CA Swaraj Chhallani

Given the plethora of complicated compliances and annoying IT infrastructure, a great savior for small manufacturers, traders and restaurants comes through section 10 of CGST Act. The basic objective of such composition scheme is to bring simplicity and reduce compliance cost for small tax payers.

Following registered person having aggregate turnover in preceding financial year below 75 lakhs may opt for composition levy:-

1. Manufacturers (except of some goods specified below)

2. Traders

3. Restaurants

Turnover limit is Rs. 50 lakhs for special category states. Further, aggregate turnover includes turnover of taxable and exempt goods/ services along with exports on an all India basis. Taxes and cess levied under any of the GST acts are not to be considered for computation of aggregate turnover.

Following persons are not eligible to opt for composition:-

1. Supplier of service other than restaurant.

2. Person engaged in making any supply of goods which are not leviable to tax under GST Acts (Eg. Petrol, Diesel, alcohol for human consumption etc.)

3. Person making interstate supply for goods.

4. Person selling goods through E-Commerce Operator who is required to collect tax at source. Hence a person selling goods from own website can register under composition if he satisfies other conditions.

5. a casual taxable person or a non-resident taxable person;

6. Manufacturer of Ice Cream, edible ice, Pan Masala, Tobacco and manufactured tobacco substitutes.

7. Where application is filed u/r 3(1) as stated below, the person must not possess any goods in stock on appointed date (22nd June 2017) which were purchased /stock transferred in inter state trade. Nor shall he possess any goods which were imported. This provision has been inserted because state government has never received any tax on such goods.

8. Person having stock of goods purchased from unregistered person and tax u/s 9(4) has not been paid.

9. Person who collects tax at source u/s 56 of CGST Act.

A person supplying goods as part of works contract will not be eligible for composition levy as works contract is termed as service under Schedule II of CGST act.

In case a restaurant is supplying alcoholic liquor for human consumption, it cannot opt for composition levy as it is engaged in supply of goods not taxable under GST.

Further, option for composition levy is to be exercised on an all India basis for the same PAN. Person having branch in multiple states / UT cannot opt for composition partially for one/some state only. All the business verticals registered with same PAN will be considered under composition if one opt for same.

Procedure for application

A migrated person who wants to apply for composition should intimate in FORM GST CMP 01 electronically. This facility is already available under Services Tab of www.gst.gov.in. In case where CMP 01 is filed after the appointment date, such person shall not collect tax from the appointment date.

Comprehensive table for application under composition levy :-

Rule Applicability Form Effective Date
3(1) Person granted registration under provisional basis.

Give details of stock in FORM GST CMP-03.

Intimation for one state will be considered as intimation for pan India.

Further, he cannot carry forward credit in TRAN 01.

GST CMP 01 Appointment date i.e. 22nd June 2017
3(2) Person who applies for fresh registration can at the time of such application opt for composition. Part B of GST REG-01 After registration is granted.
3(3) Already registered person wanting to opt for composition shall file application before commencement of financial year and furnish statement in FORM GST ITC-03. Intimation for one state will be considered as intimation for pan India. Such application cannot be filed at anytime of the year but has to be filed before commencement of year. Further, such person shall pay amount by way of debit to electronic credit ledger the amount of tax equal to credit of all inputs and capital goods as reduced. GST CMP-02 Beginning of the financial year

 Intimation need not be furnished each year. Intimation once given will hold good until he satisfies all the conditions applicable to composition person.

Option to apply for composition was open till 30th September 2017, effective date being 1st October 2017.

Supply of goods/ specified service

Once registration is granted, such person should issue Bill of Supply instead of Tax Invoice. Such bill of supply shall be issued from the effective date. No tax can be charged separately under bill of supply. Further the words “composition taxable person, not eligible to collect tax on supplies” shall be mentioned at the top of the bill of supply issued by him.

Also such person shall mention the words “Composition Taxable Person” on every notice or signboard displayed at a prominent place at all his business places.

Following are the tax rates applicable for various registered persons:-

Sr. No Registered Person Total GST Rate
1 Manufacturers, other than manufacturer of Ice Cream, edible ice, Pan Masala, Tobacco and manufactured tobacco substitutes. 2%
2 Restaurants 5%
3 Any other eligible person 1%

U/s 10 of CGST Act, tax is payable on turnover in state. Hence in case a person under composition levy is supplying taxable and exempt goods, tax under composition levy is to be paid on both.

One of the important drawback of person under composition levy is that such person cannot make inter state supplies. Hence such person cannot supply to SEZ. Also it should be noted that inter state outward supply is not allowed while there is no such restriction on inter state purchases.

Compliance

A person opting to levy tax under composition levy is required to file quarterly return in Form GSTR-4. Such GSTR-4 shall be filed by the 18th of subsequent month of each quarter. In case 3 consecutive return are not filed, a proper officer may cancel the registration. Thankfully compliance is at a very low level and will help the SMEs on focusing on innovation and developing market.

Further, such person is also liable to pay tax under reverse charge u/s 9(3) and 9(4). Credit of any tax paid is not available to person under composition levy. Given that no credit is allowed for any of the inward supplies including that of tax paid under reverse charge, composition levy does heavily affect the margins. 

Cancellation of Registration

In case where a person ceases to satisfy any of the condition mentioned above, then such person will be liable to pay tax at normal rates. For each taxable supply he will have to issue Tax invoice. Further within 7 days he will have to intimate in FORM GST CMP-04.

A person who wants to withdraw form composition levy will have to file application in FORM GST CMP-04.

If proper officer has reason to believe that registered person was not eligible for composition levy or has contravened any of its provisions may issue a notice in FORM GST CMP-05 with time period to reply within 15 days in FORM GST CMP-06. With regards to such reply, the officer shall issue an order in FORM GST CMP-07 within 30 days of receipt of reply in FORM GST CMP-06.

withdraw form composition levy

In case where a person withdraws from composition levy or is denied by proper officer then he shall file FORM GST ITC-01 to claim credit of goods in stock as on the date of withdrawal or the date of FORM GST CMP-07 as applicable. Further, withdrawal/ denial under one state will be applicable on pan India basis.

Composition Scheme Under GST

More Under Goods and Services Tax

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