Composition Levy under GST- Detailed Analysis

The Government has prescribed this scheme to avail by the small dealers who are not interesting to maintain detailed records, who mainly deal with end consumers, who also deal in multiple items with different rate of tax etc..

Composition Levy is a tax which is paid by the registered person on his turnover. Tax is not charged on individual supply of goods or services or both.

A. Who can opt the Composition Scheme and Conditions and Resctrictions to opt the Composition Scheme.

1. Turnover – According to Sec.10 (1) of the CGST Act read with Notification 14/2019 Central Tax dated 07-03-2019 a registered person whose aggregate turnover in the preceding financial year did not exceed Rs.1.5 crore, can opt this scheme subject to other conditions and restrictions.

But aggregate turnover, for a registered person belongs to any one of the following states, did not exceed Rs.75 lakh in the preceding financial year. Such states are:

(i) Arunachal Pradesh,

(ii) Manipur,

(iii) Meghalaya,

(iv) Mizoram,

(v) Nagaland,

(vi) Sikkim,

(vii) Tripura,

(viii) Uttarakhand:

2. Conditions to opt the Composition Scheme – Sec.10 (2)

(a) save as provided in sub-section (1), he is not engaged in the supply of services; ( Exception Clause 1 )

(b) he is not engaged in making any supply of goods which are not leviable to tax under this Act;

(c) he is not engaged in making any inter-State outward supplies of goods;

(d) he is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52;

(e) he is not a manufacturer of such goods(see para 5) as may be notified by the Government on the recommendations of the Council and

1[ (f) he is neither a casual taxable person nor a non-resident taxable person: ]

Exception Clause 1 – Second Proviso to Section 10 (1) of CGST Act – that a person who opts to pay tax under clause (a) or clause (b) or clause (c) may supply services (other than those referred to in clause (b) of paragraph 6 of Schedule II), of value not exceeding ten per cent of turnover in a State or Union territory (see explanation) in the preceding financial year or five lakh rupees, whichever is higher

For example a person having turnover say Rs.1.2 crore, he can make supply services upto 12 lakh. And if a person having turnover say Rs.30 lakh, he can make may supply services upto 5 lakh i.e. ten per cent of turnover or five lakh whichever is higher.

1 [Explanation.—For the purposes of second proviso, the value of exempt supply of services provided 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 for determining the value of turnover in a State or Union territory.]

3. Conditions and Restrictions – Rule (5) of CGST Rules 2017

(a) he is neither a casual taxable person nor a non-resident taxable person;

(b) the goods held in stock by him on the appointed day have not been purchased in the course of inter-State trade or commerce or imported from a place outside India or received from his branch situated outside the State or from his agent or principal outside the State, where the option is exercised under sub-rule (1) of rule 3;

(c) the goods held in stock by him have not been purchased from an unregistered supplier and where purchased, he pays the tax under sub­section (4) of section 9;

(d) he shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both;

(e) he was not engaged in the manufacture of goods as notified under clause (e) of sub-section (2) of section 10, during the preceding financial year;

(f) he shall mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him; and

(g) he shall mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.

4. Provisions for the person having multiple branches with same PAN

Proviso to Section 10(2) of the CGST Act – “Provided 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 registered person shall not be eligible to opt for the scheme under sub-section (1) unless all such registered persons opt to pay tax under that sub-section.”

Rule 3(5) of the CGST Rules – “Any intimation under sub-rule (1) or sub-rule (3) or sub-rule (3A) in respect of any place of business in any State or Union territory shall be deemed to be an intimation in respect of all other places of business registered on the same Permanent Account Number.”

Rule 6(7) of the CGST Rules – “Any intimation or application for withdrawal under sub-rule (2) or (3) or denial of the option to pay tax under section 10 in accordance with sub-rule (5) in respect of any place of business in any State or Union territory, shall be deemed to be an intimation in respect of all other places of business registered on the same Permanent Account Number.”

5. Following goods are not allowed for manufacturing under Compostion Scheme – Notification 14/2019 Central Tax dated 07-03-­2019

S.No.	Tariff item, subheading, heading or Chapter	Description
(1)	(2)	(3)
1	2105 00 00	Ice cream and other edible ice, whether or not containing cocoa.
2	2106 90 20	Pan masala.
(*1)2A	2202 10 10	Aerated Water
3	24	All goods, i.e. Tobacco and manufactured tobacco substitutes.
*1	Inserted vide Notification No.43/2019 Central Tax dated 30-09-2019. Entry effected from 01-10-2019

6. Collection of Tax and Input Tax Credit – Sec.10 (4) – A taxable person to whom the provisions of sub-section (1) ¹[or, as the case may be, sub­section (2A)] apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.

B. Registration for Composition Levy Scheme

1. Time for Apply for Registration

(a) at the time of New Registration

(b) from the commencement of the financial year. The person can not avail composition scheme in between period of the financial year.

At the Time of New Registration – Rule 3 (2)

(i) The person can intimate through Part B of registration FORM GST REG-01. No separate form is required for this purpose.

