Section 23 of CGST Act: Persons not liable to take GST registration

Varun Hariharan

17 Mar, 2023

For certain businesses, obtaining registration under GST is mandatory. If the entity carries on business without registering under GST law, it will be an offence under GST and heavy penalties will be imposed. This article describes the complete Section 23 of CGST Act.

Section 23 of CGST Act 2017 describes the provisions pertaining to the persons who are not liable to be registered under GST. This article aims to explain in a simplified manner, the statutory provisions contained under Section 23 of the CGST Act along with relevant notifications.

But prior to diving into this section, it is indispensable to have an understanding ofSection 22 of CGST Act 2017.

Nature of Section 22

Section 22 dictates that every supplier who makes a taxable supply of goods or services or both shall be liable to be registered under GST; provided his aggregate turnover exceeds Rs. 20 lakhs in a financial year (Rs. 40 lakhs for suppliers engaged in the exclusive supply of goods w.e.f. 1st April 2019).However, where such a person is located in any of the special category states, the threshold limit is reduced to Rs. 10 lakhs.

It is of utter importance to note here that the provisions contained under Section 23 of CGST Act^[1] 2017 override Section 22. This can be construed to mean where the provisions of Section 23 and Section 22 are contradictory to each other, the provisions of Section 23 shall prevail.

Section 23 of CGST Act

Section 23ofCGST Act 2017 entails the following provisions with respect tothe determination of liability to obtain GST registration:

1.The persons who are engaged exclusively in the business of supplying goods or services or bothwhich are not liable to tax under the GST Act or which are wholly exempt from tax under the said Act; are not entitled to obtain GST registration.

For instance, where a person is engaged exclusively in the supply of alcohol for the purposes of human consumption, he would not be liable to obtain GST registration as per Section 23 of CGST Act 2017 even though his annual turnover exceeds Rs 20 Lakhs during a financial year.

Here, it can be seen that Section 22 mandates a person to obtain GST registration if his aggregate turnover exceeds Rs. 20 lakhs in a financial year irrespective of the fact such turnover comprises taxable supplies or exempt supplies. On the other hand, Section 23, being an over-riding section, specifically accords exemption from GST registration to persons who are exclusively engaged in exempt supplies or supplies not liable to tax, even when their aggregate annual turnover is more than Rs. 20 lakhs.

Thus, it can be concluded that persons engaged exclusively in making exempt supplies are not required to obtain registration even if the aggregate turnover is more than Rs. 20 lakhs.

2. The person who is an agriculturist and who is directly engaged in the cultivation of land is not entitled to obtain GST registration, to the extent of supply of produce out of cultivation of land.

Here, the term “agriculturist” is defined under Section 2(7) of CGST Act and it means an individual or a 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.

3. On the recommendation of the GST Council, the CBIC may, by issuing notifications, grant exemptions to other categories of persons. As of now, the following notifications have been issued by the CBIC for granting exemption from registration to other categories of persons:

• Category 1: Tax computed onlyon reverse charge basis

The persons or business entities who are only engaged in rendering supplies of taxable goods or services or both, the total tax arriving on which is liable to be paid on reverse charge basis by the recipient of such goods or services or both under Section 9(3) [specified categories of goods and services on which reverse charge is applicable].These persons are exempted from obtaining registration under GST.

• Category 2: Inter-state supplies made by the Job worker

The person who is a job worker engaged in making inter-state supply of job work services to a registered person is exempted from obtaining registration unless he is covered under jewellers’ business(jewellery, goldsmiths’ and silversmiths’ wares) or is registered under GST voluntarily/ or is registered as the limit of Rs. 20 lakhgets crossed.

• Category 3: Inter-state supply of services

The persons/business entities making inter-state supplies of taxable services and having an aggregate turnover not exceeding an amount of Rs. 20 lakhs in a financial year are exempted from obtaining registration under GST.

• Category 4: Services through e-commerce operator

The persons who are suppliers of services and are supplying services through an e-commerce platform/operator are not required to register under GST only if their aggregate turnover is less than Rs 20 lakhs per annum (Rs 10 lakhs in case of specified category States).

• Category 5:Inter-state supply of handicraft goods

The persons who are engaged in inter-state supply of handicraft goods are exempted from obtaining GST registration. Further, they are also not required to obtain casual registration (i.e., as a casual taxable person) if they supply goods outsidethe State where they are having their fixed establishment. However, the threshold limit of Rs. 20 lakhs/10 lakhs per annum shall be applicable.

• Category 6: Exclusive supply of goods

The persons or business entities who are engaged in the exclusive supply of goods and whose aggregate turnover in aparticular financial year does not exceed Rs. 40 lakhs are not required to take GST registration.

Compulsory registration under GST

In accordance withSection 24 of CGST Act 2017, certain specified categories of persons aremandatorily required to be registered under GST regime, even though their aggregate turnover for a financial year falls below the specified exemption limit. These include the following categories:

• Casual taxable persons making a taxable supply of goods or services or both (subject to an exemption given for handicraft goods)
• Persons who are needed to pay tax under reverse charge. Here, the service recipient is mandatorily liable to deposit tax to the Government and all the provisions of GST lawshall apply to such recipient assuming as if he is the person liable for paying the tax.
• Electronic Commerce Operator who is required to collect tax at sourceunderSection 52 of CGST Act
• Persons who supply goods through such electronic commerce operator who is required to collect tax at source under Section 52
• Non-resident persons who are making any kind of taxable supplies in the taxable territory
• Persons/business entities who are required to deduct TDS under Section 51
• Persons/business entities who make taxable supply of goods or services or both on behalf of other taxable persons whether in the capacity of an agent or otherwise
• Input service distributor
• Every person or business enterprise supplying online information and database access or retrievalservices from a place outside India to a person in India
• Such other person or class of persons as may be notified by the Government on therecommendations of the GST Council.

Takeaway

Read our article:What are the Provisions of Audit Under GST