Relevant Extract of Advance Ruling Order in Case of M/S EMPATHIC TRADING CENTER, Karnataka Bench

The proprietor of M/s. Empathic Trading Center has field an application for advance ruling under section 97 of the CGST Act, 2017 read with Rule 104 of CGST Rule 2017 and section 97 of KGST Act, 2017 read with Rule 104 of KGST Rules 2017.

The applicant is registered under the provisions of Goods and Services Tax Act, 2017. The applicant states that he is engaged in the business of supplying goods under trade name of “Empathic Trading Center” and is also supplier of service of renting immovable property, there is no connection whatsoever between the two lines of business and they are two separate and distinct business activities. The applicant is currently under composition scheme with effect from 01.04.2019 by virtue of Notification No. 2/2019 – Central tax (Rate) dated 07.03.2019 as his aggregate turnover is much less than Rs. 50,00,000 per annum.

The applicant has sought advance ruling in respect of following questions:

1. Whether he is eligible to be in the composition scheme as his aggregate turnover is much less than Rs. 50,00,000?

2. Whether the rate of composition tax applicable is 1% for the turnover of goods (sales) and 6% for the turnover of service (rent). The two separate taxes amounts to be totaled and paid or is it 6% as a whole for the aggregate turnover of goods and service turnover that is to be paid?

As the personal hearing held on 02.01.2020 the authority has made the following findings and discussions:-

1. The applicant, admittedly has two lines of business, one for the supply of goods and other for the supply of services. There is no dispute that both the activities of the applicant are taxable and also supplied by the same person. The applicant states the annual aggregate turnover of both the activities put together is not more than Rs. 50Lakhs.

2. The question of eligibility of the applicant to pay tax under section 10 of the CGST Act, 2017 is examined and the following are noticed: Section 10 of the CGST Act, reads as under:

“(1) Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees may opt to pay, in lieu of the tax payable by him under sub-section (1) of section 9, an amount of tax calculated at such rate as may be prescribed, but not exceeding,-

a. One per cent. Of the turnover in state in case of a manufacturer,

b. Two and a half per cent. of the turnover in state in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of schedule II, and

c. Half per cent. of the turnover in case of other suppliers.

Subject to such conditions and restrictions as may be prescribed:

Provided that the government may, by notification, increase the said limit of fifty lakh rupees to such higher amount, not exceeding one crore and fifty lakh rupees, as may be recommended by the Council.

Provided further that a person who opts to pay tax under clause (a) or clause (c) may supply services (other than those referred to in clause (b) of paragraph of schedule II). Of value not exceeding ten per cent. of turnover in a state or union territory in the preceding financial year or five lakh rupees, whichever is higher.

Registered person shall be eligible to opt under sub-section 

(1), if – 

a) Save a provided in subsection (1), he is not engaged in the supply of services; 

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 electric commerce operator who is required to collect tax at source under section 52; 

e) He is not manufacturer of such goods as may be notified by the Government on the recommendation of the Council; 

f) He is neither a casual taxable person nor a non-resident taxable person.

Provided that where more than one registered person are having the same Permanent Account Number, the registered person shall not be eligible to opt for a scheme under sub-section (1) unless all such registered persons opt to pay tax under that sub-section.

3. The applicant admittedly is supplying services and hence the eligibility for composition scheme is dependent on the satisfaction of the condition stipulated in the second proviso to subsection (1) of section 10. If the turnover of the services exceed ten per cent of turnover in state or union territory in the preceding financial year or five lakh rupees, whichever is higher, then he shall not be eligible for composition scheme. Even if the applicant obtains a separate registration, he would not be eligible for composition for both of the business.

4. Coming to Notification no. 2/2019 – Central Tax (Rate) dated 07.03.2019, the said notification prescribes the rate of tax for 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” and is not issued under section 10 of the CGST Act, 2017. Hence it is not a composition scheme but it is an optional scheme.

5. The conditions for the schemes are as under:

1. “Supplies are made by a registered person, – 

(i) Whose aggregate turnover in the preceding financial year was fifty lakh rupees or below; 

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

2. Where more than one registered person having the same permanent account number, issued under the income tax Act, 1961, central tax on supplies by all such registered persons is paid at the rate specified in column (2) under this notification.

 6. On perusal of the above conditions, an applicant shall be eligible to pay tax under said notification, only if the applicant is not eligible to pay tax under section 10(1) of the CGST Act and the applicant does not satisfy the above conditions as he is already registered under section 10 of the CGST Act, 2017. Regarding the other condition of aggregate turnover less than fifty lakh rupees is satisfied by the applicant. Hence the applicant is not eligible to pay tax under the Notification on the entire aggregate turnover as long as he continues to be registered as composition taxpayer.

 7. If the applicant opts out of composition scheme and he obtains separate registrations for the two lines of business, as per second condition, he shall be liable to pay tax at 3% CGST and 3% SGST on the each of turnovers of the registrations. The tax is on the entire aggregate turnover i.e. all the “first supplies of goods or services or both upto an aggregate turnover of fifty lakh rupees.”

Hence the applicant is liable to pay tax under CGST Act at 3% and at 3% under KGST Act, if he opts to pay tax under the said notification after opting out of Composition levy on the entire value of supplies made and he cannot apply different schemes for different types of transactions.

In view of the forgoing, the authority has pass the following

R U L I N G

1. The applicant is eligible to be in the composition scheme under section 10 of the CGST Act, 2017 if the turnover of the services of the applicant does not exceed ten per cent of turnover in a state or Union territory in the preceding financial year or five lakh rupees, whichever is higher.

2. The applicant is not eligible to opt to pay tax under the Notification no. 2/2019 – Central Tax (Rate) dated 07.03.2019 and under the Notification (02/2019) No. FD 48 CSL 2017 dated 07.03.2019 of the Government of Karnataka as the applicant is registered as a Composition Taxpayer.

3. The rate of tax applicable on the entire value is 3% CGST and 3% KGST and he cannot pay tax at 1% on supply of goods and 6% tax on the supply of services.

Source- In re Emphatic Trading Centre (GST AAR Karnataka); Advance Ruling No. KAR ADRG 28/2020; Dated: 23/04/2020

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