In this blog, we look at a query on registration requirement for a start-up.
A Start-up company, with its registered office in the State of Karnataka, engaged in a business which involves innovation, development, deployment or commercialization of mobile Apps driven by information technology has commenced commercial operations during FY 2016-17. The users download the APP on their mobile phones on payment of an annual subscription / licence fee. The turnover of the company for the year is not likely to cross Rs 20 lakhs in a financial year. Is the company required to obtain a registration?
The Start-up company, no doubt, is supplying a service for a consideration. However, the aggregate turnover in the financial year does not exceed Rs 20 lakhs, which is the threshold limit upto which a supplier is not required to obtain registration. Hence, the Start-up company would not ordinarily be required to obtain registration under the Central Goods and Services Tax Act, 2017 [CGST Act] and the Karnataka State Goods and Services Tax Act, 2017 [SGST Act].
However, clients of the Start-up company are mobile users. It may be possible that the address on record of the location of such users is another State i.e. other than Karnataka. In such an event, there would an inter- State supply of service from Karnataka. Since the Start-up company is making an inter-State supply, it would be required to obtain registration under the CGST Act and the SGST Act in Karnataka and the threshold of Rs. 20 lacs indicated above would not be applicable.
Additional comments: Where the Start-up company referred above may not be required to keep a record of the App users. The Start-up company merely establishes a payment gateway for collecting the annual subscription fee.
It is unlikely that the nature of services provided by the Start-up company could be carried on without establishing a complete identity of any App user including his address. Thus, the address would be available on record on the supplier of service i.e. Start-up company.
Nevertheless, if it is possible to render the service without seeking the address of the App users, then the address of the location of service recipients i.e. App users, would not be available on the record of the supplier. In such circumstances, the place of supply would be the location of the supplier of services i.e. the registered or fixed establishment of the Start-up company. The supply of services will be intra-State i.e. within the State of Karnataka. Since the aggregate turnover in a financial year is not exceeding Rs 20 lakhs in the financial year, the Start-up company need not seek a registration.
Author: P V Srinivasan