Relevance of Taxable Person
Taxable person is defined under section 9 of the model CGST / SGST Act but before understanding who is a taxable person let us understand what is the relevance of taxable person.
The most important section of any statute is the charging section. In the Model GST Laws section 7 is the charging section under SGST and CSGT Act and section 4 is the charging section under IGST Act and the relevant extracts of the section are reproduced hereunder:
Levy and Collection of CGST / SGST / IGST
Section 7 in case of CGST / SGST Act and Section 4 in case of IGST Act
Normal Charge (Forward Charge)*
1. Payable on- all supplies of goods and/or
Services (intrastate CGST+SGST and interstate IGST)
2. Payable at- specified rate
3. Payable by- taxable person
1. Payable on- specified supplies of goods and/or services (intrastate CGST+SGST and interstate IGST)
2. Payable at- specified rate
3. Payable by- person receiving specified supplies
* Normal Charge (Forward charge) means where the person supplying goods and/or services collects GST and pays the same to government.
# Reverse charge means where the person receiving the supply of goods and/or services is liable to pay the GST to government.
After observing the charging section we can arrive at a conclusion that in normal charge (forward charge) the GST is payable by taxable person. In other words to complete the levy under normal charge the person must be a taxable person. If a person is not a taxable person then he is not liable to pay GST.
Meaning of Taxable Person
Section 9 of the CGST Act / SGST Act provides the meaning of taxable persons along with six exclusions or six cases where the person will not be treated as a taxable person even though he is covered under the meaning of taxable person.
The meaning of taxable person is provided under section 9(1) which is as follows:
“Section 9 (1) Taxable Person means a person who carries on any business at any place in India /State of ____ and who is registered or required to be registered under Schedule III of this Act:”
After reading the definition we understand that a taxable person is-
A person (i.e. he must fall within the definition of person as provided in section 2(74) who carries on any business (he must be carrying on business and the word business is defined under section 2(17) at an place in India/state of ______ (the person must be carrying on business in India) and who is Registered (has obtained registration under section 19) Or required to be registered under schedule III of this act
In other words we can conclude that to become a taxable person the following conditions must be met simultaneously-
a) the person must be covered under the definition as provided in section 2(74)
b) that activity of the person must be covered under business as defined in section 2(17)
c) the business must be carried out in India and
d) the person must be
- registered or
- required to be registered under schedule III of this act
If any of the above is negative then that person will not become a taxable person and hence not liable to pay GST. We must also see that in point (d) the section has carved out two categories of persons, first is the person who is registered and the second category is the person who is required to be registered under Schedule III of the act. These categories will play an important role when we will discuss our second exclusion.
After understanding the meaning of taxable person let us now understand various exclusions.
Exclusion 1: To Agriculturist
The first exclusion from taxable person is provided by means of first proviso to section 9(1) which is as follows-
“Provided that an agriculturist shall not be considered as a taxable person.“
The first question that comes to our mind after reading the 1st exclusion is that who is an agriculturist. The definition of the same is provided in section 2(8) of the Model CGST / SGST Act which is as follows:
“agriculturist” means a person who cultivates land personally, for the purpose of agriculture;
Now what is agriculture?
“Section 2(7) provides definition of agriculture as “agriculture" with all its grammatical variations and cognate expressions, includes floriculture, horticulture, sericulture, the raising of crops, grass or garden produce and also grazing, but does not include dairy farming, poultry farming, stock breeding, the mere cutting of wood or grass, gathering of fruit, raising of man-made forest or rearing of seedlings or plants;
Explanation.– For the purpose of this clause, the expression ‘forest’ means the forest to which the Indian Forest Act, 1927 applies.”
After reading the definition of agriculturist and agriculture we can conclude that both the definitions are very limited and are restricted. So as GST professional and business person we must ensure that we are covered under the definition of agriculturist read with agriculture before claiming relief under this exclusion.
Exclusion 2: To a person liable to registration under paragraph 1 of schedule III of the act
The second exclusion from taxable person is provided by means of second proviso to section 9(1) which is as follows-
“Provided further that a person who is required to be registered under paragraph 1 of Schedule III of this Act shall not be considered as a taxable person until his aggregate turnover in a financial year exceeds Rs ten lakh/ five lakh.
[This threshold of 5 lakh will apply only if a taxable person conducts his business in any of the NE States including Sikkim.]”
This exclusion is available only to a person who is liable to registration under paragraph 1 of schedule III of the act until his aggregate turnover in a financial year does not exceed Rs ten lakh (five lakh for north eastern states including Sikkim).
