GST update on EXEMPTION OF RS. 5000 PER DAY WITH RESPECT TO TRANSACTION WITH UNREGISTERED DEALER

The provision contained in section 9(4) of the CGST Act, 2017 has been a matter of constant discussion amongst the professionals and it has created a fear of increased compliance on the registered assessees. It was being represented by trade and industry that certain ceiling or exemption limit should be provided for liability to discharge GST under reverse charge mechanism for transactions with unregistered dealers and it appears that their requests has been considered by the government. Notification No. 08/2017-Central Tax (Rate) dated 28.06.2017 is a step in this direction and it provides complete exemption to intra-state supplies of goods or services or both received by a registered person from unregistered supplier if the aggregate value of such supplies of goods or services or both received by a registered person from any or all the suppliers, who is or are not registered, does not exceed five thousand rupees in a day. Now, the analysis of the provision is as follows:-
• The exemption is provided on ‘per day basis’ thereby meaning that the registered assessees are required to check on daily basis whether they are required to pay GST on purchases made from unregistered suppliers under reverse charge mechanism. Moreover, the limit of Rs. 5,000/- is to be computed by considering the value of supplies made by all unregistered suppliers. For example, if M/s ABC purchases goods from unregistered dealer X of value Rs. 3000/- and avails services of Rs. 2500/- from unregistered service provider on one particular day, then the GST will be leviable as the aggregate value of supplies from unregistered assessee exceeds Rs. 5,000/-.
• Although, the exemption notification mentions ‘aggregate value of supplies’ but this does not include exempted supplies from unregistered supplier. This is for the reason that the provision contained in section 9(4) specifically mentions that reverse charge is applicable for taxable supplies made by unregistered person.
• Furthermore, the exemption notification specifically mentions that this exemption of Rs. 5,000/- is meant for central tax leviable under section 9(4) of the CGST Act, 2017 thereby meaning that this limit of Rs. 5,000/-is not applicable for GST payable on services specified under reverse charge mechanism under section 9(3) of the CGST Act, 2017. For example, if goods transport agency services are received by a registered person, then, GST will be payable on freight amount exceeding Rs. 750/1500 irrespective of the fact that the total amount of freight is less than Rs. 5000/-. In nutshell, the exemption of Rs. 5,000/- cannot be availed for the goods or services that are specifically notified under reverse charge mechanism under section 9(3) of the CGST Act, 2017.
• Moreover, whether this exemption limit is applicable PAN wise or registration wise is not clarified. However, it appears that the exemption limit of Rs. 5000/- is applicable for registration taken in each State and not PAN wise otherwise the provision will be rendered as redundant.

It is submitted that although introduction of reverse charge mechanism on purchases from unregistered supplier will increase compliance burden but providing exemption of Rs. 5000/- per day will definitely provide a sigh of relief to the trade and industry.

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GST update on EXEMPTION OF RS. 5000 PER DAY WITH RESPECT TO TRANSACTION WITH UNREGISTERED DEALER

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