GST UPDATE ON INTER-STATE SUPPLY BY SMALL SERVICE PROVIDERS

GST UPDATE ON INTER-STATE SUPPLY BY SMALL SERVICE PROVIDERS

In the 22nd GST Council meet on 6.10.2017, it was decided to grant exemption to small service providers making the inter-state taxable supply whose turnover did not exceed Rs. 20 lacs. Consequent to this decision, Notification No. 10/2017 – Integrated Tax dated 13.10.2017 has been issued. This notification specifies that the persons making inter-State supplies of taxable services and having an aggregate turnover (to be computed on all India basis) upto Rs. 20 lacs in a financial year shall not be required to be registered under GST. The issuance of this notification has resulted into few ambiguities which are discussed as follows:-
This notification has been issued under the provisions of section 23(2) of the CGST Act, 2017. The provisions related to compulsory registration are given in section 24 of the CGST Act, 2017. Section 24 has overriding effect only on the section 22 of the CGST Act, 2017, not on section 23. Due to this fact only, if a person is exclusively providing exempted supplies (which is governed by section 23), he is not liable to be registered for paying tax under reverse charge which is prescribed under section 24. However, whether the notification issued under section 23 will have overriding effect on the provisions of section 24? Probably, no.. If there is any conflict between the notification and the Act, the Act will always have the precedence. This is known as “Gunpradhan principle” which has been laid down by the hon’ble Supreme Court in the case of ISPAT INDUSTRIES LTD. Versus COMMISSIONER OF CUSTOMS, MUMBAI [2006 (202) E.L.T. 561 (S.C.)]. In this case, it was held that the Act is primary and all the notifications issued under this Act are subsidiary to it. As such, in case of any conflict between the two, the Act will have precedence. In view of this analogy, it may be interpreted that since the language of section 24 is clear and unambiguous; it will have precedence over the notification.
Further, in majority of cases, the service providers making the inter-state taxable supply had already taken registration in-spite of the fact that their receipts were well below Rs. 20 lacs. Now, notification no. 10/2017-Integrated tax has been issued and it is applicable w.e.f. 13.10.2017. However, as the small service providers have already taken the registration; they have started paying the tax on all of their supplies (whether inter-state or intra-state). It is being interpreted that since the assessee has already forgone the option by registering himself, now he will be required to pay the tax on all of these supplies and the option of cancellation of registration is not applicable to him. This interpretation sounds strange and we are of the view that this will simply make the notification no. 10/2017-Integrated tax as redundant which is not the intention of the government. Therefore, in our view, by virtue of this notification, those service providers who got themselves registered merely because of inter-state supply and their aggregate turnover is below Rs. 20 lacs; they can opt for cancellation of their registration.
This matter is further complicated if a person has taken registration due to interstate supply but has also provided intrastate supply. He has paid the tax on the same. But now the question is whether the exemption is forgone by the person and has voluntarily paid the tax? However, the real position is that he has taken registration due to interstate supply. Once he is registered, he has to pay tax on all its intra-state supply also.
In view of author, the exemption is applicable on the taxpayer henceforth and he can surrender his registration.

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GST UPDATE ON INTER-STATE SUPPLY BY SMALL SERVICE PROVIDERS

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