Comprehensive analysis of GST Composition Scheme for Service Providers

Why the Composition Scheme for Service Providers ??

1. A need was felt to extend the benefit of paying the tax at lower rate under the simpler composition scheme to even the suppliers of services, hitherto only available to the suppliers of goods. Press Release dated 22.12.2018 issued by the GST Council after their 31^st meeting stated as under:

“Extending the Composition scheme to small service providers. The rate of tax and threshold limit to be proposed – Law Committee and Fitment Committee”

2. Acting upon the said decision, Notification No. 2/2019-Central Tax (Rate) came to be issued on 07.03.2019 providing for the composition scheme (hereinafter referred to as “scheme” for simplicity). Said notification has been amended vide Notification No. 9/2019-Central Tax (Rate) dt. 29.03.2019. Said scheme is made applicable from 01.04.2019. Said scheme shall mainly benefit those service providers who do not avail significant input tax credit and/or who supply the services mainly to such recipients who do not avail any input tax credit. Let us now look deeply at the various aspects of the said scheme.

What is the legislative background under which the scheme has been formulated ??

3. Notification No. 2/2019-Central Tax (Rate) has been issued by exercising the powers conferred u/s 9(1), 11(1) & 16(1) of the CGST Act, 2017 (hereinafter referred to as ‘Act’). Sec. 9(1) of the Act provides for the levy of the tax on the supplies of goods or services or both on the value as determined u/s 15 and at such rates as may be notified. Sec. 11(1) grants power to the Government to exempt goods or services or both from the whole or any part of the tax leviable thereon. And Sec. 16(1) grants power to the Government to provide for the conditions and restrictions subject to which the registered person may avail the input tax credit.

4. One of the important facet to observe from the above discussion is that the said scheme has not been formulated u/s 10 of the Act. That is rightly so because Sec. 10 deals with the composition scheme only for the supplier of goods (see condition stipulated u/s 10(2)(a) which prohibits a person from opting for the scheme if he supplies services beyond the stipulated limits (other than that related to food or drinks)). Hence we can safely conclude that any conditions/restrictions given u/s 10 shall not apply when it comes to the scheme for service providers. Only the conditions/restrictions stipulated in Notification No. 2/2019-Central Tax (Rate) has to be adhered to for taking the advantage of the said scheme for the service providers.

5. Reference to Sec. 9(1) as well as Sec. 11(1) of the Act has been made in the said notification so as to clearly provide that the levy of the tax on the supplies covered under the said scheme shall be in accordance with the notification and hence an exemption has been granted from applying the normal rates of tax stipulated earlier by exercising the powers u/s 9(1). We shall later see important implications of making such reference as well as the implications of making the reference to Sec. 16(1).

Is the scheme optional ??

6. From the reading of the first paragraph of the notification it appears that the rate of tax on the supplies described therein shall be 6%. Hence it may appear that the scheme is not optional and the registered person falling within the contours of the said notification has to compulsorily pay tax @ 6%. Said conclusion is incorrect due to the fact that a registered person will fall within the scheme only if he fulfils all the given conditions. Hence let us say that the registered person in question avails any input tax credit or charges the normal rates of tax separately, such person would not be considered to have fulfilled all the conditions stipulated in the notification and hence shall continue to pay the tax as a regular registered supplier and not under the scheme.

What is the benefit under the scheme ??

7. As per the description given in column no. (1) of the notification, an eligible registered person shall have to pay the tax only @ 6% on the “first supplies of goods or services or both upto an aggregate turnover of fifty lakh rupees made on or after the 1st day of April in any financial year, by a registered person”. Hence such person is not required to pay the tax at the normal rates (e.g. 12% or 18%) on such “first supplies”.

8. Explanation in the notification further defines the term “first supplies of goods or services or both” as under:

“For the purposes of this notification, the expression “first supplies of goods or services or both” shall, for the purposes of determining eligibility of a person to pay tax under this notification, include the supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the said Act but for the purpose of determination of tax payable under this notification shall not include the supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the Act.”

9. Let us consider an example to understand the same. Let us say that person Mr. XYZ starts supplying the services from 01.04.2019 but does not seek registration immediately as he intends to avail the SSI exemption (INR 20 lakhs (INR 40 lakhs is only for exclusive supplier of goods)). Let us further say that such person crosses the threshold of INR 20 lakhs and hence obtains the registration from 01.06.2019. As the concerned registered person is eligible for the scheme, he opts for the same. Now his aggregate turnover for the entire FY 2019-20 is INR 45 lakhs. Hence as per the above referred provisions, he shall pay tax @ 6% only on the INR 25 lakhs (i.e. 45 – 20) and not the entire INR 45 lakhs.

