Section 9 of the CGST Act, 2017 is a charging section relating to levy of tax. Sub-section (3) of the said section contains “the central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both”.

Section 10 of the CGST Act, 2017 contains provisions relating to composition scheme and allows a person, with some specified conditions, to opt for the composition scheme with some specified conditions. The section begins with non obstante clause and specifies that provisions of sub-sections (3) and (4) will prevail over the provisions of section 10. Furthermore, clause (d) of sub-rule (1) of rule 5 also contains that the person exercising the option to pay tax under section 10 shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both. These clearly denotes that provisions of section 9(4) will also be applicable on the persons who have opted for the composite scheme.

Section 11(1) of the CGST Act, 2017 contains- “Where the Government is satisfied that it is necessary in the public interest so to do, it may, on the recommendations of the Council, by notification, exempt generally, either absolutely or subject to such conditions as may be specified therein, goods or services or both of any specified description from the whole or any part of the tax leviable thereon with effect from such date as may be specified in such notification”.

In reference to the provisions of section 9(4) and exercising the power conferred by section 11 (1), the Central Government has issued a notification bearing distinctive no. 8/2017 Central Tax (Rate) dated 28/06/2017. The said notification contains the following text:-

“In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts intra-State supplies of goods or services or both received by a registered person from any supplier, who is not registered, from the whole of the central tax leviable thereon under sub-section (4) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017):

Provided that the said exemption shall not be applicable where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the suppliers, who is or are not registered, exceeds five thousand rupees in a day.”

This notification is applicable on all the registered persons and therefore it is also applicable in case of persons opted to pay tax on composition scheme. At this point, a question may come to one’s mind, is it intentional?

This notification allows the composite dealer to purchase goods and services from unregistered dealers and supplying the same by charging a token tax of 1%, 2% or 5%. As per this notification, if a small trader purchases any taxable goods, say readymade garments-taxable @12%, from unregistered person and his total purchase value from unregistered persons, including the values of receipts of other supplies from unregistered persons does not cross Rs. 5000/- on that day, he will not have to pay GST on such purchases.  His forward charge tax liability will remain same i.e. 1%, irrespective of the fact that he had purchased the goods from unregistered persons without paying any tax and accordingly the revenue will get total tax @ 1% on supply of goods which are otherwise taxable @ 12%.

I would be rather happy, if this has been done knowingly by the authorities in order to help the small businessmen. I don’t know, whether I am reasonable or not to apprehend that within next few months there may be a clarification under sub-section (3) of section 11 inserting an explanation to the aforesaid notification restricting the applicability of the said notification on the persons opted for the composition scheme. Such clarification, if issued, will carry retrospective effect. If it happens accordingly, the small businessmen who determines their sales prices at cost plus fixed margin may have to suffer. Can this loss be minimized by taking some immediate action?

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  1. M Pawan kumar says:

    Whether the waiver of RCM to composite scheme assessee is from retrospective effect or from the date of notification.
    Simple whether fro Q2 GSTR 4 RCM will be applicable or not.

  2. ca hukminder sahi says:

    If comp opted person purchases from unregistered person then such item already inclusive of GST as paid by unregistered person on its purchase. Then there is no need of further clarification.

  3. Vijay Kendhe says:

    Your article does not provide a case where composition dealer has purchased a taxable goods say @5% from unregistered supplier of a value more than Rs 5000 in a day whether he would be liable to pay reverse charge @ 5% and 1% on sales side

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December 2020