Section 23 of GST – Persons not liable for registration

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Section 23 of GST – Persons not liable for registration Under GST (Goods & Service Tax)

(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.

Analysis

Section 23 provides relaxation from the requirement of obtaining registration to two categories of persons

  • (a) Agriculturist;
  • (b) Persons engaged exclusively in the supply of exempted goods or services or both.

Thus, the aforementioned persons would not be required to obtain registration even if their turnover exceeds ` 20 Lakhs. To this extent, section 23 overrides the provisions of section 22.

Agriculturist
As per section 2(7), agriculturist means an individual or HUF who undertakes cultivation of land:

  • (a) By own labour, or
  • (b) By the labour of family, or
  • (c) By servants on wages payable in cash or kind or by hired labour under personal supervision or the personal supervision of any member of the family

supervision or the personal supervision of any member of the family.
Thus, an agriculturist is not liable for registration only to the extent of supply of produce out of cultivation of land. If an agriculturist undertakes supplies which are not linked to the cultivation of land, he will fall within the provisions of sections 22 and may have to take registration in respect of such supplies. It is important to consider the nature of activities undertaken by the agriculturist. If the process deviates from ‘cultivation’ it will travel outside the scope of this exclusion from registration. The exclusion states – to the extent of supply of ‘produce out of cultivation’ of land – any further processing of the primary produce from cultivation will continue not to avail this exclusion.

Cultivation of land does not include pisciculture on inland water body or cattle rearing that graze the produce of land. The produce that emerge from land is ‘cultivation of land’. For example, harvesting paddy is cultivation but production of rice is not.

Please note that the exclusion from the requirement to be registered does not result in non-collection of tax on agricultural produce. Section 9(3) of the CGST Act and sections 5(3) of the IGST Act notifies certain commodities (like cashew nuts) on which tax is required to be discharged under reverse charge basis by the recipient of goods when such commodities are purchased from an agriculturist. Thus, the exemption from registration is dependent on status of the supplier and not based on the commodity involved. Needless to say, if the supplier of goods is not an agriculturist, then he will have to obtain registration under the regular provisions sections 22 if his aggregate turnover exceeds ` 20 Lakhs.

Exclusively engaged in Exempt Supplies

The term exclusive indicates engaging in only those supplies which are exempted. Therefore, if a supplier is supplying both exempted and non-exempted goods and/or services, then this provision is not applicable, and he is required to obtain registration under sections 22.

Further, this section also permits any person whose ‘entire’ supply consists of ‘exempt supplies’, then such person is excluded from obtaining registration. Care should be taken to validate the premises about (a) entire supply and (b) exempt. Even if small value of supplies is taxable, then even exempt supplies will be included to determine if aggregate turnover has exceeded the threshold limit under section 22 for attracting registration.

Now, a question may arise as to whether registration is required in case a person is engaged exclusively in supplying exempted goods or services and also incurs certain expenses which are listed in section 9(3) as Reverse charge items.

For example: Mr. Akshay is engaged in exclusive supply of exempted goods (say puja samagri) and has a turnover of ` 50 crores. He also pays transportation charges to a GTA. Whether Mr. Akshay will be required to take registration? Now, to answer this question, we should take a note that registration requirement for payment of tax under RCM is specified in section 24, which starts with a non-obstante clause and overrides section 22(1) [cases of registration where aggregate turnover exceeds ` 20/10 lakhs] and it does not override section 23 [which grants exemption from liability to register]. So in case a person is exempted from obtaining registration u/s. 23 (and its notifications), he cannot be made liable for registration u/s. 24 till the time he continues to satisfy the conditions of section 23. Further, a person who only supplies exempted goods cannot be covered by section 22(1), because section 22(1) mandates registration in the state, from where a person makes taxable supply of goods or services. However, the department may contend otherwise and this issue needs to be litigated based on merits

Updates

Central Government vide Notification No. 65/2017-Central Tax, dt. 15-11-2017 w.e.f 15th November 2017 has amended section 23(2), of CGST Act, 2017. the Central Government, on the recommendations of the Council, hereby specifies the persons making supplies of services, other than supplies specified under subsection (5) of section 9 of the said Act through an electronic commerce operator who is required to collect tax at source under section 52 of the said Act, and having an aggregate turnover, to be computed on all India basis, not exceeding an amount of twenty lakh rupees in a financial year, as the category of persons exempted from obtaining registration under the said Act, Provided that the aggregate value of such supplies, to be computed on all India basis, should not exceed an amount of ten lakh rupees in case of “special category States” as specified in sub-clause (g) of clause (4) of article 279A of the Constitution, other than the State of Jammu and Kashmir.

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