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GST has yet not settled down. The return filing is in the mid-way, audit provisions are far to come, recovery from employees is becoming troublesome for the employers, refunds are lying with ICEGATE and many more contemporary issues are being faced by the honest taxpayers. But today, we are going to discuss one of the basic but most important provision of GST law i.e. Registration provisions and several defects seen in this entire year in this not so Good & Simple Tax.

Chapter VI and for our discussion Sec. 22, 23, & 24 of the Central Goods and Services Tax Act, 2017 (herein thereafter referred to as “CGST Act”) deals with the registration provisions. Before understanding the controversies, let us go through the basic registration provisions.:

Who Is Liable For Registration?

Sec. 22 of the CGST Act contains provisions related to liability for registration. Sec. 22(1) states that every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds FORTY lakh rupees.

The term used “aggregate turnover” has been defined u/s 2(6) to mean the aggregate of all Taxable supplies, Exempt supplies, Exports & Interstate supplies of persons having same PAN on all India basis. It is worthwhile to note that even exempt supplies are covered up in deciding the turnover limit of Rs. 20 lakhs.

Is There Any Specific Exemption?

Sec. 23 of the CGST Act contains provisions for exemption from registration. The same has been reproduced below for your ready reference:

"23. (1) the following persons shall not be liable to registration, namely:

(a) 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 this Act or under the Integrated Goods and Services Tax Act;

(b) An agriculturist, to the extent of supply of produce out of cultivation of land.

(2) 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."

It must be noted that the term "wholly exempt under CGST Act or IGST Act" has not been defined.

However, one can refer to definition of “exempt supply” given u/s 2(47) of the CGST Act. As per the said definition, the term "exempt supply" means supplies which attracts nil rate of tax or which are wholly exempt from tax u/s 11, or u/s 6 of the IGST Act, and includes non-taxable supply.

 It is worthwhile to note that as per Sec. 16(1) of the IGST Act, 2017, Exports and Supplies to SEZ unit are regarded as “Zero-rated Supply”. It can be construed that there is no difference between "nil" rated supplies & "zero" rated supplies as "Nil" & "Zero" amounts to same thing. "0" is numerical and "nil" is in words. Thus, a supplier exclusively providing zero-rated supplies (Exports & SEZ supplies) will be covered u/s 23 of the CGST Act and may claim exemption from registration.

Compulsory Registration

Sec. 24 of the CGST Act lists out specific categories of persons who are required to get compulsorily registered, irrespective of the quantum of aggregate turnover, such as:

i. Persons making any inter-State taxable supply;
ii. Casual taxable persons making taxable supply;
iii. Persons who are required to pay tax under reverse charge;
iv. Non-resident taxable persons making taxable supply;
v. Input Service Distributor, whether or not separately registered under this Act;
vi. Every electronic commerce operator and etc.

What Is The Controversy?

Let us go to Sec. 24 in order to understand where the controversy lies. A part of said section has been reproduced below for your ready reference:

"24.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;
(ii) casual taxable persons ����"

On careful reading of the above provision, it can be observed that Sec. 24 starts with a non-obstante clause (by use of phrase “Inspite of anything contained”) which in effect provides that it shall override only Sec.22(1). Hence, it can be clearly implied that it will not override Sec. 23 of the CGST Act (discussed supra).

Let us understand the same by an example:

Assume, a company, A Ltd. exclusively supplies exempt goods.

Now, even if the aggregate turnover of A Ltd. exceeds Rs. 20 lakhs, it is not required to get register under

GST law, as it falls u/s Sec. 23. However, what happens if A Ltd. obtains GTA services or Advocate services

which fall under reverse charge, where liability to pay tax is on recipient as per Sec. 9(3) of the CGST Act.

So, whether it can be said that A Ltd. falls u/s 24 and has to get compulsorily registered?

The answer is clearly No! As discussed, Sec. 24 overrides only Sec. 22(1) (turnover limit) and not Sec. 23 (exemption). Hence, it can be concluded that once a person falls u/s Sec. 23, Sec. 24 does not have the power to require him to get himself registered.