From the Commencement of the Financial Year – Rule 3 (3)

(i) Any Registered Person can shift to composition scheme, subject to conditions as above stated, from the commencement of the Financial Year.

(ii) He shall file such intimation electronically in Form GST CMP-02 prior to the commencement of the financial year.

For example the registered wants to shift to Composition Scheme from 01-04-2020, he shall have applied to avail this scheme till 31-03-2020.

(iii) According to section 18(4) such person 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, reduced by such percentage points as may be prescribed.

After payment of such amount through Electronic Credit Ledger, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.

(iv) Statement of stock with relevant input tax shall be furnished in GST Form ITC-0 3 in accordance with the provisions of rule 44 within a period of sixty days from the commencement of the relevant financial year.

C. Rate of Tax under Composition Scheme – Rule 7

S.No.	Category of registered persons	Rate of Tax
1	Manufacturers, other than manufacturers of such goods as may be notified by the Government	half per cent of the turnover in the State or Union territory (prior to 01-01-18 rate of tax under this table was one per cent )
2	Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II	two and a half per cent of the turnover in the State or Union territory
3	Any other supplier eligible for composition levy under section 10 and the provisions of this Chapter	half per cent of the turnover of taxable supplies of goods and services in the State or Union territory

D. Invoice to be issued by Composition Dealer

(a) According to Section 31(3)(c) of the CGST Act the registered person paying tax under section 10 shall issue Bill of Supply.

(b) According to Rule 5(f) he shall mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him.

(c) Rule in regard of particulars of Bill of Supply is rule 49 of the CGST Rules.

E. GST Returns for Composition Scheme

(a) CMP-08

(b) GSTR – 4

(c) GSTR – 9A

Returns effecting from 01-04-2019

Rule 62 (1)(i) –

(i) furnish a statement, every quarter or, as the case may be, part thereof, containing the details of payment of self-assessed tax in FORM GST CMP-08, till the 18th day of the month succeeding such quarter; and

(ii) furnish a return for every financial year or, as the case may be, part thereof in FORM GSTR-4, till the thirtieth day of April

Rule 62 (3)

The return* furnished under sub-rule (1) shall include the—

(a) invoice-wise inter-State and intra-State inward supplies received from registered and unregistered persons; and

(b) consolidated details of outward supplies made

( return* – refer to GSTR-4 )

Annual Return – GST Form 9A

(a) Last date to furnish this return is 30-11-2019 vide Removal of Difficulty Order No. 07/2018 dated 26-08-2019.

(b) It is now optional to file for the year 2017-18 and 2018-19 vide Notification No.47/2019 Central Tax dated 09-10-2019.

F. Withdrawal from the Composition Scheme

(a) Voluntary Withdrawa`l – Rule 6(3) of the CGST Rules ;

(b) If threshold limit exceed as prescribed under – section 10 (3) read with rule 6 (2);

(c) By the Proper Officer when he has reasons to believe the person not being eligible to pay tax under section 10 – section 10(5) read with rule 6(4);

(d) An application for withdrawal shall be furnished in GST Form CMP-04 within seven days of the occurrence of such even occurred under rule 6 (2) ;

(e) Clarification in regard of denial of composition option by the tax authorities in Circular 77/51/2018-GST dated 31-12-18 – In case of denial of option by the tax authorities, the effective date of such denial shall be from a date, including any retrospective date as may be determined by tax authorities, but shall not be prior to the date of contravention of the provisions of the CGST Act or the CGST Rules and

It is also clarified in this circular that in a case where the taxpayer has sought withdrawal from the composition scheme, the effective date shall be the date indicated by him in his intimation/application filed in FORM GST CMP-04 but such date may not be prior to the commencement of the financial year in which such intimation/application for withdrawal is being filed.

(f) Rule 6(7) of CGST Rules – “Any intimation or application for withdrawal under sub-rule (2) or (3) or denial of the option to pay tax under section 10 in accordance with sub-rule (5) in respect of any place of business in any State or Union territory, shall be deemed to be an intimation in respect of all other places of business registered on the same Permanent Account Number.”

G. Compliances after withdrawal from the Composition Scheme

(a) Section 18(1)(c) – “where any registered person ceases to pay tax under section 10, he shall be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he becomes liable to pay tax under section 9:

Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed.”

(b) Statement in regard of section 18 (1)(c) of the CGST Act shall be furnished in Form ITC-01 within a period of thirty days from the date from which the option is withdrawn or from the date of the order passed in FORM GST CMP-07, as the case may be. See Rule 6 (6) of the CGST Rules, 2017

H. [Section 10(2A) of CGST Act,2017 ] 

This section was inserted by the Finance (No. 2) Act, 2019, with effect from a date yet to be notified.

But on the parallel of this section Notification 2(2019) Central Tax (Rate) dated 07-03-2019 was issued.

According to this notification a registered person whose turnover up to fifty lakh may avail this scheme and pay tax @ 3% each under CGST and SGST Act on the intra-State supply of Goods or services or both. Most of the conditions and restrictions are same as applicable to the registered person paying tax under section 10 (1) of CGST Act.