10. Now let us say that in the case of the above referred person his aggregate turnover for FY 2019-20 is INR 65 lakhs. Will he be eligible to pay the tax under the scheme for the supplies made after crossing INR 50 lakhs ? When one looks at the supplies covered under the scheme, only the first supplies of goods or services or both made on or after the 1st day of April in any financial year upto INR 50 lakhs are covered. The above referred explanation suggests that only for the purpose of determining the “eligibility of a person to pay tax under this notification” that even the supplies made from the 1^st of April till the date on which he is liable to obtain the registration (in the present case INR 20 lakhs) are to be considered. However for the purpose of “determination of tax payable” by such person, said supplies are not to be considered. Now when we look at the eligibility conditions stipulated in the notification (discussed in detail later) there is no condition which uses the term “first supplies of goods or services or both”. Further the explanation referred above clearly seeks to exclude INR 20 lakhs as “first supplies of goods or services or both” for the “determination of tax payable”. Hence a view can be taken that when the value of first supplies is to be computed under the scheme for calculating the tax payable, the value of INR 20 lakhs is to be excluded. Effectively the value of first supplies in our case will then be less than INR 50 lakhs (because INR 20 lakhs is excluded from INR 65 lakhs) and hence such registered supplier can still pay tax @ 6% on the INR 45 lakhs. An alternate view can be that even the supplies of INR 20 lakhs (made prior to the date of obtaining registration) is to be considered in the value of “first supplies” covered under the scheme and hence even though the tax shall not be payable on such value, the same cannot be ignored while computing the limits. Plain reading favors the earlier interpretation although the same may not have been intended.

11. However when such person desires to avail the scheme for FY 2020-21, his aggregate turnover for the preceding year is to be seen (in the present case INR 65 lakhs) and since the same exceeds INR 50 lakhs, he cannot opt for the scheme for the said year.

Who can avail the benefit of the scheme ??

12. As per paragraph 1 of the conditions stipulated in the notification a registered person satisfying the below referred conditions can only avail the benefit of the scheme and pay the tax @ 6%:

i. whose aggregate turnover in the preceding financial year was fifty lakh rupees or below

13. The term aggregate turnover is defined u/s 2(6) of the Act to mean the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess. Hence only the inward value of supplies on which tax is payable on reverse charge basis shall be excluded in the computation of the aggregate turnover. Also the said aggregate turnover has to be computed at the entity-level and shall exclude the GST. Accordingly the sum total of all kinds of supplies (without GST) needs to be computed for FY 2018-19 and if the said value is less than INR 50 lakhs, such registered person can be said to have fulfilled the presently discussed condition. It also follows that if a new registration is obtained on or after 01.04.2019, such registered person will obviously not have any aggregate turnover in the FY 2018-19 and shall also be construed to have fulfilled the present condition. This is because a nil turnover shall also be considered as a turnover not exceeding INR 50 lakhs.

14. Attention is also invited to paragraph no. 2 of the said notification. Same is reproduced below:

“2. In computing aggregate turnover in order to determine eligibility of a registered person to pay central tax at the rate of three percent under this notification, value of supply of exempt services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, shall not be taken into account”

15. Hence the interest income earned by the registered person in FY 2018-19 shall not be considered in computing the aggregate turnover for the determination of the eligibility for the scheme. One may also refer to our observations given under condition no. (iii) below on the said issue.

ii. who is not eligible to pay tax under sub-section (1) of section 10 of the said Act

16. Said condition provides that a registered person can opt for the present scheme only if such person was not eligible for paying the tax u/s 10(1). Hence a registered supplier of goods (even if having supplies of services below the stipulated limit (i.e. 10% of turnover of PY or INR 5 lakhs, whichever is higher) and qualifying for the composition scheme u/s 10(1) shall not be permissible to avail the scheme for service providers. Such person has to either opt for the scheme u/s 10(1) or pay the tax as a normal registered person. Even logically a person eligible for composition scheme u/s 10(1) would not want to pay the tax under the present scheme for service providers mainly because the scheme u/s 10(1) will be more beneficial (as it carries a lower rate of tax).

