Often there are several confusions and doubts on composition levy.

Such as:

1. Who can opt for composition scheme

2. What is eligibility to register under composition scheme

3. What are the specified rates

4. Can Composite dealer can do interstate trade

5. Can Composite dealer can supply to SEZ

6. can Composite dealer under take supply of services(s)

7. Can Composite dealer will get brought forward ITC

8. If composite dealer purchases from casual trader whether remit not reverse charge or not?

9. Who are the persons ineligible to register under composition.

10. When to remit taxes, how to remit, where to remit which return to be filed, if not filed returns and remitted taxes what will be consequences etc.,

Likewise there are do several doubts. To clear the ambiguities, possible exercise is submitted made and submitted ed for the benefit members: of the members:-

The composition levy is an alternative method of levy of tax designed for small taxpayers whose turnover is up to Rs. 75 lakhs. The purpose and objective of composition scheme is to bring simplicity and to reduce the compliance cost for the small taxpayers. Moreover, it is optional and the eligible person opting to pay tax under this scheme can pay tax at a prescribed percentage of his turnover every quarter, instead of paying tax at normal rate.

The specified rate of composition levy:

Sr. No. Category of Registered Person Rate of Tax
1 Manufacturers, other than manufacturers of such goods as may be notified by the Government (Ice cream, Pan Masala, Tobbacco products etc.) 2%(1% Central tax plus 1 % State tax) of the turnover
2 Restaurant Services 5%(2.5% Central tax plus2.5% SGST)of the turnover
3 Traders or any other supplier eligible for composition levy 1%(O.5% Central tax plusO.5% State tax) of the turnover

Eligibility for Composition Scheme

Composition scheme is a scheme for payment of GST available to small taxpayers whose aggregate turnover in the preceding financial year did not cross Rs. 75 lakhs.

The following persons are not allowed to opt for the composition scheme:

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

2. suppliers whose aggregate turnover in the preceding financial year crossed 75 lakhs;

3. supplier who has purchased any goods or services from unregistered supplier unless he has paid GST on such goods or services on reverse charge basis;

4. supplier of services, other than restaurant service;

5. persons supplying goods which are not taxable under GST law;

6. persons making any inter-State outward supplies of goods;

7. suppliers making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and

8. a manufacturer of following goods:

HSN Code Description of Goods
2105 .00. 00 Ice cream and other edible ice, whether or not containing cocoa
2106 90 20 Pan masala
Chapter 24 Tobacco and manufactured tobacco substitutes

Note: There is no restriction on procuring goods from inter inter-state suppliers by persons opting for the composition scheme

Liability Under Composition Scheme

A person opting for composition levy will have to pay tax on quarterly basis before 18th of the month succeeding the quarter during which the supplies were made.

The option to pay tax under composition scheme lapses from the day on which his aggregate turnover during the financial year exceeds the specified limit (Rs. 75  lakhs). He is required to file an intimation for withdrawal from the scheme in CMP FORM GST CMP-04 within seven days from the day on which the threshold limit has been crossed.

However, such person shall be allowed to avail the input tax credit in respect of the stock of inputs and inputs contained in semi-finished or finished goods held in stock  by him and on capital goods held by him on the date of withdrawal and furnish a  statement within 30 days of withdrawal containing the details of such stock held in  ITC FORM GST ITC- 01 on the common portal.

Aggregate turnover will be computed on the basis of turnover on an all India basis and will include value of all taxable supplies; exempt supplies and exports made by all persons with same PAN, but would exclude inward supplies under reverse charge as well as central, State/Union Territory and Integrated taxes and cess.

Input Credit In Case of Composition Levy

A taxable person opting to pay tax under the composition scheme is out of the credit chain. He cannot take credit on his input supplies. When he switches over from composition scheme to normal scheme, eligible credit on the date of transition would be allowed.

As the composition dealer cannot collect tax paid by him on outward supplies from his customers, the registered persons making purchases from a taxable person paying tax under the composition scheme cannot avail credit.

The composition dealer can issue a bill of supply in lieu of tax invoice.

Compliance Under Composition Scheme

The Composition dealers need to file quarterly returns electronically in GSTR Form GSTR-4 on the GSTN common portal by the 18th of the month succeeding the  quarter. For example return in respect of supplies made during July, 2017 to  September, 2017 is required to be filed on or before 18th October, 2017.

The composite dealer shall file returns details containing of the turnover in the State or Union territory, inward supplies of goods or services or both and tax payable.

The composition dealer shall remit tax on his purchases from casual trader under reverse charge mechanism. The tax can be paid on or before 18th day of the month  succeeding the quarter in which such supplies were received. The information relating to such supplies should be shown by the composition taxpayer in Table 4 of return in FORM GSTR -4.

The composition dealer shall furnish an intimation of payment of tax in Form GST CMP-01 or in CMP Form GST CMP-02 electronically.

In case of a person registered under existing law (Central Excise / Service Tax / VAT) and who has been granted registration on a provisional basis wants to opt for  composition scheme, such a person has to file CMP FORM GST CMP-01 01electronically, on the GST common portal, prior to 22nd June, 2017 or such further period as may be allowed by the Commissioner (GST).

The Composition dealer also required to 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 composition scheme, in  CMP FORM GST CMP-03 electronically, available on the common portal, within a  period of sixty days from the date on which the option for composition levy is exercised.