Major differences between Composition Dealers under Section 10 of the CGST Act and Dealers who opt to pay tax as per Notification No. 2/2019-Central Tax (Rate) are as under:

The dealer opted to pay as per Notification No.02/2019 hereinafter referred to as The Dealer.

The Dealer opted to pay as per section 10 hereinafter referred to as the Composition Dealer.

S.No.	Particulars	The Dealer	Composition Dealer
1.	Eligibility	whose aggregate turnover in the preceding financial year was fifty lakh rupees or below	whose aggregate turnover in the preceding financial year was 1.5 crore rupees or below
2.	Provisions for option to pay tax are differ	Opt to pay tax as per Notification 02/2019 @ 3% CGST	who is eligible to pay tax under sub­section (1) of section 10 of the said Act. Tax Rates for CGST are: 1. 0.5% 2. 2.5%
3.	Type of Supply	Supply may be goods or services or both. No restriction for any type of supply upto 50 Lakhs.	Only Goods subject to supply services, other than supply services in clause (b) of paragraph 6 of Schedule II, which may not exceed 10% of the turnover or Rupees 5 lakh whichever is higher.
4.	Mentioned on top of the Bill of Supply	‘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’.	“composition taxable person, not eligible to collect tax on supplies”

Consequences towards a person “Not being eligible” but paying tax under sub-section (1) or sub-section (2A) of section 10. –

According to Section 10 (5) –     Such person shall, in addition to any tax that may be payable by him under any other provisions of this Act, be liable to a penalty and the provisions of section 73 or section 74 shall, mutatis mutandis, apply for determination of tax and penalty.

J. Notifications, Circulars, Orders and Removal of Difficulty Orders Issued from June 2017 to 20-10-2019

Notifications Central Tax
S.No.	Date	Number	Particulars
1	28-06-2017	08/2017	Notified aggregate turnover, rate of tax and goods not to be manufactured under section 10(1)
2	29-12-2017	73/2017	Waives the late fee payable for failure to furnish the return in FORM GSTR-4
3	01-01-2018	01/2018	Change in rate of tax by amended Notification 08/2017
4	31-12-2018	77/2018	fully waive the amount of late fees leviable on account of delayed furnishing of FORM GSTR-4 for the period July, 2017 to September, 2018
5	29-1-2019	05/2019	Amend notification No. 8/2017-Central Tax so as to align the rates for Composition Scheme with CGST Rules, 2017
6	07-03-2019	14/2019	Supersede Notification 8/2017 and turnover fixed as 1.5 crore
7	23-04-2019	21/2019	Prescribed returns CMP-08 and GSTR-4 for persons who registered to pay tax according to Notification 2/2019 Central Tax (Rate).
8	30-09-2019	43/2019
Notifications Central Tax for date extended for returns GSTR 4 and CMP-08
S.No.	Date	Number	Return		Return Period	Date Extended to
1	13-10-2017	41/2017	GSTR-4		Q2 2017-18	15-11-2017
2	15-11-2017	59/2017	GSTR-4		Q2 2017-18	24-12-2017
3	29-11-2018	65/2018	GSTR-4		Q2 2018-19	30-11-18 for taxpayers in Srikakulam district of Andhra Pradesh
4	18-07-2019	34/2019	CMP-08		Q1 2019-20	31-07-2019
5	29-07-2019	35/2019	CMP-08		Q1 2019-20	31-08-2019
Notifications Central Tax ( Rate )
1	07-03-2019	2/2019	To give composition scheme for supplier of services with a tax rate of 6% having annual turn over in preceding year upto Rs 50 lakhs
2	30-09-2019	18/2019	amend notification No 2/2019- Central Tax (Rate) dated 7.3.2019 so as to exclude manufacturers of aerated waters from the purview of composition scheme.
Circulars
1	31-12-2018	77/51/2018		Denial of composition option by tax authorities and effective date thereof
2	05-04-2019	97/16/2019		circular clarifying issues regarding exercise of option to pay tax under notification No. 2/2019 central tax ( rate )
Orders
1	21-07-2017	01/2017		Date extended to 16-08-17 for CMP-01
2	29-09-2017	04/2017		Date extended to 31-10-17 for CMP-03
3	28-10-2017	05/2017		Date extended to 30-11-17 for CMP-03
4	21-12-2018	11/2017		Date extended to 31-01-18 for CMP-03
Removal of Difficulty Orders
1	13-10-2017	01/2017		To remove difficulties in implementing provisions of composition scheme.
2	01-02-2019	01/2019		supersede Removal of Difficulties Order No. 1/2017 – Central Tax dated 13.10.2017 in view of the amendment to Section 10 of the CGST Act, 2017 (regarding allowing registered persons opting for Composition Scheme to supply services up to a limit) coming into force w.e.f. 01.02.2019
3	08-03-2019	03-2019		To remove difficulty in implementation of Notification No. 2/2019- Central Tax (Rate)

To reach to me for any suggestions, rectifications, amendments and/or further clarifications in regard of this article my email address is pkmgstupdate@gmail.com.