Its a Burning Question in the industry, whether to Opt for composition scheme or to register as regular assesse under GST, which will be more profitable. But essentially the Composition Levy under sec 10 of the CGST Act is used by the Government as a colorable device to tax the tax- free/exempt supplies and further it violates the article 14 of Constitution of India.

Colorable Device

Sec 2(112) of CGST Act Defines Turnover as inclusive of Exempt Supplies

further Sec 10 Provides for Composition levy

a.) At the rate of Half Percent of Turnover of Manufacturer

b.) At the rate of two & half Percent of Turnover of Restaurants (Not serving Alcohol)

c.) At the rate of Half Percent of Turnover of Traders

As per notification dated 01.01.2018, turnover in case of traders has been defined as ‘ Turnover of taxable supplies of goods’.

As Turnover is defined to include Exempt Supplies it gives inference that the Tax-Free Supplies is not at all Tax-free. Difference is of only of the Payer.

Now Sec 23(a) of CGST Act suggests that person engaged exclusively in supply of Goods or services not liable to tax or is wholly exempt doesn’t require to take registration.

Sec 10 colored sec 23

for Ex- Mr. A manufactures papers which are not taxable & simultaneously engaged in running a restaurant too. if he registers as composition Dealer he will be paying half percent on the manufacturing of papers also although it is a Tax exempt goods.

Earlier traders were also under this grip of coloring exercise but they are now free due to the notification dated 1.1.2018.

Also, Read composition scheme under gst.

Violation of Article 14

Article 14 speaks of equality before law with reasonable classification. But Sec 10 breaches the principle of natural justice that it is biased on taxing of goods to certain class & leaving other class of assesse to use same goods as tax free.

At the root it is biasedness that nature of good is changed merely by change of class of assesse i.e if you are regular dealer/manufacturer Exempt goods are treated as Tax free but if you are Composition Dealer/Manufacturer/service Provider Exempt Supplies are Taxable.

Isn’t it a Unreasonable/Biased Classification?

Isn’t it Defeating a Uniform taxation purpose of GST?

Isn’t it a Colorable Device used by Government to bring the Exempt supplies under Tax net?

Its like a Proposition by Government that if We are loosing 10 Rupees atleast Recover Some Rupees from it.

Even in Previously in Service Tax or Excise Such Composition Scheme doesn’t exist  to Tax the Exempt Supply by Certain class of Assesse.

Author Bio

Qualification: LL.B / Advocate
Company: M.Madhan & Co. Tax practitioners
Location: Indore/Guna, Madhya Pradesh, IN
Member Since: 15 Nov 2017 | Total Posts: 3
We basically handles the Income tax, GST, Company law, Arbitration, Civil & Constitutional matters. View Full Profile

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June 2021