iii. who is not engaged in making any supply which is not leviable to tax under the said Act

17. This condition provides that a registered person opting for the scheme should not be engaged in making any supplies “which are not leviable to tax”. Here attention is invited to the definition of “non-taxable supplies” as provided u/s 2(78) of the Act which also uses the same phrase to define such non-taxable supplies. Hence it can be deduced that the registered person opting for the scheme should not be engaged in providing “non-taxable” supplies. Such supplies would thus cover the supply of such goods (e.g. petroleum products) which are not leviable to tax under the Act (see Sec. 9(2) as an example). This would hence not cover “exempt supplies” which attracts nil rate of tax or which may be wholly exempt u/s 11.

iv. who is not engaged in making any inter-State outward supply;

18. Said condition provides that the registered person opting for the scheme should not be making any inter-state outward supply. It does not matter whether such supply is taxable or exempt. What would happen if such registered person opting to pay tax under the scheme receives interest income from an account located in another State ? If one goes by paragraph 2 referred supra, such interest income should not be considered for computing the “aggregate turnover” of the preceding year to determine the eligibility. Hence it necessarily follows that such income should not be considered as an inter-state supply so as to trigger the violation of the condition under discussion. Without prejudice to the same, it must also be noted that such interest income can be considered as a supply only if the same is received in the course or furtherance of business (see Sec. 7(1) read with Sec. 2(17)). Hence if the same is not received in the course or furtherance of business, the same cannot be treated as a “supply” and hence there will not be any question of the violation of the said condition even if interest is received from outside the State.

19. It may also be noted that Sec. 7(5)(a) of the IGST Act, 2017 treats a supply as inter-state supply when the supplier is located in India and the place of supply is outside India. It would hence follow that registered person opting to pay tax under the scheme cannot do any exports.

20. It must hence be noted that the place of supply must be carefully ascertained by the registered person opting for the scheme. If an intra-state supply is eventually held as an inter-state supply, such person may have to face severe consequences owing to the violation of the present condition.

v. who is neither a casual taxable person nor a non-resident taxable person

21. A registered person who is registered in the capacity of a casual taxable person (see Sec. 2(20)) or a non-resident taxable person (see Sec. 2(77)) cannot opt to pay tax under the said scheme.

vi. who is not engaged in making any supply through an electronic commerce operator who is required to collect tax at source under section 52

22. Said condition postulates that a registered person opting to pay tax under the said scheme should not be engaged in making any supply through an E-commerce operator who is required to collect the tax at source. As per Sec. 52(1) of the CGST Act, 2017 every electronic commerce operator, not being an agent, shall collect an amount calculated at such rate not exceeding one per cent, as may be notified by the Government. Electronic commerce operator is further defined u/s 2(45) of the CGST Act, 2017 as under:

“electronic commerce operator means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce”

23. Hence the persons who either owns or operates or manages digital or electronic facility or platform for electronic commerce shall be considered as electronic commerce operators. Further “electronic commerce” is defined u/s 2(44) of the CGST Act, 2017 as under:

“electronic commerce means the supply of goods or services or both, including digital products over digital or electronic network”

24. Combined reading of the above definitions will thus entail that only companies who are in the business of providing such platform for electronic commerce shall be regarded as electronic commerce operators. Hence companies like Amazon, Flipkart, etc. which displays / lists on their portal products as well as services which are actually supplied by some other person to the consumer are electronic commerce operator. On placing the order for a particular product/ services the actual supplier supplies the selected product/services to the consumer. The price/consideration for the product/services is collected by the Operator from the consumer and passed on to the actual supplier after deducting his commission by the Operator. Such Operator is thus only required to collect the tax at source. Hence a registered person making supplies through such operators cannot opt for the scheme.

25. It may be noted that supplies covered u/s 9(5) (e.g. services by way of transportation of passengers by a radio-taxi, motorcab, maxicab and motor cycle) are not to be considered for determination of the value on which TCS is to be collected. For such supplies, electronic commerce operator has been made liable to pay the tax as if he is the supplier.

vii who is not engaged in making supplies of the goods, the description of which is specified in column (3) of the Annexure below and falling under the tariff item, sub-heading, heading or Chapter, as the case may be, as specified in the corresponding entry in column (2) of the said annexure.

