Person supplying tax-free goods exempt from GST registration but processed seeds attract reverse charge liability

AAR Haryana ruled that a person engaged exclusively in supplying tax-free goods is not required to register under GST Act per Section 23(1)(a) of CGST Act, 2017. However, the applicant's chemically processed seeds do not qualify as agriculture produce under relevant notifications, making them liable for GST under reverse charge mechanism for transportation services from GTAs. Since the applicant is liable for RCM under Section 9(3), they cannot surrender GST registration and must remain registered under the Act.

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Issues Involved:
1. Requirement of registration for supply of tax-free goods under the GST Act.
2. Liability to pay tax under Reverse Charge Mechanism (RCM) for transportation services.
3. Registration requirement if not liable to pay tax under RCM.
4. Registration requirement for interstate supply/sales of tax-free goods.
5. Surrender of GST registration if not liable to pay RCM and not required to be registered.

Detailed Analysis:

1. Requirement of Registration for Supply of Tax-Free Goods:
The applicant, engaged exclusively in the supply of exempted goods (sowing seeds), questioned whether registration is required under the GST Act. As per Section 23(1)(a) of the CGST Act, 2017, any person engaged exclusively in the business of supplying goods or services that are not liable to tax or wholly exempt from tax is not required to register. Therefore, the applicant, dealing exclusively in exempted goods, is not liable to be registered under the Act.

2. Liability to Pay Tax under RCM for Transportation Services:
The applicant sought clarity on whether they are liable to pay tax under RCM for transporting tax-free goods. Section 24 of the CGST Act, 2017, mandates registration for persons liable to pay tax under RCM. Entry No. 21 of Notification No. 12/2017-CTR exempts certain transportation services by a goods transport agency (GTA). However, the applicant's seeds, after processing and chemical treatment, do not qualify as "agricultural produce" under Para 2(d) of the Notification No. 12/2017-Central Tax (Rate). Consequently, the applicant is required to pay GST under RCM for transportation services received from a GTA, and thus must register under the Act.

3. Registration Requirement if Not Liable to Pay Tax under RCM:
This query was deemed unnecessary to address as the answer to the previous query confirmed the liability to pay tax under RCM.

4. Registration Requirement for Interstate Supply/Sales of Tax-Free Goods:
According to Section 23 of the CGST Act, 2017, any person engaged exclusively in the supply of exempted goods is not required to register under the Act, provided they are not receiving any taxable services liable to RCM. Therefore, the applicant, engaged exclusively in the interstate supply of exempted goods, is not required to register under the GST Act.

5. Surrender of GST Registration if Not Liable to Pay RCM and Not Required to be Registered:
The applicant questioned whether they could surrender their GST registration if not liable to pay RCM and not required to register under the Act. Since the applicant is liable to pay GST under RCM for transportation services received from a GTA, they are consequently required to register under the CGST Act, 2017, and cannot surrender their registration.

Conclusion:
The advance ruling concluded that the applicant is not required to register for the supply of exempted goods but must register and pay GST under RCM for transportation services received from a GTA. Consequently, they cannot surrender their GST registration.

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