In paragraph 1 of schedule III limit of Rs 9 lakh aggregate turnover (4 lakh aggregate turnover for north eastern states including Sikkim) have been provided.
Now let us understand it by way of an example
Person A started business and has turnover of Rs 5 lakh at the end of first month say April, 2016
He is not a person who is liable to take registration under paragraph 1 of schedule III and is not a taxable person.
In the next month the turnover of the persons crosses Rs 9 lakh
He is a person liable to registration under paragraph 1 of schedule III but is not a taxable person by virtue of second proviso to section 9(1)
Since his turnover has crossed 9 lakh he needs to obtain registration within 30 days as per section 19. Let us say that 9 lakh was achieved on 31st May so he needs to register himself by 30th June
Case 1: He obtains registration on 29th June and is allotted GSTN on 30th June and in mean while supply worth Rs 75,000 was made.
He becomes a registered person on 30th June, 2016 i.e. on 29th June he moves out from one category which is “person liable to registration under paragraph 1 of schedule III” to another category which is “registered person”.
As soon as he becomes a registered person this exclusion is not applicable to the person because it is applicable to person liable to registration under paragraph 1 of schedule III.
In the given case he will get limit till Rs 9.75 lakh and the balance limit will not be available since he has moved out of the exclusion.
Case 2: He obtains registration next day i.e. 1st June and is allotted GSTN and in mean while no supply was made.
He becomes a registered person on 1st June, 2016 i.e. on 1st June he moves out from one category which is “person liable to registration under paragraph 1 of schedule III” to another category which is “registered person”.
In this case the explanation as provided in case 1 are applicable and he will not get benefit of even rupee one supply post registration, because of his moving out of the exclusion on obtaining registration.
After going through the above examples we can see that there is some conflict in the provision itself at one side they are trying to provide limit of Rs 10 lakh but as soon as he takes registration he is out of the relief.
If the government intention is to take away the limit of Rs 1 lakh as soon as the persons obtains registration then the above provisions is correct but if the government wishes to provide an option to the person that he can avail limit of Rs 10 lakh even after registration the provision must be re-worded as follows
“Provided further that a person who is registered (except where registration has obtained by virtue of paragraph 2,3,4 and 5 of the schedule III) or required to be registered under paragraph 1 of Schedule III of this Act shall not be considered as a taxable person until his aggregate turnover in a financial year exceeds Rs ten lakh/ five lakh.”
Exclusion 3: To Government Activities as specified in schedule IV
The third exclusion from taxable person is provided in section 9(2) which is as follows-
“(2) The Central Government, a State Government or any local authority shall be regarded as a taxable person in respect of activities or transactions in which they are engaged as public authorities other than the activities or transactions as specified in Schedule IV to this Act.”
Under this exclusion certain activities of the Central Government, State Government and local authority have been identified under which these government and authorities shall not be treated as taxable persons. Example of such activities/transactions are -
a) services in discharge of statutory obligations such as issuance of passport, visa etc
b) services by way of health care and education etc.
For complete list the readers are advised to go through Schedule IV to the CGST / SGST Act.
Exclusion 4 : To Employee for services to employer
The fourth exclusion is provided under clause a of section 9(3) which is as follows-
“(a) any person who provides services as an employee to his employer in the course of, or in relation to his employment, or by any other legal ties creating the relationship of employer and employee as regards working conditions, remunerations and employer’s liability;”
The above transaction provides benefit to the persons providing services as an employee to his employer. The transaction is not taxable under the present regime also and the same benefit has been provided in GST regime.
Exclusion 5 : To Person engaged in exclusive supply not liable to tax under the act
The fifth exclusion is provided under clause b of section 9(3) which is as follows-
“(b) any person engaged in the business of exclusively supplying goods and/or services that are not liable to tax under this Act;”
This exclusions provide relief to a person who is otherwise a taxable person but because he is dealing in exclusive supply of goods and/or services which are not liable to tax under this act he will not be considered as a taxable person. The important point to note here is that it provides relief to a person dealing in 100% supply not liable to tax.
