CASE STUDY

AbhishekPrivateLimited (Maharashtra) provides housekeeping services. The company supplies its service exclusively through an e-commerce website owned and managed by Safai Private Limited. The turnover of Abhishek Private Limited in the current financial year isRs 18 lakhs. Advice Abhishek Private Limited as to whether they are required to obtain GST registration. Will youadvise changeif Abhishek Private Limited sells readymade garments exclusively through the e-commerce website owned and managed by Safai Private Limited.?

Note: All sections in this article relate to CGST Act, 2017 unless otherwise specified.

ANALYSIS:

Electronic Commerce Operator means any person who owns, operates, or manages a digital or electronic facility or platform for electronic commerce (as defined under 45 of Section 2). So, Safai Private Limited is an ECO.

Let’s observe the process as to how ECO works:

gst enquirey

The focus of the question is whether to get registered or not. Let’s analyze the provisions of law:

  • Section 22 specifies that every supplier of goods or services or both is required to obtain registration in the State/ Union Territory from where he makes the taxable supply if his aggregate turnover exceeds Rs. 40 lacs [Rs. 20 lacs in case of specified Special Category States] in a financial year. At the introduction phase of GST (i.e., the year 2017), the Government was of the view that the business persons having annual sales of below Rs. 40 lacs would be small-scale businesses and can skip the compliances of GST law. However, some of the east Indian states have lower exposure of business i.e., businesses are not that developed in some parts of the country in which the threshold of Rs. 40 lacs would be too high. Hence, for the special category states (namely Arunachal Pradesh, Meghalaya, Nagaland, Manipur, Tripura, Mizoram, Puducherry, Sikkim, Telangana, and Uttarakhand) the limit is reduced by Rs. 20 lacs.
  • In our case, Abhishek Private Limited is located in Maharashtra wherein the applicable limit is Rs. 40 lacs. So, as of now, it seems Abhishek Private Limited is not required to take registration. But we cannot jump to a conclusion this way, let us look over the other provisions of the GST law also.
  • Further, section 24 states that certain categories of persons are compulsorily required to take registration irrespective of the turnover if such persons supply goods or services through an ECO (Electronic Commerce Operator). But only ECOs who are required to collect tax at source under section 52, are required covered under section 24 category. So, section 24 shifts the liability for registration and payment of tax from the supplier to the ECO
  • However, there are certain notified services under section 9(5) wherein for those notified services, the main supplier itself may be liable for registration depending on its turnover limits under section 22(1). Here, Section 9 overpowers Section 24. The notified services under section 9(5) include housekeeping services. However, the turnover of Abhishek Private Limitedis below is Rs. 40 lacs criteria.
  • The logic of providing such relief to housekeeping services is that such suppliers often operate on a small case and asking them to register mandatorily will unknowingly increase the burden of compliance on small businesses. Thus, housekeeping is included in the list of notified services under section 9(5).
  • Another observation was made by the case study “what if Abhishek Private Limited is selling readymade garments through ECO”. First of all, only notified services are covered in section 9(5) and not goods. So, the sale of a readymade garment is the supply of goods and not services. Thus, the exception of section 9(5) will not apply and Abhishek Private Limited will have to take mandatory registration under section 24.
  • The entire process flow of registration linked with ECO and notified services is presented in the following flowchart:

gst enquirey process

CONCLUSION

We assume that SafaiPrivateLimited is an ECO thatis required to collect tax at source under section 52. Housekeeping services are notified under section 9(5). Thus, Abhishek PrivateLimited can claim the threshold exemption and thus, will not be required to obtain registration even if the services are supplied through an ECO.

In the second case, the sale of readymade garments is not covered under the notified category of services. Thus, section 9(5) cannot be applied. Abhishek PrivateLimited cannot claim the threshold exemption. It will have to take mandatory registration applying the provisions of section 24.

WRAPPING UP

The supply of services through ECO does not necessarily require registration under GST. Section 9(5) provides a shortlist of notified services. If the supplier provides such services, he will not be required compulsory registration unless the threshold crosses. However,the only supply of services is notified u/s 9(5) and not supply of goods.