Keshav Sarda

Keshav SardaAs we all know that GST regime has also bring the concept of composition scheme for small and medium size trader’s, dealer’s and service provider (specifically for restaurant services).

What is Composition scheme:-

Initially, the GST Composition Levy Scheme was unveiled with a turnover limit of Rs.50 lakhs. However, due to various representations, in the GST Council meeting held on 11th June, 2017, the turnover limit for Composition Levy was increased from Rs.50 lakhs to Rs.75 lakhs for all eligible registered persons (during the preceding previous year). Though the turnover limit was increased to Rs.75 lakhs for majority of the States, there are few States (special category States) have turnover limits of Rs.50 lakhs (during the preceding previous year).

Turnover includes:-

This would include aggregate value of all taxable and non-taxable supplies, exempt supplies of goods and/or services of a person having the same PAN, to be computed on all India basis.

Manufacturers Not Eligible for Composition Levy:-

The following manufacturer will not be eligible for the Composition levy scheme:

a) Pan masala,

b) Tobacco or tobacco substitutes manufacturer,

c) Ice cream.

To whom Composition scheme is available:-

a) Manufacturer, trader, dealer of goods other then notified goods,

b) Service provider who is providing restaurant sector services.

Rate of GST under Composition scheme:-

a) Manufacturers, other than manufacturers of such goods as may be notified by the Government @ 1% CGST and SGST each (i.e. 2%).

b) Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II @ 2.5% CGST and SGST each (i.e. 5%).

c) Any other supplier eligible for composition levy under section 10 and these rules@ 0.5% CGST and SGST each (i.e. 1%).

Important point to be noted in relation to Composition scheme:-

i. A dealer registered under composition scheme is not required to maintain detailed records as in the case of a normal taxpayer.

ii. A dealer registered under composition scheme is not required to issue Tax Invoice.

iii. Dealer registered under composition scheme is not allowed to collect composition tax from the buyer.

iv. A dealer registered under composition scheme is not allowed to avail input tax credit.

v. A buyer from composition dealer will not be able to claim input tax on such goods.

vi. A dealer registered under composition scheme is required to file quarterly return form GSTR -4 on every 18th of the succeeding month from the end of the relevant quarter, however an annual return in form GSTR-9A.

vii. A dealer registered under composition scheme can’t claim the benefit of tax rates define under the composition scheme for the transaction on which the composition dealer is require to pay tax on Reverse Charge Mechanism (i.e. dealer will be liable to paid tax as normal tax payer).

ix. A dealer registered under composition scheme can purchase interstate but can’t involve in inter-state supplies.

x. If during the year turnover exceed the limit specified above then dealer will be treated as normal taxpayer.

Transition provision under Composition scheme as under:

a) While opting In the Composition scheme:-

When switching from normal scheme to composition scheme, the taxpayer shall be liable to pay an amount equal to the credit of input tax in respect of inputs held in stock on the day immediately preceding the date of such switchover. The balance of input tax credit after payment of such amount, if any, lying in the credit ledger shall lapse ( i.e. a existing tax payer who is opting for composition scheme on or after 1st July 2017 shall not be eligible for the input tax credit in respect of the input held in stock immediately before the date of the opting composition scheme, he is required to pay the already utilized input credit which is in respect of the above mentioned stock).

b) While opting out of the Composition scheme:-

Taxpayers registered under composition scheme under the current regime will be allowed to take credit of input held in stock, or in semi-finished goods or in finished goods on the day immediately preceding the date from which they opt to be taxed as a regular tax payer subject to the following condition:

a) Taxpayer was eligible for CENVAT Credit on such goods under the previous regime, however, couldn’t claim it being under composition scheme.

b) Such goods are eligible for input tax credit under GST regime.

c) Such inputs or goods are intended to be used for making taxable supplies under GST law.

d) The taxpayer has legal evidence of input tax paid on such goods.

e) Such invoices were issued within a period of 12 months from GST applicable date.

Penalisation under the Composition scheme:-

If a composition dealer has wrongly availed the benefit under the composition scheme, then such dealer shall be liable to pay the taxes which he would have paid under the normal scheme. Also, he will be liable to pay a penalty equivalent to an amount of tax payable. This penalty will not be levied without giving a show cause notice to the dealer.

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  1. pankaj gupta says:

    In Petrol pump dealer case : petrol & diesel are out of GST regime. But Lubricants are under GST. whether they can opt composite scheme for Lubricants ? Alone Lubricants sales are under 75 lac. though total of petrol, diesel and lubricants sales are more than 75 lac. please suggest.

  2. shafali verma says:

    i have interstate purchased stock on 1 July 2017
    whether i m eligible for composition scheme under GST as per conditions mention in bare act.
    as per 2nd no. condition.
    please elaborate

  3. Amit Kabra says:

    In case dealer opts for Composition Scheme wef 1.7.2017, there is a clarity on reversal of input Tax credit availed on stock held as on 30.6.2017 which was purchased within state under VAT regime. In case dealer has purchased inputs under CST @ 2% and he was carrying the same stock as on 30.6.2017, what is liability for reversal on account of input tax credit on stock held as such. (Assume VAT regime prior to GST was coming under 13.5% and in GST it will be categorised in 28%).

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November 2020