Whether the entities making only exempted supplies is liable to get registered under GST in pursuance of Section 24?

[CARahul Jain]

This question came up before the Hon’ble Authority for Advance Rulings, Kerala IN RE: M/S. MEDIVISION SCAN AND DIAGNOSTIC RESEARCH CENTER (P) LTD. 2019 (5) TMI 900 - AUTHORITY FOR ADVANCE RULINGS, KERALA

Before proceeding to the question in hand, it is imperative to look into the relevant statutory provisions of the CGST Act. For the purpose, let us go through the Chapter VI of the CGST Act and some of its sections which relates to the registration under the Act.

Section 22 – Person liable for registration

Section 23 – Person not liable for registration

Section 24 – Compulsory Registration in certain cases.

For the sake of clarity in discussion, the understanding of these provisions may be divided in two parts:

First Part - Section 22 vis-à-vis Section 23

Second Part - Section 22 and Section 23 vis-à-vis Section 24

First Part

Section 22 – Person Liable for registration

This provision of the Act mandates the requirement of registration if the aggregate turnover in a financial year exceeds ₹ 20 Lakhs (₹ 10 Lakh in special category States).

Section 23 – Person not liable for registration

Section 23 exempts the person from taking registration if such person is engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt under the CGST Act or IGST Act

Hence, a person dealing exclusively in exempted goods or services are not required to take registration irrespective of the aggregate turnover in financial year.

Section 23 is a separate code than Section 22. Both operate individually in their domain. Section 22 mandates to take registration if the aggregate turnover in a financial year exceeds ₹ 20 Lakhs irrespective of the fact whether such turnover include taxable supplies or exempt supplies. Whereas Section 23 specifically exempts person from taking registration if such person are exclusively dealing in exempted goods or services or both.

Section 23 is specifically granting exemption from registration to persons exclusively engaged in making exempt supplies even if the aggregate turnover is more than ₹ 20 Lakhs. So it can be said that even if there is no non-obstante clause in Section 23, Section 23 overrides Section 22. Also the rule of harmonious interpretation will arrive at the conclusion wherein section 22 is concerned about the persons whose aggregate turnover is more than ₹ 20 Lakhs while Section 23 is exempting entities engaged exclusively in making exempt supplies.

From the above discussion, it may clearly be understood that the person who is engaged exclusively in making exempt supplies is not liable for registration even if his aggregate turnover exceeds ₹ 20 Lakhs.

Second Part

Section 24 reads as under:

Notwithstanding anything contained in sub-section (1) of section 22, the following categories of persons shall be required to be registered under this Act,––

(i) persons making any inter-State taxable supply;

……………

(xii) such other person or class of persons as may be notified by the Government on the recommendations of the Council.

Section 24 starts with a non-obstante clause overriding section 22(1) and making mandatory for persons to obtain registration if they enter into any transaction as listed in clause (i) to clause (xii).

So, a person with a turnover of less than ₹ 20 Lakhs will also be required to get registered under the GST Act if he falls into the category of person as mentioned in Section 24.

For Ex. (1) A person who is making inter-state supply will be required to get registered even if his turnover is less than ₹ 20 Lakhs. (2) A person who is receiving any goods or services on which tax is payable on reverse charge basis, shall be registered irrespective of the quantum of turnover.

What is interesting to note here that the Section 24 overrides Section 22(1) with the non-obstante clause mentioned in the section itself. However, the legislature intentionally chose not to allow Section 24 to override Section 23 as Section 23 is not mentioned in the non-obstante clause of Section 24.

Hence, Section 24 is not applicable to the person who has been given exemptions from registrations under Section 23. Section 24 which comes after Section 23 is overriding only section 22(1) and not Section 23, which shows the intention of the legislature.

Redrafting the above example, it can be said that (1) a person who is exclusively engaged in making exempt supply can make inter-state supply and retain his exemption from registration without falling prey to the provisions of Section 24. (2) A person who is exclusively engaged in making exempt supply can receive supplies on which tax is payable on reverse charge basis and will not be liable for registration.

This question came up before the Hon’ble Authority for Advance Rulings, Kerala IN RE: M/S. MEDIVISION SCAN AND DIAGNOSTIC RESEARCH CENTER (P) LTD. 2019 (5) TMI 900 - AUTHORITY FOR ADVANCE RULINGS, KERALA

Hon’ble AAR, Kerala, in this case, held that “

By virtue of Section 23 of State Goods and Services Tax Act, any person engaged exclusively in the business of supplying goods or services or both, that are not liable to tax or wholly exempt from tax under GST Act, are not liable to take registration. However, such persons are liable to obtain registration if they are receiving any goods or services liable to tax under reverse charge as per notifications issued under Section 9(3) of the State Goods and Services Tax Act.”

The Hon’ble AAR, Kerala held that the person is engaged exclusively in making exempt supplies and is exempted from registration as per Section 23. However, the AAR mandated such person to obtain registration if they are receiving any goods or services which are liable to tax under reverse charge.

Conditions for Mandatory registration even if turnover is less than ₹ 20 Lakhs is mentioned in Section 24 which over rides Section 22(1) only. Section 24 has no over-riding effect on Section 23. Section 23 is a separate section, which is independent of Section 22 and Section 24.

In my humble opinion, the decision given by the Hon’ble authority is not in accordance with the provision of law and may require reconsideration.