AGGREGATE TURNOVER IN GST REGIME

[Dr. Sanjiv Agarwal]

Any tax is levied as a percentage of any amount which is either income or value or revenue or turnover. Presently, excise duty is levied on MRP, Service Tax on value of taxable service and VAT on turnover of goods. In the proposed GST regime, what will be relevant will be 'aggregate turnover'.

The 'aggregate turnover' will be relevant for the purpose of –

1. registration of taxable person
2. Threshold exemption limits
3. Composition levy

The valuation of supply of goods and services shall be done in terms of section 15 of Model Law on GST read with GST Valuation (Determination of the Value of Supply of Goods and Services) Rules, 2016 [both are at draft stage as of now]. Accordingly, valuation may be done as per transaction value, by comparison, computed value method or residual method.

Meaning of Aggregate Turnover

'Aggregate turnover' is defined in section 2(6) of the Model GST Law as follows –

            "Aggregate turnover means the aggregate value of all taxable and non-taxable supplies, exempt supplies and exports of goods and/or services of a person having the same PAN, to be computed on all India basis and excludes taxes, if any, charged under the CGST Act, SGST Act and the IGST Act, as the case may be.

            Explanation.- Aggregate turnover does not include the value of supplies on which tax is levied on reverse charge basis and the value of inward supplies."

According to the aforementioned definition, aggregate turnover shall be total of the following amounts or sums, i.e. aggregate of the following –

1. Value of  all taxable  supplies of goods and services
2. Value of all non-taxable supplies of goods and services
3. Value of exempt supplies of goods and services
4. Value of all goods and services exported

For the purpose aggregate turnover, turnover shall be counted and aggregated for a person having the same Permanent Account Number (PAN) of Income Tax, taken as a whole on an All India basis. For example, if a person is having, say 10 branch offices in different parts of a country under a same PAN filing single income tax return, his turnover for all such offices shall be aggregated.

'Aggregate turnover' shall, however, exclude the following sums –

1. Taxes, if any charged under the CGST Act, SGST Act and IGST Act.
2. Value of supplies of goods and services on which tax is levied on reverse charge basis.
3. Value of inward supplies of goods and services.

Under the present tax law, aggregate turnover is not defined in the tax statutes but turnover is defined in VAT laws and for the purpose of threshold exemption. In Service Tax, Notification No. 33/2012-ST dated 20.06.2012 defines aggregate turnover as under-

"Aggregate value means the sum total of value of taxable services charged in the first consecutive invoices issued during a financial year but does not include value charged in invoices issued towards such services which are exempt from whole of service tax leviable thereon under section 66B of the said Finance Act under any other notification."

Scope of Aggregate Turnover

It can be seen that the definition under proposed GST law is much under as it includes non-taxable supplies and exempt supplies including exports. As such, its benefits may not be available to even many existing assessees who enjoy the exemption.

It is necessary for the draftsmen to consider the scope of 'aggregate turnover' is its present from so as to exclude non-taxable / exempt supply of goods and services as it would result in artificial distortion and discrimination in providing threshold exemption to the suppliers. It will also create hardship to taxpayers who will be made liable to register and pay more tax as illustrated by way of the following examples where it is assumed that rate of GST will be 20% and ₹ 10 lakh and above is the threshold limit for turnover, i.e. (exempt below 10 lakhs)

A	Taxable turnover	10,00,000
	Non taxable / exempt turnover / export turnover	Nil
	Aggregate turnover	10,00,000
	Tax @ 20%	2,00,000
	Effective tax rate	20%
B	Taxable turnover	Nil
	Exempt / non-taxable / export turnover	10,00,000
	Aggregate turnover	10,00,000
	Tax @ 20%	2,00,000
	Effective tax rate	Entire tax is cost
C	Taxable turnover	10,000
	Non-taxable / exempt / export turnover	9,90, 000
	Aggregate turnover	10,00,000
	Tax @ 20%	2,00,000
	Effective tax rate	2000 %
D	Taxable turnover	5,00,000
	Non-taxable / exempt / export turnover	5,00,000
	Aggregate turnover	10,00,000
	Tax @ 20%	2,00,000
	Effective tax rate	40%

(Note: Effective tax rate is based on taxable turnover)

The proposed scope of aggregate turnover may not yield the desired benefit to small tax payers and as such it may end up in tax inefficient and retrogatory measure. The present limit of exemption in Service Tax is only ₹ 10 lakhs whereas on Central Excise, it is ₹ 1.50 crore. With the tax base being large, it is expected that cost of tax collection should also be kept in mind and threshold of aggregate turnover be pegged at atleast ₹ 25 lakh. This segment would otherwise be contributing to 5-7 percent of tax only.