Interestingly, in a recent case, Authority for Advance Ruling (AAR) of West Bengal has delivered a ruling (Ref.-TS-122-AAR-2018-NT), with respect to an applicant, who managed & operated Steel DevelopmentFund under Iron & Steel (Control) Order, 1956. His main source of income was interest on deposits & loans provided from Steel Development Fund and other incomes were consideration received from sale of periodicals and renting accommodation for below Rs.1000/-. AAR observed that though the aggregate turnover exceeded Rs. 20 lakhs, but all such incomes are exempt. Thereof, the AAR held that

"……… Applicant falls u/s 23 of the CGST Act and is not required to obtain registration under CGST Act/WB GST Act.

 However, applicant shall be liable to registration u/s 24 despite no taxable supply and irrespective of quantum of aggregate turnover, if he is otherwise liable to pay tax u/s 9(3) or 5(3) of CGSTAct/ IGST Act."

So, it can be observed that ruling delivered is exactly opposite of what we concluded recently. The ruling has forgotten to consider the phrase used “Notwithstanding of anything contained in Sec. 22(1)".

One may refer to the judgement given by the Apex court in case of Gwalior Rayons Silk Mfg. (Wvg.) Co. Ltd. v. Custodian of Vested Forests [AIR 1990 SC 1747at 1752], where the it was held that"….The intention of the legislature is to be gathered from the language used. Attention should be paid to what has been said and also to what has not been said.”

It can be easily argued that if the lawmakers intended Sec. 24 to override Sec. 23, they would have drafted the provision by either including Sec. 23 in the phrase, by stating that “notwithstanding of anything contained in Sec. 22(1) and 23” or would not have used any phrase and making Sec. 24 of the CGST Act to override all the other provisions of the Act. But this clearly is not the intention of the lawmakers, what was held by the AAR.

It must be noted that an advance ruling pronounced by the AAR shall be binding only on the applicant and on the jurisdictional tax officer in respect of the applicant. This clearly means that an advance ruling is not applicable to similarly placed other taxable persons in the State. It is only limited to the person who has applied for an advance ruling. The applicant, aggrieved by the advance ruling, can file an appeal to the Appellate Authority. Further, the law gives power to the AAR to amend their order to rectify any mistake, which rarely happens. Nevertheless, what we can anticipate in future is, either the applicant going for an appeal or the lawmakers amending the said section in the favor of department.

Controversy- 2 (GST CESS)

As part of the Goods and Services Tax (GST) reforms that have been implemented in the country, a new levy called the GST Compensation Cess has been introduced to make good apprehended losses to States in the first five years of GST implementation. The Cess has been introduced through the GST (Compensation to States) Act, 2017 and is levied on inter- and intra-State supply of notified goods such as aerated drinks, coal, tobacco, automobiles and the ambiguous category of 'other supplies'. The proceeds of the cess will be distributed to loss-incurring States on the basis of a prescribed formula. The schedule to the Act mentions the maximum rates of the cess, which extend to 290%. The levy would be over and above the four GST slabs of 5%, 12%, 18% and 28%.

The cess has been making headline news due to frequent changes in the rates, the latest being the increase in the rate of luxury, mid-sized cars and sport utility vehicles. While the policy flip-flop on the tax rates reveals the ad hoc implementation of the cess, there is much to say about the legal validity of the Act in terms of legislative competence and conformity with the Constitution.

A cess is a levy for a specific purpose which may bear the characteristics of a tax or a fee. The quintessential feature of a cess is that it is levied for a 'specific purpose' and the proceeds are earmarked as such.

Under Article 270 of the Constitution, a cess tax has special privilege as the proceeds can be retained exclusively by the Union and need not be shared with States. The object of granting this special status is to ensure expenditure for a specific purpose, as is evident from the Fourth Finance Commission Report.

Dilution of characteristics

A cess must have an earmarked purpose and the contributor and beneficiary must be relatable. In the past, cesses were imposed by the Central government to raise finances for specific industries and labour welfare within chosen industries. If compensating State governments is considered to be a specific purpose, any general revenue raising measure can be considered to be backed by an earmarked purpose. Once the money is transferred to State governments, it can be used to fund just about any scheme and may even be used merely to adjust the respective State government's fiscal deficit. Further, there is no relation between the persons contributing to the cess and the recipients, the State governments. All these factors make the cess look more like an additional tax or surcharge which becomes problematic as surcharge on the GST is prohibited under Article 271.

