registration under Section 23 of the CGST Act by virtue of making exempt supplies, registration in terms of Section 24 of the Act by virtue of availing GTA services would become applicable.
- Hence, the taxpayer would be required to obtain registration under GST law in order to discharge its duty liability under RCM in respect of the GTA services.
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