All about Composition Scheme under GST Law

Sec 8 of Model GST Law and Composition Rules – By Empowered Committee of State Finance Ministers June, 2016

Composition Levy

(1) Notwithstanding anything to the contrary contained in the Act but subject to subsection (3) of section 7,

      on the recommendation of the Council, the proper officer of the Central or a State Government may, subject to such conditions and restrictions as may be prescribed,

      permit a registered taxable person, whose aggregate turnover in a financial year does not exceed [fifty lakh of rupees],

      to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not less than one percent of the turnover during the year:

       Provided that no such permission shall be granted to a taxable person who effects any inter-State supplies of goods and/or services.

       Provided further that no such permission shall be granted to a taxable person unless all the registered taxable persons, having the same PAN as held by the said taxable person, also opt to pay tax under the provisions of this sub-section.

(2) A taxable person to whom the provisions of sub-section (1) apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.

(3) If the proper officer has reasons to believe that a taxable person was not eligible to pay tax under sub-section (1), such person shall, in addition to any tax that may be payable by him under other provisions of this Act, be liable to a penalty equivalent to the amount of tax payable as aforesaid:

      Provided that no penalty shall be imposed without giving a notice to show cause and without affording a reasonable opportunity of being heard to the person proceeded against.

Now, let’s look at the provisions in detail by giving light to Composition rules:

Firstly, what is composition Scheme?

Startups and Small and Medium Enterprises (SMEs) on flip side may struggle to comply to these provisions. To resolve such scenarios, government has introduced composition scheme under GST, which is merely an extension of current scheme under VAT law.

Composition Scheme under GST, a taxpayer is required to file one summarized return on quarterly basis, instead of three monthly returns as applicable for normal businesses.

As per the provisions of the Act

• This scheme is applicable to those dealers having a aggregate turnover of less than Rs.50 Lakhs

        (‘Aggregate’ turnover includes aggregate value of

              – Taxable supplies

            –  Exempted supplies

           – Export of goods and/or services

          – Inter-state supplies

       to be computed for each taxable person having the same PAN, on all India basis and excludes taxes, if any, charged under the CGST Act, SGST Act and the IGST Act, as the case may be.

       Aggregate turnover does not include the value of supplies on which tax is levied on reverse charge basis and the value of inward supplies.)

• The dealer shall not collect any tax on the supplies made by him
• The dealer shall not avail any input tax credit
• The dealer shall be required to pay tax on the turnover as follows (Not mentioned whether on Aggregate turnover or Taxable turnover) – As per Composition Rules, the rates of taxes are as under:

• Sl.No.	Category of registered persons	Rate of tax
  1	Manufacturers, other than manufacturers of such goods as may be notified by the Government	1%
  2	Suppliers making supplies supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration as per  clause (b) of paragraph 6 of Schedule II	2.5%
  3	Any other supplier eligible for composition levy under section 10 and these rules	0.5%

As per the Composition Rules:

1. Who are eligible for applying composition levy?

• he is neither a casual taxable person nor a non-resident taxable person;
• 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 composition scheme is exercised;
• the goods held in stock by him have not been purchased from an unregistered person and where purchased, he pays the tax under Reverse charge basis [Section 9(4)];
• he shall pay tax under Reverse charge basis [Section 9(3) or Section 9(4)] on inward supply of goods or services or both received from un-registered persons;
• he was not engaged in the manufacture of goods as notified under clause (e) of sub-section(2) of section 10, during the preceding financial year;

Any person who does not fall under the above category shall only be eligible for Composition Scheme

2. Procedure for opting to composition scheme?

FORM GST CMO-01	Intimation to be filed electronically by persons who opts to pay tax as per composition scheme Prior to Appointed day or within 30days from the said day or such further period as may be specified.
FORM GST CMP-03	Statement containing the details of stock, including the inward supply of goods received from unregistered persons held on the day immediately preceding the date of exercising the option – within 60 days from date of on which the option is exercised.

In the above case, The effective date shall be appointed date , where the intimation is filed

FORM GST CMP-02	Intimation to be filed electronically by persons who opts to pay tax as per composition scheme Prior to commencement of financial year for which he opts to pay tax
FORM GST ITC-03	Statement containing the details of input tax credit in respect of inputs held in stock and inputs contained in semi-finished goods or finished goods or stock held in capital goods on the day immediately preceding the date of exercising the option – within 60days from date of commencement of financial year.

  In the above case, The effective date shall be from the beginning of the financial year, where the intimation is filed  and obtained the grant for composition scheme.

 Intimation given under this rule in respect of any place of business in any State or Union territory shall be deemed to be intimation in respect of all other places of business registered on the same PAN.

  3. Validity of composition scheme

         – The option availed is valid so long as he satisfies all the conditions mentioned in the said section and these rules.

        – Procedure for intimation or filing an application for withdrawal from this scheme

FORM GST CMP-04	Electronic Intimation to be filed by the registered person who ceases to satisfy any of the conditions mentioned relevant section or rules regarding withdrawal from the scheme within 7 days from the date of occurrence of such event. He shall cease to avail the option and shall issue tax invoice for every taxable supply made thereafter
	Electronic Intimation to be filed by the registered person who intends to withdraw from the composition scheme shall, before the date of such withdrawal.
FORM GST CMP-05	Notice issued by the proper officer if he has reasons to believe that the registered person was not eligible to pay tax under composition scheme or has contravened the provisions of the Act or these rules. He may issue a notice to such person 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.
FORM GST CMP-06	Reply to be given by the registered person for the show cause notice issued by proper officer.
FORM GST CMP-07	Order issued by the proper officer within 30 days of receipt of such reply, either accepting the reply, or denying the option to pay tax under Composition Scheme.
FORM GST ITC-01	Statement filed electronically by the person who has furnished an intimation or filed an application for withdrawal under Form GST CMP-04 Or in respect of whom an order of withdrawal of option has been passed in FORM GST CMP-07, 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.

Intimation for withdrawal or denial of the option 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.

By CA K Lakshmi Janaki

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