26. Following supplies of goods have been notified:

Sl. No.	Tariff item, subheading, heading or Chapter	Description
1	2105 00 00	Ice cream and other edible ice, whether or not containing cocoa
2	2106 90 20	Pan masala
3	24	All goods, i.e. Tobacco and manufactured tobacco substitutes

27. It may seem confusing that what has supplies of goods to do with the composition scheme for the service providers. It may be noted that even a supplier of goods (who is not eligible for scheme u/s 10(1)) is eligible to pay the tax under the said scheme. Hence supplies of above noted goods are already prohibited from paying the tax u/s 10(1). To ensure that they don’t opt for the present scheme for the service providers, said restriction has been provided.

What would happen when a person has multiple registrations under the same PAN ??

28. Condition no. 2 of the notifications provides that where more than one registered persons are having the same Permanent Account Number, issued under the Income Tax Act, 1961(43 of 1961), the tax on the eligible supplies by all such registered persons is to paid at the reduced rate of 6%.

29. An interesting issue needs to examined as to whether the eligibility condition (i.e. preceding year aggregate turnover should not be more than INR 50 lakhs) should be seen qua registered person or qua the legal entity ? It has to be seen qua the legal entity. This is because the term “aggregate turnover” as defined u/s 2(6) seeks computation of turnover at the entity level. Hence if at the PAN level the preceding year aggregate turnover exceeds INR 50 lakhs, such person cannot opt for the said scheme for any of its registrations. Accordingly once eligible, the benefit of paying the tax at the reduced rate is also capped till the aggregate turnover of INR 50 lakhs. Hence even here, PAN level aggregate turnover is to be seen and not separately for each registration.

30. Another interesting issue is of cross-charge when seen in the context of the scheme. Said condition no 2 clearly envisages a scenario wherein even if the person is having more than one registration, he can opt for the scheme. However if the said registrations are in different State’s and if there is any supply between the said registrations, it could be treated as inter-state supply (please see Sec. 7(1)(c) read with Entry No. 2 of Schedule I) and once such inter-state supply is established, the benefit of the scheme cannot be availed as the condition prohibiting inter-state supply gets breached.

Can the registered person opting for the scheme collect any tax ??

31. Condition no. 3 of the notification provides that a registered person cannot collect any tax from the recipient on supplies made by him. Hence on the invoice tax amount cannot be shown separately.

How the amount of tax to be paid is to be calculated ??

32. The notification only provides for the determination of the rate of tax (6%) which is to be applied to the eligible supplies made by the eligible registered persons. It is silent on the value of supply on which the said tax rate is to be paid. Sec. 9(1) provides that the notified rate of tax (6% in the present case) shall be applied on the value determined u/s 15. Sec. 15(1) provides that the tax shall be payable on the transaction value except when the price is not the sole consideration for supply or the supply is made to a related person. Sec. 15(2) provides for certain inclusions in the said transaction value. Sec. 15(2)(a) therein provides that any taxes except GST shall be included if charged separately. As seen before the registered person paying the tax under the scheme is not allowed to charge GST separately. Will that mean that the tax @ 6% shall be calculated on the gross value and not by way of backward working by considering the value received as inclusive of GST. Sec. 15(2)(a) as stated before clearly provides for inclusion of only taxes other than GST. Hence GST is to be excluded from the value of supply. Further said provision does not draw any distinction between the GST charged on the invoice and the GST not charged on the invoice. Reference is further invited to Rule 35 of the CGST Rules, 2017 which provides that where the value of supply is inclusive of GST, the tax amount shall be determined by applying the tax rate (6% in the present case) by doing back working. Hence if the total value received by an eligible person is let us say INR 40 lakhs. GST payable shall be INR 2,26,415/- (40,00,000*6/106) and not INR 2,40,000/-.

When the tax is to be paid ??

33. At present the tax shall be payable on monthly basis along with filing of GSTR-3B. Only when the new return filing system is introduced that the tax may be payable on quarterly basis.

How should such person issue an invoice ??

34. Condition no. 4 provides that the registered person shall issue, instead of tax invoice, a bill of supply as referred to in clause (c) of sub-section (3) of section 31 of the Act with particulars as prescribed in rule 49 of Central Goods and Services Tax Rules. Hence such person has to issue “a bill of supply” and not a “tax invoice”.

35. Condition no. 5 further provides that at the top of “bill of supply”, following words shall be mentioned – “taxable person paying tax in terms of notification No. 2/2019-Central Tax (Rate) dated 07.03.2019, not eligible to collect tax on supplies”.

Can such person avail ITC ??

