GST is intend to cover larger number of people under its net and further keeping threshold exemption limit of 10Lakhs many people would come under GST net. Small tax payers may not have sufficient infrastructure, knowledge, awareness etc., in complying with various provisions of law including accounting, IT/ERP availability, and huge paper work. Because of this, every tax law provides alternative simplified scheme for the small tax payers, which is rough & ready method. GST law has no exception to this and Section 8 of Draft GST law deals with the same. Brief understanding of the scheme is as follows:
a. Scheme is based on recommendations of the GST Council
b. Scheme is subject to prescribed conditions and restrictions (to be prescribed)
c. The proper officer of CGST/SGST shall permit the tax payer to pay/assessee under this scheme instead of paying at full rate. In existing many VAT laws or service tax, this condition of officer permission is not there.
d. Such permission will be granted only to the registered person and not to unregistered person. Because of this, registration is pre-condition to avail the scheme.
e. The threshold limit for eligibility of this scheme is Rs.50 Lakhs. Here again clarity is missing in the section whether said turnover limit is referring to previous/preceding year which is similar to existing indirect tax laws or it refers to expected turnover in the current financial year, which makes practically scheme unattractive/unworkable owing to heavy financial/penal implications even for small deviations etc.,
f. The exact tax rate is not specified in the section and only minimum rate of 1% is mentioned in the section. The exact rate will be prescribed (may be by way of notification/rules)
g. Whether aforesaid rate is only CGST or combined rate of both CGST/SGST is not clear. However it can be inferred that since the rate is mentioned in CGST law, it refers to only CGST rate. However this would be clear only when SGST law is out or any clarification in this regard.
h. Tax rate shall be applied on turnover. Section simply refers ‘turnover’ and not to the ‘taxable turnover’ because of this, GST may have to be paid under this scheme even on non-taxable supplies. This lapse may be unintended and can expect replacement with ‘taxable turnover’.
i. Sometimes it may happen that total turnover is Rs.40Lakhs, out of which majority turnover is exports or exempted but there will be some local sales like old furniture or scrap sales etc., which may come around Rs.1 lakh then GST payable thereon is coming around 40,000/- (assuming 1% rate) thereby making effective tax as 40%, which would be more than expected regular rate of GST.
j. Permission to assess under this scheme is not eligible for the persons effecting any inter-state supplies of goods/services. Section says ‘effects inter-state supply’ which implies that both output & input should be within one state to avail this scheme. As result, person opted for ‘composition scheme’ shall not make any sales/render services to outside the state and simultaneously shall not procure goods/services from outside the state.
k. The scheme is PAN based i.e. all the units having same PAN shall assess under this scheme that is if any one of the units wishes to assess under regular scheme not under this scheme then all other units of person are ineligible for composition scheme.
l. Person assessing under this scheme shall not collect any tax from the recipient of supplies. Consequently, recipient will not get any credit of tax paid under this scheme (by supplier).
m. Similarly, Supplier assessing under this scheme is not eligible for any input tax credit on his procurements (goods/services). As a result, total tax dues shall be paid in cash.
n. In case scheme is wrongly availed, then proper officer can demand differential tax (difference between tax at regular scheme & under this scheme) along with equal penalty. This is too harsh & heavy. For instance, person availed this scheme on notion that there would not be any interstate supplies (both procurements & output) but during later part of the year such inter-state supplies are made for whatever reasons it may be (like urgent business need or customer specification to use particular state raw materials etc.,) then the implications are heavy as he has to pay GST on all his supplies at full rate of GST along with 100% penalty apart from obvious interest liability. Further this differential tax may have to be paid from his own pocket as might have missed to collect from his customers (because he is under this scheme at that time).
o. Such penalty shall be levied only after affording a reasonable opportunity of being heard to the taxable person being penalized.
p. In addition to the above, liability under reverse charge may exist. This is because, scheme overrides all provisions of law except reverse charge that is levied u/s. 7(3) of GST law.
q. Tax period & Return period is quarterly basis. The due date for payment of tax & filing of return is 18th of month succeeding the particular quarter. For example, for the quarter ending 30th June (Apr-Jun) due date is 18th July.
r. Scheme is mainly beneficial for the persons making direct sales/services to end consumer, who cannot avail any input tax credit.
As the scheme is intended for small tax payers, harsh provisions (some of them as pointed above) can be avoided so that right objective of scheme can be achieved and ease the business of small players.
The above commentary is solely based on the draft GST law. However the above provisions may undergo changes by the time of passing of final GST Act as many representations are filing with the Government for amendments.
(For any feedback/queries mail to firstname.lastname@example.org)