In the GST mechanism, an individual is not bound to register if his aggregate revenue in the financial year is below 20 Lakhs. As per the law, the supplier needs to register once his turnover exceeds 20 Lakhs and start paying taxes from that point. However, in some cases in Karnataka, officials have made tax demands even on the first 20 lakhs of turnover effected in the year in which a supplier crosses the registration limit. Let’s try to assess whether such demands stand firm, read till the end to know.
Regardless of the turnover, tax is collected from all supplies under Section 9. The “taxable person” is the one who is subject to paying this tax, nevertheless. Section 9(1) states that a tax known as the central goods and services tax is imposed on all intra-state supplies of goods and services or both, and that it is the responsibility of the “taxable person” to pay this tax. Therefore, the taxable person alone, and no other party, is responsible for paying the tax.
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GST Section 2(107) for Taxable Person
Under Section 2(107), a “taxable person” is “a person who is registered or who is subjected to be registered under Section 22 or Section 24.” Unquestionably, if a supplier is compulsorily registered for tax purposes under Section 24, they become taxable individuals and are liable to pay tax from the first rupee of their revenue. For those who voluntarily registered, the same rule is applicable here. However, as per the view of tax officials, if the turnover exceeds the threshold of 20 lakhs, the tax should be applied to the full turnover, including the first 20 lakhs, as long as those who are required to register under Section 22 are concerned. When we look at the GST Act as a whole and read the sections harmoniously, these interpretations seem to be inaccurate.
Section 25(1) states that an application for registration must be made within 30 days “from the date on which the person becomes liable to GST registration.” Rule 10(2) specifies that registration will be considered from the date the person becomes liable to be registered. Therefore, there is no requirement to register till the turnover crosses the Rs. 20 lakh threshold limit. As a result, the provider cannot be regarded as a “taxable person” for the turnover produced prior to that date and is exempt from paying tax.
Tax Invoice Under GST Section 31(3)
Additionally, Section 31(3) allows those who have just newly registered individuals to issue revised GST tax invoices. Section 31(3)(a) specifically specifies the following:
“(a) a registered person may, within one month from the date of issuance of the certificate of registration and in such manner as may be prescribed, issue a revised invoice against the invoice already issued during the period beginning with the effective date of registration till the date of issuance of the certificate of registration to him.”
According to the aforementioned, the revised invoice provisions are applicable to invoices generated between the date the supplier becomes liable to register and the date the registration certificate is issued. Because of this clause, the supplier is allowed to generate a GST tax invoice for the taxes that have been paid ever since they became liable to register. The option of providing amended invoices would have been accessible from the start of the Financial Year in which they cross the threshold limit if the legislature had meant to collect tax on the turnover up until the date when the supplier becomes liable to be registered. This is not done, as the supplier is not required to pay tax until they are liable to be registered.
It is clear from the information above that the machinery provisions only apply to transactions that take place after the threshold limit has been crossed. This implies that only transactions that occur after exceeding the threshold are subject to tax. The levy provisions must be interpreted in accordance with the machinery provisions.
As an indirect tax, Goods and Services Tax(GST) is borne by the recipient of the supply, however, the supplier is still responsible for collecting and paying the tax to the government. We can understand why tax is not imposed on turnover before exceeding the threshold limit of Rs. 20 Lakhs considering these GST elements. The supplier would not have included GST in any invoices for turnover up to Rs. 20 Lakhs because they were neither registered nor liable to be registered. Because the supplier cannot go back in time and collect such tax from the consumer, it would be impossible to construe the requirements to tax turnover before crossing Rs. 20 Lakhs. Such an interpretation would make no sense because it would interpret that the law will demand something unattainable.
Section 32 of the CGST Act
Section 32 forbids unregistered individuals from collecting taxes. GST would no longer be specified as an indirect tax if the tax were liable on revenue below the threshold (including the first 20 lakhs), as this would require the supplier to pay the tax that they are prohibited from collecting from customers under the same law.
We can also take a look at Section 22 of the Karnataka Value Added Tax Act, 2003, which stipulates that the dealer must register even if they have good grounds to believe that their annual revenue will exceed 10 Lakhs. Under such provision, a person must expect his revenue and register. GST, in contrast, does not call for such requirements. The law does not follow the term “anticipates to exceed’ but uses the term “exceeds 20 Lakhs”. Registration is required, according to the law, when the turnover “exceeds 20 Lakhs.” As a result, the supplier is not required to anticipate their turnover in advance or to start collecting taxes from the first day of the financial year based on such expectations.
It is clear from the above discussion that no tax on generated turnover may be demanded until the registration threshold (whether it is 20 lakhs, 10 lakhs, or 40 lakhs) is exceeded.
