New Composition scheme under Delhi VAT for food stalls and restaurants

CA Vinod Kaushik

(Notification No. F.3 (29)/FIN (REV-I)/2015-16 dated 18-03-2016)

 Concept of composition scheme:-

In order to minimize the compliance burden on small dealers a single tax rate is fixed at a low level which is directly linked with the turnover amount. The input credit is not allowed to these classes of dealers against purchases made and restriction is put on issuance of tax invoice.  The rate of tax in the newly notified scheme is 5% on the turnover amount which seems to be on a very high side because tax rate on sweets and namkeen is also proposed to be reduced in annual budget 2016-17. In this article we will discuss each and every aspect of the scheme in detail including applicability of relevant forms.

Who is eligible under this scheme?

• Every registered dealer whose turnover during previous year or expected turnover during current year does not exceed 50 lakhs rupees.
• The dealer is making sales of ready to eat foods, non alcoholic beverages (soft drinks, juices etc), cooked foods, snacks, sweets, savouries, juices, aerated drinks, tea and coffee etc.
• The above food items can be served in hotels, restaurants, sweet shops, clubs, caterers and at any other eating house.

Conditions for availing composition scheme:-

• The dealer shall not be eligible to purchase or sales any goods outside Delhi.
• Not eligible to purchase any goods from unregistered dealers except the goods mentioned in first schedule.
• Not eligible to book credit under section 9 of DVAT Act, 2004.
• Not entitled to issue tax invoice to any purchaser.
• Not eligible to claim net tax under section 11 of Delhi VAT and cannot recover any amount on account of tax.

Other important conditions of the scheme:-

• Continue to retain copy of all invoices for all his purchases and copies of all retail invoices issued by him in respect of his sales as required under section 48 of the act.
• Once a dealer has started to pay tax under this scheme shall not be eligible to withdraw the scheme subject to the conditions given in section 20 of the DVAT Act, 2004.
• This scheme is applicable with effect from 01-04-2016 and the dealers who are paying taxes under section 3 of the VAT act may join this scheme by filing form RH-01 within 30 days from the first day of the FY for which composition scheme is opted. The ITC availed on opening stock shall be waived by the dealer once the composition scheme is opted and the proof of payment in form DVAT-20 along with Form RH-02 shall be furnished.
• The dealers who are no more interested in the composition scheme can opt out of the scheme by simply filing form RH-03 within 30 days from the end of the FY for which composition scheme was opted. The ITC on closing stock at the end of FY can be reclaimed by them at the rates prescribed in section 04 of the DVAT Act, 2004.

Shifting from existing composition scheme:

The dealers who are presently covered in general composition scheme as per sub section 1 to 11 of section 16 and they are also covered in the class of dealers prescribed in this scheme has to mandatorily switch to this scheme by withdrawing from existing scheme by filing form DVAT-03. If these classes of dealers are not interested in composition scheme can file returns as per normal procedure. This option is time bound in law and need to be exercised mandatorily by 30^th day of April 2016. The above provision can be explained with the help of an illustration where a small sweet shop having turnover up to 50 lakhs has already availed normal composition scheme and paying flat tax @ 1% of their turnover has to withdraw from this scheme and either avail new composition scheme and pay tax @ 5% or adopt the normal route and pay tax under section 3 of the DVAT Act, 2004.

Trigger points for withdrawal from scheme:-

In the following circumstances the dealers who have opted to pay tax under this scheme had to mandatorily withdraw from the scheme.

• Turnover of the dealer exceeds 50 lakhs rupees at any point of time during the previous year for which scheme is opted. The dealer has to file form RH-03 to give intimation of this fact that turnover has crossed threshold limit.
• The dealer who has defaulted to file two consecutive tax returns by the due date shall not eligible to pay tax under this scheme and have to pay tax under normal scheme under section 3 of the DVAT Act, 2004 with effect from the first day of the next month for which default has been committed.

Get GST Exemption List here

Conclusion:-

The scheme has been announced for the small dealers but the rate of tax has been fixed at a very high level which might not attract the dealers to join this scheme. To simplify the compliance burden for small dealers and make the scheme more attractive Govt. should reduce the rate of tax in the scheme.