AUGUST 21, 2017

By Abhijit Saha

EVERY person liable to pay GST is required to take out a GST registration. Accordingly, the person required to take a registration is prescribed in section 22 of the CGST Act, 2017. It is explained interalia that the person whose turnover is less than the threshold limit for registration (i.e., aggregate turnover is less than Rs. 10 Lakhs for some special category states and less than Rs. 20 Lakhs for other states) is obviously not required to take out the GST registration.

However section 24 of the CGST Act states that notwithstanding section 22, person making any interstate taxable supply is compulsorily required to take out the registration even if their aggregate turnover is less than the threshold limit as mentioned above. Similarly persons who are required to pay tax under reverse charge is also compulsorily required to take out the registration.

It is interesting to note that as per section 5(4) of the IGST Act, The integrated tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

It is evident from the above that there is an apparent contradiction between the provision of section 24 of the CGST Act and the section 5(4) of the IGST Act. In the CGST Act, it is stated that the person who is making any inter-state supply is compulsorily required to take out the registration. This means that the person making the interstate supply is liable to pay IGST because taking out the registration means that the person is liable to pay tax. However, IGST Act stipulates that the person who is making the interstate supply may remain unregistered and may remain not liable to pay tax. In such a case, the recipient in another state who is the recipient of interstate supply is liable to pay IGST under reverse charge basis.

This is highly contradictory and anomalous. The person who is required to take out the registration and liable to pay tax is not paying tax but the person who is not required to pay tax is liable to pay tax only because the person liable to pay tax as per law has not paid the tax. It is a case of Paul committing a crime and Peter is penalized for such crime of Paul . If Paul is liable to pay tax then the law should proceed against him for realization of the arrear tax. The Law should not proceed against Peter for realization of the arrear of tax which the Paul is liable to pay. This is totally discriminatory and unconstitutional and predatory measures which is draconian in nature.The argument that it may be revenue neutral may not be the correct way to interpret the law. It is universally accepted that two wrongs don't not make a right.

Take for instance that both Paul and Peter's aggregate turnover is less than the threshold limit. As per section 24 of the CGST Act, Paul should be liable to pay tax but section 5(4) of the IGST Act is silent about reverse charge when Peter is unregistered. In such a situation what will happen? Paul would choose to not pay and Peter would also choose to not pay as there is no mandate on him to pay as per section 5(4) of IGST Act. Paul is liable to take registration under section 24(i). Hence the question would be posed as to whether the provision of section 24(i) of CGST Act would apply depending upon whether the recipient of the supply is registered or not registered. If the recipient is registered then section 24(i) does not apply but if the recipient is unregistered, then the law is silent. This is incongruous.This is especially relevant because the registration requirement for both the IGST and the CGST is mentioned in section 24 of the CGST Act. There is no separate registration requirement under IGST Act. Hence the provision of section 24 of the CGST Act would equally apply to IGST Act and interstate supply.

(The views expressed are strictly personal.)