Registration under GST? An overview

The platform seems to be all set for the launch of the most awaited tax reform in India. It is a unanimous opinion that if the Goods and Service Tax law is implemented, it would directly benefit the economy to a large extent. The Modi government too seems to be determined to bring about this reform. Recently, ‘The joint committee on business processes for GST’ had made public and invited comments on 4 reports prepared by it.

The 4 reports were on 4 different business processes under GST, namely –

1. Registration
2. Payments
3. Refunds
4. Returns

In this article, I would present in a comprehensive manner, the main points covered in the report on ‘Registration’.

One important thing to understand first is that, the report is on the ‘processes‘ for registration, i.e. where to register, how to register, etc. It does not specify as to who requires to take registration under GST and who does not need to register. In simple words, the report does not deal with the law part but tackles the practical aspects in GST.

So the recommendations made in this report are based on certain assumptions regarding some basic principles, like-

a. There will be a threshold (limit) of turnover below which a person would not be required to get registered. But if a person is involved in ‘Inter-state supplies’ or is liable under ‘Reverse Charge Mechanism’, he would have to register even if his turnover is below the threshold exemption.

b. Any unregistered person would not be able to collect GST from his customers. Also, he cannot claim input credit of any GST which he might have paid on his purchases.

c. There will be another threshold, which will be higher than the exemption threshold, under which, a dealer will have an OPTION to pay tax directly at a prescribed rate of his turnover (say 1% of turnover). It is commonly known as the compounding threshold or the compounding scheme. It is to be noted if a dealer exercises this option, he will not be eligible to take input credit.

d. Another assumption is that the concept of ‘Input Service Distributor(ISD)’ will be continued.

e. “Registration application must be filed within 30 days from the date of the dealer’s liability for obtaining such registration”. Liability to register shall arise in cases such as starting a new business, new levy, crossing the threshold exemption limit, etc.

You would have observed that the above assumptions are identical to the rules currently being followed under the VAT laws of different states.

Now, over to the practical aspects of registration.

I. A unique registration number will be provided for each registration. It would be a 15 digit Pan-based number and called the ‘Goods and Service Tax Identification Number (GSTIN)’

Half of the story is hidden inside this registration number itself.

To explain the ‘state code’, read this text from the report itself -“For each State the taxable person will have to take a separate registration, even though the taxable person may be supplying goods or services or both from more than one State as a single legal entity”.

Thus, from each state from where a person sales goods or provides services, he will have to obtain a separate registration number (GSTIN). And the 2 digit state code in the GSTIN will vary accordingly.

The PAN of the entity will form the next 10 digits. It is a practise similar to that currently being followed in case of Service Tax (STC number).

Now, I will explain the use of the ‘entity code’ with an example.

ABC ltd. is a large company with its operations spread all over India. It has various divisions which deal in different products and services. Now, we know that the company will have to take GSTIN for each state from where they supply the goods or provide services. Suppose they deal from 20 different states. So they will have to take atleast 20 registrations under GST.

Now, the twist is that, the company will be allowed to take seperate registrations for its different ‘business verticals'(divisions) within a state itself. That is, within Chhattisgarh, the company may take seperate GSTIN for its footwear division and branded clothes division, even though they are under the same company ABC ltd.

Now, the role of entity code comes into action. The state code and the PAN elements of the GSTIN will remain the same (because both the divisions are in the same state and a part of ABC ltd., which will have a single PAN). But the entity code will be different. This will make the seperate registration numbers of business verticals within a state possible. Multi-registrations will be allowed, but Input tax credit across the verticals will not be allowed unless actual supply of goods/services between the verticals takes place.

The entity code will be 1-9 and then A-Z. In this way, a maximum of 35 different registrations will be possible.

For the 14th digit the report says -“The 14th digit of GSTIN would be kept BLANK for future use.”

The 15th digit is ‘Check Digit’. Now what is that. The report does not explain. But it will be clear to you from the following extract from Wikipedia.

“A check digit is a form of redundancy check used for error detection on identification numbers (e.g. bank account numbers) which have been input manually. It is used to check for errors in computer-generated data. It consists of a single digit (sometimes more than one) computed by an algorithm from the other digits (or letters) in the sequence input.”

Thus, it will be a random digit, logically selected on the basis of the other 14 numbers contained in the GSTIN, and will help to detect mistyping and other errors.

II. There will be a common ‘GST Portal’, i.e. a website that will host everything related to GST at one place. It will be a portal designed to be very user-friendly and a major mode of communication between the taxpayer and the revenue department.

III. Application for registration under GST is to be made within 30 days in the GST portal itself. The procedure of registration would be as follows-

Submit the online application form (alongwith scanned copies of various documents as specified)

A confirmation code will be sent in the mobile no. and e-mail ID provided.

Once the code is entered, the verification is done. An ‘acknowledgement number’ is generated as a proof of your submission. The processing of application will take some time.

Once the application is approved, GSTIN is allotted and a unique user ID and password.

It is also specified in the report that the application would involve ‘online verification of PAN’. The PAN details filled in the application form would be first verified in real-time from the income-tax department’s database, and only then will the application be processed. This online verification system shall also apply to the Aadhar number and CIN number verification. This is a step towards greater transparency and will help in prevention/detection of frauds.

IV. Existing taxpayers, who are registered under the respective state VAT laws and/or service tax department would not have to apply for registration afresh. There will be a system whereby the existing database will be migrated to the GST database.

Suppose 10 columns have to be filled in case of new GST registration. In case of old registrants, the old database shall be migrated and it fills 6 out of the 10 columns. Now, data in the remaining 4 columns would only be required to be filled for registration under GST. It is obvious that data migration would require a lot of time and resources and may lead to several complications and may pose as a big challenge.

V. For surrender of registration, online application would have to be made, after which, an acknowledgement number would be generated. The assessee would be deemed to be unregistered from the date of generation of such acknowledgement number.

VI. In case of cancellation of registration by the tax authorities (due to contravention etc.)-

7 days system generated notice shall be given to the assessee

Opportunity of being heard would be given to the assessee (the assessee may furnish a reply to the notice in his defence) and the principles of natural justice shall be followed throughout.

VII. ‘Risk Profiles’ would be created of each assessee. For example, if an assessee does not provide ‘Aadhar number’ in the application form, he would ve considered more risky. Accordingly, using various parameters, the risk profiles of all assessees would be built up.

VIII. A “Post registration physical verification” would be carried out of a few selected assessees. The risk profiles of the assessees would form the basis for such selection.

These were the points that have been proposed by the committee in its report. It indeed seems to be a great leap that they are recommending. This is only a draft, and it remains to be seen as to what registration process is finalized.

I hope the above write-up would prove to be helpful. Feel free to comment and discuss. For the link to the Report, click below-
Report of the Joint Committee on Business Processes for GST – Registration