36. Condition no. 3 provides as under:

“3. The registered person shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.”

37. Now whether the words “nor shall be entitled to any credit” are with reference to the registered person who is the supplier or the recipient ? As the subject of the sentence is the “registered person”, the words ““nor shall be entitled to any credit” shall be read in the context of the said registered person and hence such person shall not be entitled to avail any credit.

38. One may also appreciate that the notification has been issued by exercising powers u/s 16(1) of the Act. As stated before said provision grants power to the Government to stipulate any conditions/restrictions for availing the credit. Hence the present stipulation draws power from the said Sec. 16(1) and thus the registered supplier opting for the scheme shall not be allowed to avail any input tax credit.

What about the input tax credit already availed ??

39. Notification No. 2/2019 when issued did not provide for any reversal/lapsing of input tax credit availed before the day on which the person opts to pay the tax under the present scheme. In fact the said notification only provides for the computation of the tax payable. Accordingly once the tax payable is determined, the same can be paid even by utilizing the balance lying in the electronic credit ledger u/s 49(4) as on the date on which such person opts for the scheme. Only stipulation was that the person will be eligible to opt for the scheme only if he does not avail the input tax credit on or after the date of opting to pay the tax under the scheme.

40. In light of the above lacuna in law, Notification No. 9/2019-Central Tax (Rate) dt. 29.03.2019 has been issued to amend the parent notification No. 2/2019 and a new condition (no. 8) has been added. Said condition reads as under:

“8. Where any registered person who has availed of input tax credit opts to pay tax under this notification, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods as if the supply made under this notification attracts the provisions of section 18(4) of the said Act and the rules made there-under and after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.”;

41. Above condition thus provides that the registered person opting to pay the tax under the scheme shall have to pay the amount of input tax credit availed earlier in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock held on the day he opts for the scheme. In respect of capital goods also such registered person shall have to pay the amount of credit taken earlier as reduced by the period of use as per Sec. 18(4). Such payment can be made either by debiting the credit ledger (if enough balance is available) or by cash. Also any credit lying in the ledger after such payment shall lapse.

42. It is interesting to note that the amending notification has also been issued u/s 9(1), 11(1) & 16(1). Now Sec. 9(1) & 11(1) deals with the levy of tax on supplies and grant of exemptions. The above stipulated condition does not provide for the levy of tax by treating the inputs or capital goods in stock as supplied. Hence it can be safely concluded that the said condition has been inserted by exercising powers u/s 16(1).

43. Now Sec. 16(1) deals with the eligibility of input tax credit. Same is reproduced below for ready reference:

“SECTION 16. Eligibility and conditions for taking input tax credit. —

(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.”

44. Hence the power is granted only to provide for the conditions/restrictions for the entitlement of input tax credit. Once duly entitled credit has been claimed, said provision does not accord power to seek reversal of such credit or lapsing of the credit. Hence a view can be taken that the newly inserted condition has not been inserted by exercising the correct provisions under the law and hence to that extent is void.

Whether such person has to pay the tax @ 6% even on exempted supplies ??

45. Condition No. 6 reads as under:

“The registered person opting to pay central tax at the rate of three percent under this notification shall be liable to pay central tax at the rate of three percent on all outward supplies specified in column (1) notwithstanding any other notification issued under sub-section (1) of section 9 or under section 11 of said Act.”

46. Bare reading of the above condition suggests that the registered person opting to pay the tax under the scheme shall pay the tax on “all outward supplies” as specified in column (1) (i.e. first supplies upto INR 50 lakhs) notwithstanding any notification issued u/s 9(1) or u/s 11. Thus it suggests that any exemption granted by exercising the powers u/s 9(1) or u/s 11 are to be overlooked and tax shall still be payable on such exempt supplies if the registered person opts for the scheme.

47. Hence the registered person opting to pay the tax under the scheme shall be required to pay the tax @ 6% even on the exempted supplies.

Whether such person is liable to pay the tax under reverse charge mechanism ??

48. Condition no. 7 stipulates as under:

“7. The registered person opting to pay central tax at the rate of three percent under this notification shall be liable to pay central tax on inward supplies on which he is liable to pay tax under sub-section (3) or, as the case may be, under sub-section (4) of section 9 of said Act at the applicable rates.”

