Section 23 CGST: Complete Guide To Persons Not Required To Obtain GST Registration

Section 23 of the Central Goods and Services Tax Act, 2017 is often casually labelled as the “no registration needed” clause. In reality, it is a boundary-setting provision that operates together with Section 22 and Section 24 to determine who must enter the GST registration net and who can legitimately remain outside.

This article revisits Section 23 after the Finance Act, 2023 amendment (retrospectively effective from 01 July 2017) and explains:

  • When a person is truly outside the registration regime
  • How notifications issued under Section 23(2) modify compulsory registration
  • Why looking at turnover alone is legally inadequate
  • How common misunderstandings about agriculturists, reverse charge, inter-State supplies and e‑commerce arise

The focus is not just “who is exempt”, but where the exemption ends and the obligation to register begins.

1. GST Registration: Three Pillars, Not a Single Threshold

The registration scheme under the CGST framework rests on three key provisions:

  • Section 22 – General rule: registration based on aggregate turnover of taxable supplies
  • Section 24 – Compulsory registration for specific categories, even if section 22 thresholds are not crossed
  • Section 23 – Statutory exclusions and notification-based exemptions from registration

A typical but incomplete approach is: “My turnover is below ₹20 lakh/₹40 lakh, so I don’t need GST registration.” That is only a Section 22 lens. A proper analysis must:

  1. Check whether the person is excluded by law (Section 23), and
  2. Check whether the person is forcefully brought in under compulsory registration (Section 24), subject to any overriding notification issued under Section 23(2).

Only after this holistic reading can one correctly conclude whether registration is required.

2. Scope of Section 23(1): Who Is Statutorily Excluded?

Section 23(1) creates two categories of persons who are not liable for registration:

2.1 Persons Making Only Non-Taxable or Wholly Exempt Supplies – Section 23(1)(a)

Under Section 23(1)(a), a person is outside the registration requirement if that person is exclusively engaged in supplying:

  • Goods or services or both not liable to tax, or
  • Goods or services or both wholly exempt from tax under the CGST Act or the Integrated Goods and Services Tax Act, 2017.

Key points:

  • The law looks at the character of the person’s entire business, not just a portion of turnover.
  • Even if the assessee’s exempt turnover is very large, registration is not required if the business is entirely within this exempt / non-taxable zone.
  • The position changes immediately when the person begins making any taxable supply on which the person is liable to pay GST.

Therefore, every time the product mix or service profile changes, the registration analysis must be re-done.

2.2 Agriculturist Supplying Own Produce – Section 23(1)(b)

Section 23(1)(b) provides that an “agriculturist”, as defined in Section 2(7), is not liable to be registered to the extent the person supplies produce out of cultivation of land.

Crucial aspects:

  • The exclusion applies “to the extent of supply of produce out of cultivation of land” — this phrase restricts the benefit to that precise activity.
  • The provision does not mean that anyone who is an agriculturist is automatically exempt from GST registration for all their businesses.
  • If an agriculturist starts a separate trading activity (for example, buying and selling non-agricultural goods), that trading business needs an independent registration analysis; the agriculturist status does not carry over as a blanket shield.

3. Why “Exclusively” Is a Decisive Word

The term “exclusively” in Section 23(1)(a) is often overlooked but is central to the provision.

Consider this situation:

  • Mr. Sharma sells only goods that are wholly exempt from GST. As long as his entire business consists solely of those exempt goods, Section 23(1)(a) can keep him completely outside GST registration, regardless of turnover.
  • Suppose Mr. Sharma now adds one taxable product to his catalogue, on which he is liable to pay tax. Even if 95% of his turnover continues to arise from exempt goods, his business is no longer exclusively dealing in exempt or non-taxable supplies.

Implications:

  • GST law does not recognise “predominantly exempt” or “mostly exempt” as a test for Section 23(1)(a).
  • Even a small taxable segment can trigger registration once the applicable threshold under Section 22 is crossed, or Section 24 applies.
  • Small businesses gradually expanding into taxable goods/services must proactively re-evaluate registration, rather than rely on earlier assumptions.

4. “Not Liable to Tax” vs “Exempt”: Separate Concepts

Section 23(1)(a) refers to two distinct categories:

  1. Supplies not liable to tax
  2. Supplies wholly exempt from tax

These should not be merged conceptually:

  • Not liable to tax – Supply falls outside the charging provision itself (e.g., certain activities outside the scope of “supply” or specifically excluded from the levy).
  • Wholly exempt – Supply is within the tax net in principle, but is fully exempted through a specific exemption notification or statutory provision.

For registration purposes, both can keep the person outside registration if the exclusivity requirement is met. But from an advisory standpoint, an assessee must:

  • First determine why a particular supply is not taxed (outside levy vs exempted), and then
  • Derive registration consequences based on that character.

Statements like “my goods are exempt so I don’t need GST registration” are incomplete unless backed by a proper analysis of how and why those goods are treated as exempt or non-taxable under the law.

5. Finance Act, 2023 Amendment: Clarifying the Interplay with Sections 22 and 24

The Finance Act, 2023 brought a retrospective amendment to Section 23, effective from 01 July 2017. The key objective was to clarify how:

  • The general threshold rule in Section 22
  • The compulsory registration categories in Section 24, and
  • The notification-based exemptions in Section 23(2)

interact with each other.

5.1 Pre-amendment confusion

Before the amendment:

  • Section 24 listed cases where registration appeared to be unavoidable, regardless of turnover.
  • At the same time, Section 23 authorised the Government to exclude certain persons from registration, including by notification under Section 23(2).
  • Questions arose whether compulsory registration under Section 24 could effectively defeat or bypass exemptions intended under Section 23(2).

The Law Committee of the GST Council examined this tension, especially for categories that were meant to be relieved from unnecessary registration, but were technically caught by Section 24 wording.

5.2 Final legislative approach

The lawmaker finally chose to:

  • Focus on clarifying the notification-making power in Section 23(2), rather than creating a sweeping override for everything under Section 23(1).
  • Ensure that, where a valid notification under Section 23(2) exists, it can operate “notwithstanding the provisions of Section 22(1) or Section 24”, as the case may be.

Result:

  • One cannot assume that anyone falling under Section 23(1) is automatically insulated from all the clauses of Section 24.
  • An assessee must pinpoint the exact statutory provision and any specific notification under Section 23(2) that applies.

Ignoring this legislative background and only reading the final text can lead to oversimplified and incorrect conclusions about registration liability.

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