FEBRUARY 20, 2018

By Rajat Dosi

1. THIS write-up attempts to highlight the onerous registration requirement cast under the GST law in certain situations, where prudence and pragmatism will dictate that no registration should be insisted. Such situations beg the immediate attention of the GST Council's for a suitable amendment in the existing GST law(s).

2. Section 22 of the CGST Act details the registration requirement under the GST law. It inter alia exempts assessee(s) from registration requirement when their aggregate turnover is less than INR 20,00,000/- (or INR 10,00,000/- for special category states). Explanation to this provision defines ‘aggregate turnover', to mean all supplies made by a taxable person.

3. To this effect, one can also refer to the definition of ‘turnover in State', in section 2(112) of the CGST Act. It has been defined to mean all types of supplies such as inter alia taxable supplies, exempt supplies and zero-rated supplies. Section 2(47) of the CGST Act, in this regard, includes non-taxable supply within the four corners of ‘exempt supply'.

4. Thus, in essence all persons whose aggregate turnover including taxable supplies, exempt supplies and non-taxable supplies, is more than INR 20,00,000/- or INR 10,00,000/-, as the case may be, are required to take registration under the GST law. Once registration obligation has been cast, all rigors of GST law such as return filing, generation of e-way bills (under reverse charge), payment under reverse charge on supplies from an un-registered person (now deferred, but when the same was applicable), etc. will apply.

5. The above proposition of law has been a real nightmare for several trade players. It has cast registration requirement in such situations where it is neither prudent nor reasonable. Below, I have highlighted few such instances as illustrations to substantiate this point.

Sale of used / old car by a unit supplying exempted goods / services

6. There are instances where certain companies / assessee(s) are engaged in the supply of exempted goods or services. Several such companies have old and used cars which they intend to sell. Such sale transaction, being a transaction of sale in the course and furtherance of business by the company, will be subject to payment of applicable GST under the GST law (Section 7 of the CGST Act).

7. In the above situation, many a times, the sale consideration of the car(s) in a given year individually is not more than the threshold limit of INR 20,00,000/- or INR 10,00,000/- (Section 22 of the CGST Act). However, for computing this threshold limit, the assessee will have to include not just the sale consideration of cars but also the value of exempted goods / services provided by them. Inclusion of this figure will make most of such assessee(s) liable for registration under the GST law. Thereby, casting the obligation of various unintended compliances on these assessee(s), which in my opinion should not be there. Since individually their taxable supply portion is less than the threshold limit, the registration requirement should not be casted on them.

8. Other than the above situation, it may also include a situation wherein a unit supplying exempted goods or services is providing food to its employees through it's canteen and charging certain consideration from them. Herein also the said unit will be required to take GST registration.

Hospital providing food to persons other than in-patients

9. Vide recent Circular No. 32/2018-CGST dated 12.02.2018, it has been clarified that the following services provided by hospitals are exempt, which constitutes the majority of turnover of any given hospital in India:

a. Health related services provided to its patients; and

b. Food provided to its patients.

10. This circular, however, clarifies that when food is offered by the canteen run, by the hospital, to families of in-patients or other visitors to the in-patients, it's staff or anyone other than the in-patients, the same will be taxable and subject to payment of applicable GST. For many hospitals, this figure individually may be less than the above threshold limit of registration under the GST law. However, when combined with the exempted supplies made by the hospital, the aggregate turnover will certainly be more than the said threshold limit of registration, requiring the hospital to take registration under the GST law and comply with its various requirements / obligations casted therein.

11. Many of the hospitals in India are unaware of the above rigors / application of law and have not taken registrations under the GST regime, despite the fact that they are providing food through it's canteen to persons other than the in-patients.

Unit making exempted supplies, but availing services liable for payment under reverse charge mechanism

12. Units making exempted supplies, and availing services on which GST is required to be paid under the reverse charge mechanism, are also mandated by the GST law to take registration, which again can be avoided in my opinion. Here one may argue that this requirement was casted even under the erstwhile service tax regime and therefore there should not be any issue in carrying forward the same requirement under the new GST regime. To this, I would differ on the following counts:

a. Under the erstwhile service tax law, such registrants were required to file quarterly one service tax return. Registration under the GST law will require them to file three monthly returns and one yearly return. Thus, in total require them to file 37 returns in a year, in place of just 4 returns under the erstwhile regime, thereby increasing the overall compliances of the unit concerned;

b. Once registered under the GST regime, the said registrants will have to go through and follows the rigors of reverse charge mechanism, when supplies are taken from an un-registered person, both in terms of payment of applicable GST and generation of e-way bill (as and when both are implemented). This was not applicable under the service tax regime.

13. To sum up, a petty transaction (which is taxable) by an otherwise exempted unit or reverse charge liability on such units, will require such units to take registration under the GST law and follow all its necessities. This application of section 22 of the CGST Act, in my opinion, is not prudent and was also never intended by the lawmakers. Thus, this provision warrants appropriate changes to avoid the above onerous application of registration requirement under the GST law. Such change will also reduce the much-needed load on the GSTN portal, allowing a smooth and seamless use of portal to other assesses.

(The author is Partner, RSA Legal Solutions and the views expressed are strictly personal.)