49. Now Sec. 9(3) of the Act, which deals with specific reverse charge, provides that the Government on the recommendations of the Council shall notify the supplies on which tax shall be paid by the recipient and not the supplier. Hence the power granted u/s 9(3) is only to notify the supplies and once such supplies are notified, recipient is liable to pay the tax. Now perusal of Notification No. 13/2017- Central Tax (Rate) issued in exercise of the said powers provide that not only the supplies (e.g. transportation services by GTA) but even in some cases the recipients (i.e. business entity for advocate services) who are made liable to pay the tax have been notified. Hence the registered person opting to pay the tax under the scheme shall continue to remain liable to pay the tax under the said notification wherever such person is considered as a recipient.

50. Now we shall deal with Sec. 9(4). Said provision as amended from 01.04.2019 provides that the Government on the recommendations of the Council shall stipulate the class of registered persons who shall be liable to pay tax in respect of supplies received from unregistered suppliers. Hence as compared to Sec. 9(3) which grants power to notify the “supplies”, Sec. 9(4) grants power to notify the “class of registered persons”. Now the above referred condition only provides for the payment of such tax u/s 9(4) which the registered recipient is “liable to pay”. In absence of any notification issued u/s 9(4) making the registered persons opting for the scheme liable to tax, no such tax shall be payable by the such registered persons on the supplies received from the unregistered suppliers.

What will happen when the eligible person opts out of the scheme ??

51. Eligible person may opt out of the scheme either on its own volition (even though he fulfils all the conditions) or may opt out due to violation of any condition (e.g. he exceeds the cap of INR 50 lakhs). The notification does not expressly provide for the consequences on happening of such an event.

52. However once the notification is not applicable, the registered person in question has to be guided by the regular provisions of law and hence he shall then pay tax as per the normal rates. He can also avail input tax credit on or after the date of opting out of the scheme.

53. It may also be noted that the notification is also silent in respect of inputs or capital goods in stock on the date of opting out of the scheme. Whether the registered person shall be entitled to avail the input tax credit on the same as per the provisions of Sec. 18(1)(c) as the same applies to persons coming out of the composition scheme u/s 10 ? As stated before condition no. 8 provides to apply Sec. 18(4) when the person opts in for the scheme but does not expressly provide for applying Sec. 18(1)(c) when the person opts out of the scheme. Fairness demands that the treatment similar to the situation when the person opts in should be given when the person opts out. Alas but that the law does not always work on logic. Hence in absence of any express provision, the registered person opting out of the scheme may not be able to avail the transition credit. However the stand of being entitled to such credit can be surely contested on the grounds of equity enshrined under Article 14 of our Constitution.

54. One may also consider a scenario wherein a registered person may breach any of the condition accidently. Let us say that such person avails input tax credit of a meagre amount. Now the amount to be paid by reversing such input tax credit may be much lower than subjecting the entire value of outward supplies to the normal rate (e.g. 18%). In such scenario also the notification under examination does not provide for a way out. Officer’s stand can be that since the condition has been breached, the registered person cannot avail the benefit of the scheme and hence shall be subjected to tax at the normal rates. Author agrees that such consequence shall be unfair but the same can be avoided if care is taken while paying tax under the scheme so that no condition is violated. Despite such care if the condition is violated, an argument on the grounds of equity can be made (as happened in the past in the context of Rule 6 of the CCR, 2004), to only seek recovery of the erroneous credit claimed and not the outward tax at normal rates.

What is the procedure for opting in the scheme ??

55. Notification No. 9/2019-Central Tax (Rate) stipulates that the Central Goods and Services Tax Rules, 2017, as applicable to a person paying tax under section 10 of the said Act shall, mutatis mutandis, apply to a person paying tax under this notification. Hence the procedures provided for the composition supplier of goods shall equally apply to even the composition supplier of services. Accordingly an intimation in FORM GST CMP-02 needs to be filed if an existing registered person desires to opt for the composition. Said intimation has to be filed prior to the commencement of the financial year for which the option to pay the tax is exercised. Hence all the registered persons opting to pay the tax under the scheme shall file the form on the portal on or before 31.03.2019 (in absence of any relaxation issued in this regard till the time of releasing the present analysis). Also the statement in FORM GST ITC-03 needs to be filed within a period of sixty days from the commencement of the relevant financial year detailing the inputs or capital goods in stock on the day of opting for the composition. A person applying for a new registration and desiring to pay the tax under the said scheme shall file FORM GST REG-01 and intimate therein the desire to pay tax as per the scheme.

(Views are strictly personal)