Composition Levy under GST- Detailed Analysis

Article covers Limit under Composition scheme, What is Aggregate Turnover, Person not entitled to avail Composition scheme under GST, Condition & restriction for levy of composition scheme (under Rule 5 of chapter II of CGST Act 2017), Form to be submitted, Composition Rate of Tax, Penalty for delay in filing GSTR -4, Important Notes and Content of Bill of supply.

Section 10 of the CGST Act, 2017 provides for composition levy to such person. The composition scheme under GST is currently applicable to businesses with aggregate turnover of Rs. 1.5 crores or less (lower limit is applicable in case of special category states). Composition Scheme is a simple and easy scheme . A taxable person who opt composition scheme is not required to maintain detailed records and fling of detailed returns.

1. Limit under GST Composition Scheme

As per Section 10(1) of CGST Act, 2017 A registered person whose aggregate turnover in the previous financial year did not exceed 1.5 crore (As amended by the Notification No. 14/2019 – Central Tax New Delhi, the 7th March, 2019.) The limits for special category states [(i) Arunachal Pradesh (ii) Uttarakhand (iii) Manipur (iv) Meghalaya (v) Mizoram (vi) Nagaland (vii) Sikkim (viii) Tripura] remains 75 lakhs.

2. What is Aggregate Turnover

As per section 2(6) of CGST Act 2017, “Aggregate Turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable on reverse charge basis), exempt supplies, export of goods or services or both and interstate supplies of persons having the same PAN to be computed on all India basis but excludes (CGST,SGST,UTT,IGST,CESS).

Activities or transactions specified in Schedule III of CGST Act are to be treated as neither good nor services and turnover of these will not be includible in ‘aggregate turnover’.

It has been clarified vide order No. 01/2017 date 13 October 2017 that for computing the aggregate turnover for eligibility for the scheme, the turnover of exempted services, including services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, supplied by a taxpayer will not be included.(explanation 1 to section 10 of CGST Act, inserted vide Finance (No. 2) Act, 2019 ).

For the purposes of computing aggregate turnover of a person for determining the eligibility to pay tax under section 10 of CGST Act The expression “aggregate turnover” shall include the value of supplies made by such person from the 1st day of April of a financial year up to the date when he becomes liable for registration under this Act, but shall not include the value of supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.

For Example, aggregate turnover in a state of Mr. Y for the financial year 2019-20 was Rs 38 Lakhs. His aggregate turnover as on 8^th May 2020 has become Rs 42 Lakhs .He becomes liable for registration under GST on 8^th May 2020. He is also engaged in extending loan, deposits, advances etc and interest received from such loan as on 8th May 2020 is Rs 110 lakhs. He is eligible for composition scheme as interest on loans, deposits etc. will not be considered for in computing aggregate turnover in order to determine eligibility for composition scheme. (Removal of Difficulties Order No. 1/2019-CT dated 1-2-2019) .

The supply of goods by job worker after completion of job work treated as a supply of goods by the principal as per section 143 of CGST Act 2017 and value of such goods shall not be included in the calculation of Aggregate Turnover of job worker but it will be included Aggregate Turnover of principal.

3. Supply of services under Composition Scheme :

The composition scheme is not available to supplier of services, except supply of food for human consumption. A trader under composition scheme was not allowed to provide any service till 01.02.2019.

Second proviso to section 10(1) of CGST Act has been inserted vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019.

Accordingly , a person who opts for composition scheme may supply services of value not exceeding ten per cent, of turnover in a State in the preceding financial year or five lakh rupees, whichever is higher .

As per the CGST (Amendment) Act, 2018, a composition dealer can also supply services to an extent of 10% of turnover, or `5 Lakhs, whichever is higher. This amendment is applicable from the 1st of Feb, 2019.

A new sub-section (2A) has been inserted in section 10 of the CGST Act vide Notification No. 2/2019-CT(Rate) dated 7-3-2019. to bring in an alternative composition scheme for supplier of services or mixed suppliers (not eligible for the earlier composition scheme) having an annual turnover in preceding financial year up to ₹ 50 lakhs.

This simplified scheme is introduced w.e.f. 1-4-2019 for small service providers (and those who are supplier of goods as well as services exceeding 10% of turnover within State/UT) whose aggregate turnover during previous financial year did not exceed Rs. 50 lakhs.