Any person can make an application for fresh registration under GST opting for  composition. Such persons can give the option to pay tax under the composition  scheme in REG Part B of FORM GST REG-01 01. This will be considered as an  intimation to pay tax under the composition scheme.

The option is required to be given electronically in CMP FORM GST CMP-02, prior to the commencement of the relevant financial year but not as and when he required.

The registered person opting to pay tax under composition scheme is required to pay an amount equal to the input tax credit in respect of inputs held in stock and inputs  contained in semi-finished or finished goods held in stock on the day immediately  preceding the date of exercise of option. The ITC on inputs shall be calculated proportionately on the basis of corresponding invoices on which credit had been availed by the registered taxable person on such inputs.

In respect of capital goods held in stock on the day immediately preceding the date of exercise of option, the input tax credit involved in the remaining useful life in months  shall be computed on pro-rata basis, taking the useful life as 5 years. Assume capital goods have been in use for 4 years, 5 months and 15 days. The useful  remaining life in months will be 5 months ignoring the part of the month. If ITC on  such capital goods is taken as C, ITC attributable to the remaining useful life will be C multiplied by 5/60. This would be the amount payable on capital goods.

The ITC amount shall be determined separately for integrated tax (IGST), central tax (CGST) and state tax (SGST) and Union territory tax (UGST). The payment can be made by debiting electronic credit ledger, if there is sufficient balance in the said ledger, or by debiting electronic cash ledger. The balance, if any in the electronic  credit ledger would lapse.

Such composite dealers also have to furnish the statement in FORM GST ITC-03 electronically which is a declaration for intimation of ITC reversal/ payment of tax on inputs held in stock, inputs contained in semi-finished and finished goods held in stock and capital goods under Section 18(4) of the CGST Act, 2017 within a period of sixty days from the commencement of the relevant financial year.

The option to pay tax under composition scheme will have to be exercised for all States if he has registration in multiple states. He cannot opt for composition levy, only a state or two. He must opt in toto.

To have effective date of composition levy, there can be three situations as under :-

Persons who have been granted provisional registration and who opt for composition levy (Intimation under Rule 3(1)) The appointed date is 22nd June, 2017
Persona opting for composition levy at the time of making application for new registration in the same registration application itself (Intimation under rule 3(2)) Effective date of registration: Intimation shall be considered only after the grant of registration and his option to pay tax under section 10 shall be effective from the effective date of registration
Persons opting for composition after obtaining registration (Intimation under Rule 3(3)) The beginning of the financial year

The person exercising the option to pay tax under section 10 shall comply with the following other conditions (in addition to what is stated above), namely: –

a) He shall mention the words Dz composition taxable person, not eligible to collect tax on supplies at the top of the bill of supply issued by him; and

b) He shall mention the words Dz composition taxable person Dz 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.

The option to pay tax under composition levy would remain valid so long as  conditions mentioned in Section 10 of the CGST Act, 2017 and Rule 3 to 5 of the CGST Rules, 2017 remain satisfied.

The registered person who intends to withdraw from the composition scheme can file a duly signed or verified application in FORM GST CMP CMP-04.

Every person who has filed an application for withdrawal from the composition  scheme, may electronically furnish, a statement in FORM ITC 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 of withdrawal, within a period of thirty days of  withdrawal.

Where any contravention is noticed by the officer concerned wherein the registered person was not eligible to pay tax under the composition scheme or has contravened the provisions of the CGST Act, 2017 or provisions of Chapter II of the CGST Rules, 2017, he may issue a notice to such person in CMP FORM GST CMP-05 to show cause within fifteen days of the receipt of such notice as to why the option to pay tax  under the composition scheme shall not be denied.

Upon receipt of the reply to the said show cause notice in FORM GST CMP CMP-06,, the proper officer shall issue an order in CMP FORM GST CMP-07 within a period of thirty days of the receipt of such reply, either accepting the reply, or  denying the option to pay tax under the composition scheme from the date of the option or from the date of the event concerning such contravention, as the case may be.

The composite person can avail ITC by filing, 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 denied as per  order in CMP FORM GST CMP- 07, within a period of thirty days from the order.

Any intimation or application for withdrawal 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.

The composite dealer cannot be a supplier of Services but the exception being supplier of restaurant services only.

If a taxable person has paid tax under the composition scheme though he was not eligible for the scheme then the person would be liable to penalty and the provisions of Section  73 or 74 shall be applicable for determination of tax and penalty.

The composition dealer cannot make supplies  to SEZ from domestic tariff area will be treated as inter-State supply. A person paying tax under composition scheme cannot make inter-State outward supply of goods. Thus, for making supplies to an SEZ unit, a person needs to take registration as a regular GST taxpayer. The supplies to SEZ will be zero rated and the supplier will be entitled to make supplies without payment of tax or if he pays tax, he will be entitled to refund of tax so paid.

The registered person of existing laws, and opting for registration under composition scheme then he will not be able to carry forward the excess ITC of VAT to GST.

Hope we need not discuss about COMPOSITION SCHEME since every aspect is  covered above.

I request the members to comment. Any suggestions, advice of the members are welcome.

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One response to “Composition Scheme under GST Act, 2017”

  1. CA Rahul Kumar Jain says:

    Dear Sir
    If Existing Cloth Merchant having Closing stock as on 30th june and no registration under VAT. Now in GST he choose to Composition Scheme, hence first he need to pay tax on goods lying on appointed day than again sale under composition Scheme ?????

    Please Suggest

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