Section 18 of the 122nd Constitution Amendment Bill, 2014 proposed a 1% additional tax to compensate States but this was withdrawn while enacting the Amendment Act. The version of Section 18 adopted in the Amendment Act, 2016 merely says that Parliament shall, on the GST Council's recommendations, provide for compensation to States for a period of five years. There is no provision for an additional tax. As per Article 279A(4)(f), the GST Council's power to recommend a special rate is confined to raising additional resources during any natural calamity or disaster. The cess cannot be justified under such power. Moreover, pursuant to the 101st Constitution Amendment Act, 2016, Article 271 has been amended to state that an additional tax/surcharge cannot be imposed over and above the GST tax rates. Thus it appears that by enacting the cess, Parliament is seeking to do indirectly that which cannot be done directly, which amounts to it being a colourable piece of legislation.

The Controversy

The goods identified in the Act, such as aerated drinks, coal, tobacco, automobiles and the ambiguous category of “other supplies”, do not form a distinct category or class deserving the liability to pay the cess so as to compensate States, and it is doubtful it will succeed if tested under the anvil of the right to equality under Article 14. While the sin goods argument is alluring, it is erroneous, looking at misfits such as coal and aerated drinks and the uncovered sin goods including luxury goods, jewellery, gadgets and the like. Similarly, “other supplies” leaves much to the unfettered discretion of the government.

The cess reflects the same lack of coherence as the GST regime in general, the appeasement measures being weighed down by the legal entanglements created therein. It also raises the question as to whether the targeted goods have been chosen merely because of their inelasticity - less dependence of demand on price change - ensuring the generation of not just adequate but also surplus funds for the government. While the Delhi High Court has granted relief to a coal trader against implementation of the Act, it remains to be seen if the legislation will be tested by courts on legislative competence and colourable action.

Controversy-3 (Services without consideration, free from GST?)

In relief for the banking sector, the government cleared the ambiguity over Goods and Services Tax (GST) on 'free services' offered to customers. The Centre said these will not attract GST.

The ambiguity arose after notices were sent to lenders for non-payment of service tax under the pre-GST regime.

That issue is yet to be sorted, though the government has given enough signals that these notices might be withdrawn.

In 32 pages of 'Frequently Asked Questions' (FAQs) for the financial services sector, issued on Sunday, the Central Board of Indirect Taxes and Customs (CBIC) clarified there would be no levy on services provided without consideration (free) to  other than related/distinct persons. Government answered 91 in FAQs.

In other important clarifications, CBIC has noted that ATM machines do not trigger a GST registration liability - they are not a place of business. Beside, derivatives, forward and futures contracts are not subject to GST, it said. Only service charges or brokerage would be.

The move on free services by banks is in contradiction to notices issued by Directorate General of Goods and Services Tax Intelligence offices to at least 20 private, multinational and public sector banks, to explain why they should not pay service tax, penalty and interest on 'free services' offered to customers between July 2012 and June 2017, a period prior to rollout of GST.

Banks mandate maintenance of a minimum balance in deposits and, in turn, offer free services such as cash withdrawal from ATMs, cheque books, account statements, internet banking, debit cards, and PIN change.

CBIC officials had earlier justified the notices arguing that banks were not offering 'free services' but actually charging customers by asking them to maintain a minimum account balance and penalising them if it was otherwise.

The notices might now go to a common adjudicating authority, as all banks are affected in the same way.

The department of financial services had opposed the move to tax banks for providing these 'free services' to customers.

At the time of GST implementation last year, United Bank, Karur Vyas Bank and Sumitomo Mitsui Banking Corporation had sought clarity from the then Central Board of Excise and Customs on the levy that might apply on services provided free of cost to customers.


In this entire one year after all the hardships faced by GST professionals in returns and other filings, GST can still be said to have a new welcoming change in India. Along with digitization, the essence of GST is at peaks. But, apart from above mentioned Ambiguities there are many ambiguities (such as anti-profiteering, concessional rates etc.) that are left unanswered since the GST regime started.

But, new year remarks new opportunities of growth to be achieved, so we wish GST will get a little Good & Simple tax rather than Government Site showing errors due to robust tax system and infrastructure.


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