Can a business operate without GST registration?

Can a Business Operate Without GST Registration?

Yes, a business can operate without GST registration only if it meets the prescribed exemptions under the Goods and Services Tax (GST) law. These exemptions are based on the type of goods or services supplied, the turnover of the business, and other specified conditions.

Legal Provisions Governing GST Registration

GST registration is primarily governed by the Central Goods and Services Tax (CGST) Act, 2017. Here are the relevant provisions:

1. Voluntary and Mandatory Registration

• Section 22: Specifies persons liable to register under GST, based on the turnover threshold.
• Section 24: Lists situations where registration is mandatory, irrespective of turnover (e.g., inter-state supply, e-commerce operators, reverse charge mechanism).

2. Turnover Thresholds (Section 22)

• Businesses must register if their annual turnover exceeds:
  • ₹40 lakhs for goods (₹20 lakhs for special category states).
  • ₹20 lakhs for services (₹10 lakhs for special category states).

3. Exemptions

• Businesses supplying exempt goods or services or those with turnover below the threshold are not required to register.

4. Penalty for Non-Compliance (Section 122)

• A penalty of 100% of the tax due or ₹10,000 (whichever is higher) for operating without mandatory registration.

5. Constitutional Provisions

• GST laws derive authority from the Constitution (101st Amendment) Act, 2016, particularly:
  • Article 246A: Empowers Parliament and State Legislatures to make laws on GST.
  • Article 269A: Regulates inter-state trade and apportions revenue.
  • Article 279A: Constitutes the GST Council for policy decisions.

When a Business Can Operate Without GST Registration

1. Below Turnover Threshold:
   • Businesses with turnover below the prescribed limits are exempt.
2. Dealing Exclusively in Exempt Supplies:
   • Entities supplying only GST-exempt goods or services, like unprocessed agricultural produce.
3. Special Categories:
   • Agriculturists for activities related to cultivation.
   • Suppliers engaged in non-taxable or export activities (with certain conditions).

Landmark Cases Related to GST Registration

1. Alok Knit Exports Ltd. v. State of Uttar Pradesh (2020)

• Issue: Whether non-registration under GST would lead to operational prohibition.
• Ruling: Businesses not liable for registration can operate without GST registration. Penalizing them would violate the principles of natural justice.

2. Union of India v. Mohit Minerals Pvt. Ltd. (2022)

• Issue: Clarification on tax liability for inter-state services by unregistered businesses.
• Ruling: Highlighted that businesses with mandatory registration requirements must comply. Failure leads to penalties under Section 122.

3. M/s. Safari Retreats Pvt. Ltd. v. Chief Commissioner of CGST (2019)

• Issue: Input tax credit claim for businesses not registered initially but later registered.
• Ruling: Stressed that compliance with registration timelines is crucial for claiming benefits.

4. Aparna Agency v. State of Uttar Pradesh (2018)

• Issue: Seizure of goods for unregistered businesses.
• Ruling: Businesses exempt from registration cannot be penalized for operating without registration.

Conclusion

A business can legally operate without GST registration if it falls within the exemption criteria laid down in Section 22 and Section 24 of the CGST Act, 2017. However, businesses that are mandatorily required to register under GST and fail to do so are subject to penalties. For legal clarity and to avoid complications, businesses must regularly evaluate their liability under GST.