GST UPDATE ON THRESHOLD LIMIT OF 40 LAKHS

The government has introduced a special threshold limit for person exclusively engaged in supply of goods by exercising the powers under section 23(2) of the CGST Act, 2017 whereby the government may on the recommendations of the Council; by notification specify the category of persons who may be exempted from obtaining registration under this Act. Consequently, the Notification No. 10/2019-Central Tax dated 07.03.2019 has provided exemption to any person who is engaged in exclusive supply of goods and whose aggregate turnover in the financial year does not exceed forty lakhs rupees as person who is exempted from obtaining registration under the Act with certain exceptions. This update seeks to analyse the impact of the exemption granted by the government and its repercussions.
Before proceeding to the analysis, it is pertinent to discuss the exceptions to the categories of person to whom this exemption is not available:
1. Persons required taking compulsory registration under section 24 of the CGST Act, 2017.
2. Persons engaged in making supplies of ice-cream and other edible ice whether or not containing cocoa, pan masala and all goods of chapter 24 being tobacco and manufactured tobacco substitutes.
3. Persons engaged in intra state supplies in the Special Category States being States of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura, Uttarakhand.
4. Persons exercising option under the provisions of sub-section (3) of section 25 of voluntary registration, or such registered persons who intend to continue with their registration under the said Act.

If we analyse the benefit of threshold extended vide this notification, it is found that the benefit is not available in the true spirit. This is for the reason that one of the exception is that the person should not be required to take compulsory registration which includes that the person should not be liable to pay tax under reverse charge mechanism and person making inter-state supplies. It is submitted that due to the exception that person should not be covered by the provisions of section 24, a large number of persons exclusively supplying the goods would not be able to avail the intended benefit. This is for the reason that a person is availing services of GTA for which there is reverse charge. Moreover, it is also remote possibility that the person is engaged only in intra state supplies which also narrow down the scope of the benefit. One important point that is worth noting is that the provisions contained in section 24 are overriding the provisions of section 22(1) but not that of provisions contained in section 23. However, the notification seeks to nullify the effect of ‘Non-Obstante Clause’ by providing specific exception. It may be noted that a person exclusively engaged in supplying exempted goods or services is not liable to registration irrespective of provision contained as regards compulsory registration under section 24 because the provision of section 24 overrides section 22(1) and not section 23 of the CGST Act, 2017. It appears that the notification seeks to bring parity as regards applicability of provisions of section 24 to the persons exclusively supplying goods as the general threshold limit for taking registration under section 22(1) also considers the provisions of section 24 of the CGST Act, 2017. However, the exception will limit the intended benefit provided by the government.
The another point that is worth mentioning is that the provision contained in section 22(1) has been kept intact whereby it continues to be made applicable for supplier making taxable supply of goods or services or both. However, the person engaged in supplying goods exclusively is included under notification issued under section 23(2) pertaining to person not liable for registration. As such, in our opinion, amendment was required to be made in section 22 itself but since amendment in Act would require considerable time, the alternative route of notification has been followed by the government.

Another issue that is worth noting is that persons who have chosen to take voluntary registration or who intend to continue their registration are not eligible to avail benefit of increased threshold limit of registration. However, the provision seeks to discriminate between the assessee who has opted for voluntary registration and assessee who took registration on account of his aggregate turnover exceeding Rs. 20 Lakhs. It states that person taking voluntary registration cannot opt for the higher threshold limit but in case of assessees taking registration on account of application of section 22(1) of the CGST Act, 2017, only those who intend to continue their registration are debarred from this benefit. Consequently, it can be interpreted that the assessees registered under section 22(1) and who do not intend to continue their registration can very well avail the benefit of increased threshold by surrendering their existing registration. Well, the government should cautiously draft notifications in the GST era so that unnecessary confusion and litigation is avoided.

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GST UPDATE ON THRESHOLD LIMIT OF 40 LAKHS

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