CA Bhinang Tejani
For a government to be administratively expedient or for very small taxable persons it is normal to provide the threshold limit for imposition of any tax. Even if government imposes tax on such small taxable person than cost will exceed the revenue collected making it an infeasible option. Considering this fact GST legislation have kept very small business having an aggregate turnover up to 20 lakhs (10 lakhs in case of ‘special category states’ as specified in Article 279A(4)(g) of the Constitution of India) outside the purview of GST.
However for a business units whose turnover exceeds 20 lakhs GST comes with a cost of accounting and paper work which may not be viable for all small businesses like retail shops. Hence, for them, Section 10 of CGST act provides for a simplified composition scheme. This composition scheme would be available for business units whose aggregate turnover of supply of goods in a financial year does not exceed Rs. 75 lakhs. (GST Council meeting on 11-06-2017).
In a GST council meet held on 18-06-2017 is was decided that the said turnover limit of supply of goods would be 50 Lakhs for special category states which includes Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Himachal Pradesh.
Composition Scheme Rates
a. 2% of turnover in case of manufacturer (1% CGST as per section 10(1) of CGST Act + 1% SGST)
b. 5% of turnover in case of restaurant service (2.5% CGST + 2.5% SGST)
c. 1% of turnover for traders (0.5% CGST +0.5% SGST)
Section 10(2) of CGST Act- Persons not eligible for Composition Scheme
Section 10(2) of CGST Act, lists the taxable person who are eligible for composition scheme:
1. He is not engaged in supply of service other than supplies referred to in para 6(b) of Schedule II of CGST Act.
Interpretation: Only supplier of goods are eligible for composition scheme and supplier of services are not eligible. However restaurant service is included in para 6(b) of Schedule II of CGST Act and hence restaurants are eligible for composition scheme.
2. He is not engaged in making any supply of goods which are not leviable to tax under this act.
3. He is not engaged in making any inter-state outward supplies of goods.
Interpretation: Business units can procure goods from outside the state but when opted for composition scheme cannot make any sale outside the state.
4. 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 of CGST Act
(Section 52 of CGST Act covers ecommerce businesses like flipkart, amazon etc)
5. He is not a manufacturer of such goods as may be notified on the recommendation of council.
However following manufacturers are not eligible for Composition Levy-
- Ice Cream & other edible ice, wheatehr or nto containing cocoa.
- Pan Masala
- Tobacco & manufactured tobacco substitutes.
Person opting for composition scheme cannot charge GST
Section 10(4) of CGST Act restricts the taxable person opting for composition scheme from charging any GST amount from customer. Also taxable person cannot show GST amount separately and they are not entitled for any input tax credit also.
Conditions and restrictions for composition levy- Rule 3(1) of Composition Rule
The person exercising the option to pay tax under section 10 shall comply with the following conditions:
(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 1;
(c) the goods held in stock by him have not been purchased from an unregistered supplier and where purchased, he pays the tax under sub-section (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 subsection (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.
Intimation for composition levy
(1) Any person who has been granted registration on a provisional basis under sub-rule (1) of rule Registration.17 and who opts to pay tax under section 10, shall electronically file an intimation in FORM GST CMP-01, duly signed or verified through electronic verification code (EVC), on the Common Portal, either directly or through a Facilitation Center notified by the Commissioner, prior to the appointed day, but not later than thirty days after the said day, or such further period as may be extended by the Commissioner in this behalf: Provided that where the intimation in FORM GST CMP-01 is filed after the appointed day, the registered person shall not collect any tax from the appointed day but shall issue bill of supply for supplies made after the said day.
(2) Any person who applies for registration under rule Registration.1 may give an option to pay tax under section 10 in Part B of FORM GST REG-01, which shall be considered as an intimation to pay tax under the said section.
(3) Any registered person who opts to pay tax under section 10 shall electronically file an intimation in FORM GST CMP-02, duly signed or verified through EVC, on the Common Portal, either directly or through a Facilitation Centre notified by the Commissioner prior to the commencement of the financial year for which the option to pay tax under the aforesaid section is exercised and shall furnish the statement in FORM GST ITC-3 in accordance with the provisions of sub-rule (4) of rule ITC.9 within sixty days from the commencement of the relevant financial year,
(4) Any person who files an intimation under sub-rule (1) to pay tax under section 10 shall furnish the details of stock, including the inward supply of goods received from unregistered persons, held by him on the day preceding the date from which he opts to pay tax under the said section, electronically, in FORM GST CMP-03, on the Common Portal, either directly or through a Facilitation Centre notified by the Commissioner, within sixty days of the date from which the option for composition levy is exercised or within such further period as may be extended by the Commissioner in this behalf.
(5) Any intimation under sub-rule (1) or sub-rule (3) 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 PAN.
Fresh Declaration not required every year- Rule 3(2) of Composition Rules
The registered person paying tax under section 10 may not file a fresh intimation every year and he may continue to pay tax under the said section subject to the provisions of the Act and these rules.
Validity of composition levy
(1) The option exercised by a registered person to pay tax under section 10 shall remain valid so long as he satisfies all the conditions mentioned in the said section and these rules.
(2) The person referred to in sub-rule (1) shall be liable to pay tax under sub-section (1) of section 9 from the day he ceases to satisfy any of the conditions mentioned in section 10 or these rules and shall issue tax invoice for every taxable supply made thereafter and he shall also file an intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days of occurrence of such event.
(3) The registered person who intends to withdraw from the composition scheme shall, before the date of such withdrawal, file an application in FORM GST CMP-04, duly signed or verified through EVC, electronically on the Common Portal.
(4) Where the proper officer has reasons to believe that the registered person was not eligible to pay tax under section 10 or has contravened the provisions of the Act or these rules, he may issue a notice to such person in FORM GST CMP-05 to show cause within fifteen days of the receipt of such notice as to why option to pay tax under section 10 should not be denied.
(5) Upon receipt of reply to the show cause notice issued under sub-rule (4) from the registered person in FORM GST CMP-06, the proper officer shall issue an order in FORM GST CMP-07 within thirty days of receipt of such reply, either accepting the reply, or denying the option to pay tax under section 10 from the date of option or from the date of the event concerning such contravention, as the case may be.
(6) Every person who has furnished an intimation under sub-rule (2) or filed an application for withdrawal under sub-rule (3) or a person in respect of whom an order of withdrawal of option has been passed in FORM GST CMP-07 under sub-rule (5), may electronically furnish at the Common Portal, either directly or through a Facilitation Centre notified by the Commissioner, a statement in FORM GST ITC-01 containing details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date on which the option is withdrawn or denied, within 30 days, from the date from which the option is withdrawn or from the date of order passed in FORM GST CMP-07, as the case may be.
(7) 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 PAN.
Effective date for composition levy
(1) The option to pay tax under section 10 shall be effective from the beginning of the financial year, where the intimation is filed under sub-rule (3) of rule 1 and the appointed day where intimation is filed under sub-rule (1) of the said rule.
(2) The intimation under sub-rule (2) of rule 1 shall be considered only after grant of registration to the applicant and his option to pay tax under section 10 shall be effective from the date fixed under sub-rule (2) or (3) of rule Registration.
The intentions of government may be to simplify the tax compliance for small traders but the practical difficulties in composition scheme is the requirement to buy only from registered dealer and pay full GST on it without any Input tax credit or if purchased from unregistered dealer than taxable person (person who opted for composition scheme) have to pay GST on reverse charge basis. This seems impractical and impossible for small taxable person who have opted for composition scheme under CGST Act.