GST- threshold limit – law need to be amended to base on taxable turnover Preamble and objects of GST laws not considered by AAR causing ruling which will cause lot of un-necessary work, harassment and litigation by forcing many to get registered though there will be no tax liability and tax collection.

[DEV KUMAR KOTHARI]

Statutory provisions missed by the AAR- objects and preambles  of CGST Act,  IGST Act, UTGST Act and enactments of various state governments.

Ruling considered in this article:

2020 (6) TMI 449 - AUTHORITY FOR ADVANCE RULING, GUJARAT

IN RE: SHREE SAWAI MANOHARLAL RATHI,

GUJ/GAAR/R/2020/10 (In Application No. Advance Ruling/SGST&CGST/2018/AR/50)

Dated: - 19 May 2020

Summary:

Threshold limit for the purpose of GST registration – AAR held that amount of interest on PPF, SB, loans etc. though exempt, are to be  included in gross receipts / turnover  for the  purpose of requirement for  registration which is based on aggregate turnover. This  ruling seems first of its type and goes beyond the objects of GST laws.

On reading of the ruling It seems that the objects of GST laws were not mentioned by the applicant in application and at the time of personal hearing.

On strict interpretation of S. 2(6), 22 and 23 of CGST Act, the ruling is correct but it will not be in accordance with the objects of GST laws.

 Hence there is  need  for immediate steps for amendments and / or  clarifications by department that registration shall be required only when there is taxable turnover of supply of goods and / or services beyond threshold limit and not by including nontaxable revenues. This is needed   to avoid un-necessary work, harassment and likely litigation.

It is hoped that as in case of remuneration of directors, the matter has been clarified , after some rulings, in case relating to registration, quick steps will be taken to relax requirement of registration on reaching taxable turnover above threshold limit instead of aggregate turnover.

Preamble and objects of various enactments relating to GST:

CENTRAL GOODS AND SERVICES TAX ACT, 2017

THE CENTRAL GOODS AND SERVICES TAX ACT, 2017

An Act to make a provision for levy and collection of tax on intra-State supply of goods or services or both by the Central Government and the matters connected therewith or incidental thereto.

INTEGRATED GOODS AND SERVICES TAX ACT, 2017

THE INTEGRATED GOODS AND SERVICES TAX ACT, 2017

An Act to make a provision for levy and collection of tax on inter-State supply of goods or services or both by the Central Government and for matters connected therewith or incidental thereto.

UNION TERRITORY GOODS AND SERVICES TAX ACT, 2017

THE UNION TERRITORY GOODS AND SERVICES TAX BILL, 2017

No. 14 of 2017

Dated: 12th April 2017

An Act to make a provision for levy and collection of tax on intra-State supply of goods or services or both by the Union territories and the matter connected therewith or incidental thereto.

BE it enacted by Parliament in the Sixty-eighth Year of the Republic of India as follows:-

Andhra Pradesh Goods and Services Tax Act, 2017

AN ACT TO MAKE A PROVISION FOR LEVY AND COLLECTION OF TAX ON INTRA-STATE SUPPLY OF GOODS OR SERVICES OR BOTH BY THE STATE OF ANDHRA PRADESH AND FOR MATTERS CONNECTED THEREWITH AND INCIDENTAL THERETO.

THE WEST BENGAL GOODS AND SERVICES TAX ACT, 2017.

An Act to make a provision for levy and collection of tax on intra-State supply of goods or services or both by the State of West Bengal and the matters connected therewith or incidental thereto.

Other states:

Preamble and objects of enactments of other states are also on the same line as mentioned above for two states.

Objects:

From reading of the objects of enactments, as reproduced above we find that object is  to make a provision for levy and collection of tax on supply of goods or services or both  and the matters connected therewith or incidental thereto,  in different circumstances by concerned governments.

Requirement for registration is for levy and collection of tax:

It is clear and well known that the requirement for registration under GST laws,  is for levy and collection of tax and matters connected therewith and  incidental thereto.

Therefore, when there is no tax payable there should not be insistence to get registered under any GST law to avoid un-necessary work for people of India and also GST authorities.

Ruling of AAR:

On reading of the ruling author could not find any mention about objects of difference GST laws. Other provisions related with definitions of some words and expressions have only  been considered. With due respect, author feel that counsels appearing before the AAR and honorable members of AAR have altogether  missed to mention, argue  and consider the objects of GST laws leading to a ruling which goes against the objects of the GST legislations.

In the ruling it has been held that Interest received on deposits in  PPF , Interest received on Personal Loans and Advanced to family/friends - Interest received on Saving Bank Account are to be considered / included for  the purpose of calculating the threshold limit of ₹ 20.00 Lakh for registration.

Practical aspect:

The assesse was just having estimated total receipts of ₹ 20,12,000/- which could have been reduced by charging lower interest on personal loans, however, assesse was advised to obtain Advance Ruling, which is not in his favor. This shows that practical approach was missing on behalf of assesse and his counsels advised him to obtain advance ruling.

Legal position- amendment required:

On interpretation of S. 2(6), 22 and 23 of CGST Act, as appears to have been considered by honorable Authority for Advance Ruling, the view taken is correct. If any portion of supply or services are taxable, then to determine “aggregate turnover” even exempted, nil rated supply and services are to be included.  

This may result to absurd situations requiring registration by large number of  persons merely because any part of there revenue is taxable amount.

For example, in case before AAR rent of about Rs. nine lakh was of  taxable catagory, therefore for aggregate turnover, other supply and services were also include and it was held that applicant is required to get registered.

On such registration, there will be only formalities and procedures to be complied with though there will not be tax payable.

This situation need to be amended by amending provisions like S. 2(6), 22 and 23 of CGST Act and corresponding provisions of other GST enactments.