4. Persons not entitled to avail Composition Scheme

(a) A taxable person is engaged in making any supply of goods which are not leviable to tax under this act.

This condition means that if a registered person is engaged in supply of something not leviable to tax under CGST Act, he shall not be eligible for this scheme. “Not leviable to tax” under this Act does not mean exempted goods. It refers to goods which cannot be taxed under this Act. Thus, a person who is engaged in supply of alcoholic liquor for human consumption or a restaurant serving alcoholic liquor cannot opt for this scheme.

(b) A taxable person is engaged in making any interstate outward supplies of goods ( one state to another state )

(c) A taxable person is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under Section 52 of the Act.

(d) A taxable person is not a manufacturer of such goods as may be notified by the Government on the recommendation of the GST.

Following manufacturers of goods will not be eligible for Composition Levy [Notification No. 8/2017-CT dated 27-6-2017]. [see also FAQ on GST Chapter 2 Q No. 20 issued by CBI&C on 15-12-2018.

(a) Ice cream and other edible ice, whether or not containing cocoa.

(b) Pan masala

(c ) Tobacco and manufactured tobacco substitutes

(e) Where more than one registered person is having the same Permanent Account Number issued under the Income-tax Act, 1961, the registered person shall not be eligible to opt for the composition scheme unless all such registered persons are eligible under composition scheme and opt to pay tax under the scheme.

5. Conditions & Restrictions for GST Composition Levy

( As per Rule 5 of Chapter II of the CGST

The person exercising the option to pay tax under section 10 shall comply with the following conditions, namely:-

(a) he is neither a casual taxable person nor a non-resident taxable person;

(b) 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 the option is exercised by a dealer migrating to GST scheme starting from appointed day;

(c) the goods held in stock by him have not been purchased from an unregistered supplier.

(d) he shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both;

(e) he was not engaged in the manufacture of goods as notified under clause (e) of sub-section (1)of section 10, during the preceding financial year;

(f) he shall mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him; and

(g) he shall mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of ”

A casual taxable person, or a non-resident taxable person is not eligible for composition scheme.

Composition scheme can be opted on the condition that goods held in stock by the person opting for the scheme on the appointed day has not been purchased in course of inter-state trade, or imported from outside India. Further goods held in stock has not been purchased from unregistered dealer.

6. Form to be submitted:

7. Composition Rate of Tax

Rate of tax has been prescribed under Rule 7 of the CGST Rules [Notification No. 05/2019 – Central TaxNew Delhi, the 29th January, 2019], which is 0.5% on goods and 2.5% for restaurants. If services are supplied within the limits allowed in Section 10, such services shall attract a tax rate of 0.5%.

Tax of 1% (in case of manufacturer) and 5% (in case of restaurant) is payable even on exempted goods also – The tax is payable on ‘turnover in a State or Union Territory’. Thus, tax is payable even on goods which are otherwise exempt from GST.

In case of traders, tax @ 0.5% is payable on ‘turnover of taxable supplies’ w.e.f. 1-1-2018.

8. GST Composition Returns

Due to COVID -19 outbreak, the taxpayer can file Form GST CMP-08 till 7^th July, 2020 and Form GSTR-4 within 15^th July, 2020.

9. Penalty for delay filing of GSTR 4:

GSTR 04 filed in Quarterly basis within the given time frame but if its not file than penalty levied on it.

Rs. 100 for CGST and Rs. 100 for SGST per day or Rs. 5000 each CGST & SGST whichever is lower.

10. Important Notes for Composition Dealers:

• No Input Tax Credit (ITC) will be made available to composition levy of tax. Composition dealers cannot make interstate sales.
• Composition dealers are not required to maintain detailed records. Composition dealers cannot issue Tax Invoice.
• Composition dealers cannot charge tax from their customers. It should be pay tax out of their own pocket.
• Composition dealers must issue Bill of Supply instead of Tax Invoice and should mention “composition taxable person” not eligible to collect tax on supplies on their top of Bill of supply.

11. Content of Bill of Supply:

• Name, Address and GSTIN of the supplier
• Bill of supply Number and Date of Issue (BOS will have a unique number in financial year)
• If the recipient has registered then the Name, Address and GSTIN of the recipient. Description of goods/services
• HSN Code for goods and Accounting code for Services.
• Value of goods/services after adjusting any discount Signature or Digital signature of the supplier.

(Republished with Amendments. Amendments been made by CA Anita Bhadra)