The above provision is very clear but we must understand the meaning of “supply of goods and/or services not liable to tax”. To understand it better we must first see what is exempt supply. The definition of Exempt supply is provided in section 2(42) which is as follows:
“(42) “exempt supply” means supply of any goods and/or services which are not taxable under this Act and includes such supply of goods and/or services which are specified in Schedule . . . of the Act or which may be exempt from tax under section 10;”
The above definition carves our three type of supplies
a) Not liable to tax under this act
b) Liable to tax under the act but are covered in the exempt schedule
c) Which are exempted under section 10 (like mega exemption under service tax)
After reading the definition we can understand that even if the person deals in transactions that are covered in b and c above he will still become a taxable person subject to other conditions but if he is dealing in those supplies that are not brought into GST regime he will not become a taxable person. The example of such supplies are tobacco, petroleum products, liquor for human consumption.
Exclusion 6 : To person covered under reverse charge cases upto a specified limit for personal use
The sixth exclusion is provided under clause c of section 9(3) which is as follows-
“(c) any person, liable to pay tax under sub-section (3) of section 7, receiving services of value not exceeding ______ rupees in a year for personal use, other than for use in the course or furtherance of his business.”
This exclusion provides relief to all persons who are liable to pay tax under reverse charge i.e. persons covered under section 7(3) upto a specified amount for personal use.
It is a welcome provision but when we read section 7(2), section 7(3) and clause 2 of section 9(3) this relief might be subject to litigations. To understand the reason there of we must first analyse the provisions once again:
Section 7 Levy and Collection of Central/State Goods and Services Tax
(1) There shall be levied a tax called the Central/State Goods and Services Tax (CGST / SGST) on all intra-State supplies of goods and/or services at the rate specified in the Schedule . . . to this Act and collected in such manner as may be prescribed.
(2) The CGST / SGST shall be paid by every taxable person in accordance with the provisions of this Act.
(3) Notwithstanding anything contained in sub-section (2), the Central or a State Government may, on the recommendation of the Council, by notification, specify categories of supply of goods and/or services the tax on which is payable on reverse charge basis and the tax thereon shall be paid by the person receiving such goods and/or services and all the provisions of this Act shall apply to such person as if he is the
person liable for paying the tax in relation to such goods and/or services.
Section 9 (3) The following persons shall not be considered as taxable persons for the purposes of this Act –
(c) any person, liable to pay tax under sub-section (3) of section 7, receiving services of value not exceeding ______ rupees in a year for personal use, other than for use in the course or furtherance of his business.
After reading the above provisions we can conclude that the term taxable Person is used in section 7(2) which is in relation to Normal Charge (Forward charge) and no such term is used in section 7(3) which is for reverse charge so the government authorities can always say that even though you are not a taxable person as per section 9(3)(c) but for levy of reverse charge you are not required to be a taxable person and hence liable for payment of GST.
It seems that it is a drafting error and the clause c shall be added below section 7(3) rather than in section 9(3) so that there is no litigation and the benefit is passed on to the supplier without any problem.
Summary of exclusions
First proviso to section 9(1)
Second proviso to section 9(1)
To person liable to registration under paragraph 1 of schedule III until his aggregate turnover exceeds rs 10lakh or five lakh
To Government Activities as specified in schedule IV
Clause a to section 9(3)
To Employee for services to employer
Clause b to section 9(3)
To Person engaged in exclusive supply not liable to tax under the act
Clause c to section 9(3)
To person covered under reverse charge cases upto a specified limit for personal use
Important terms used in Taxable Person
“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.
“business” includes –
(a) any trade, commerce, manufacture, profession, vocation or any other similar activity,
whether or not it is for a pecuniary benefit;
(b) any transaction in connection with or incidental or ancillary to (a) above;
(c) any transaction in the nature of (a) above, whether or not there is volume,
frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital assets and services in connection with
commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a subscription or any
other consideration) of the facilities or benefits to its members, as the case may be;
(f) admission, for a consideration, of persons to any premises; and
(g) services supplied by a person as the holder of an office which has been accepted by
him in the course or furtherance of his trade, profession or vocation;
(a) an individual;
(b) a Hindu undivided family;
(c) a company;
(d) a firm;
(e) a Limited Liability Partnership;
(f) an association of persons or a body of individuals, whether incorporated or not, in
India or outside India;
(g) any corporation established by or under any Central, State or Provincial Act or a
Government company as defined in section 2(45) of the Companies Act, 2013 (18 of
(h) any body corporate incorporated by or under the laws of a country outside India;
(i) a co-operative society registered under any law relating to cooperative societies;
(j) a local authority;
(l) society as defined under the Societies Registration Act, 1860 (21 of 1860);
(m) trust; and
(n) every artificial juridical person, not falling within any of the preceding sub-clauses;
The author can also be reached at email@example.com