The Composition Scheme is an alternative method of levy of tax designed for small business entities whose aggregate turnover is up to prescribed threshold limit. The objective of the Government by implementing this scheme to facilitate the small business entities to comply the minimum compliance burden in GST regime. The Composition Scheme has incorporated under sub-suction (1) of Section 10 read with sub-section (2) of the same section of the Central Goods and Services Tax Act, 2017 and followed by the Composition Scheme Rules, 2017.
Basic Concept for Composition Scheme:
GST law has incorporated the Composition Scheme, wherein the basic concept is to levy low rate of tax i.e. Payment of 1%, 2% and 5% GST on supply of goods and restaurant Service provided by the registered persons whose annual turnover upto Rs.75 lakhs / Rs.50 lakhs (for Special Category Sates, except Jammu and Kashmir, Uttarakhand, where this limit retained as Rs.75lakhs) in a Financial Year.
Time period for opting for Composition Scheme:
A registered person, who has not exceeded the threshold limit of annual turnover of Rs.75 lakhs / Rs.50 lakhs, can be opted for Composition scheme as per the procedure has prescribed. The GST Council, in its 21’st meeting held at Hyderabad on 09.09.2017 has recommended that Composition Scheme can be opted till 30’th September’2017.A registered person (whether migrated or new registrant), who could not opt for Composition Scheme, shall be given the option to avail composition till 30’th September, 2017 and such registered person shall be permitted to avail the benefit of Composition Scheme with effect from 1’st October, 2017.
Eligibility for opting for Composition Scheme:
Section 10(1) of the CGST Act, 2017 has prescribed for Composition scheme and the same are applicable to SGST Acts / Union Territories Acts. Section 10(2) of the CGST Act, has prescribed that the following categories of registered persons are eligible to opt for Composition scheme: – if:—
(a) he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II; i.e. Restaurants supplying food and non-alcoholic beverage.
(b) he is not engaged in making any supply of goods which are not leviable to tax under this Act;
(c) he is not engaged in making any inter-State outward supplies of goods;
(d) he 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; and recommendations of the Council:
Provided that where more than one registered persons are having the same Permanent Account Number (issued under the Income-tax Act, 1961), the registered person shall not be eligible to opt for the scheme under sub-section (1) of Section 10 unless all such registered persons opt to pay tax under that sub-section.
(3) The option availed of by a registered person under sub-section (1) shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under sub-section (1).
(4) A taxable person to whom the provisions of sub-section (1) apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.
(5) If the proper officer has reasons to believe that a taxable person has paid tax under sub-section (1) despite not being eligible, such person shall, in addition to any tax that may be payable by him under any other provisions of this Act, be liable to a penalty and the provisions of section 73 or section 74 shall, mutatis mutandis, apply for determination of tax and penalty.
Computation of Aggregate Turnover for Composition Scheme:-
Section 2(6) of the CGST Act, 2017 has defined “Aggregate Turnover “and the relevant portion is reproduced as under:
“aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess;”
Therefore, the value of following supplies shall not be taken into account while computing the threshold limit of Rs.75 Lakh / Rs.50 Lakh.
(i) Value of all taxable supplies excluding the value of inward supplies.
(ii) Value of exempted supplies.
(iii) Value of export goods or services or both.
(iv) Value of inter –State supplies of persons having same PAN to be computed on all India basis.
Further, the following elements shall not be taken into computing the annual aggregate turnover to arrived threshold limit of Rs.75 Lakh / Rs.50 Lakh.
(i) Taxes if any charged under the head of CGST, SGST and IGST.
(ii) Value of inward supplies on which the tax is payable on the Reverse Charge basis under Section 8(3) of the Act.
(iii) Value of inward supplies.
Procedures for opting for Composition Scheme:
The procedure / Rules of Composition Scheme has been prescribed vide Notification No.3/2017-Central Tax dated 19-07-2017, for submission of different forms and returns, formalities for observance by the registered persons opting for Composition Scheme under GST. The Key Features of Composition Rules / procedures are summarized as under:
1. Intimation for composition levy :
(1) Any person who has been granted registration on a provisional basis under clause (b) sub-rule(1) of rule 24 and who opts to pay tax under section 10 of the CGST Act, 2017, shall electronically file an intimation on the Common portal in FORM GST CMP-01, duly signed within 30 days of appointed day.
Provided that where the intimation filed beyond 30 days, the registered person shall not collect any tax and shall issue bill of supply for the supplies made after the said day.
(2) Any person who applies for registration but not granted under sub-rule(1) of rule 8 may give an option to pay tax under section 10 in part B of FORM GST REG-01, which shall be considered as an intimation to pay tax under the said section.
(3) Any registered person who opts to pay tax under section 10 shall electronically file intimation in FORM GST CMP-02, duly signed, on the Common portal prior to the commencement of financial year and shall also furnish the statement in FORM GST ITC-03 in accordance with the provisions of sub-rule (4) of rule 44, within 60 days from the commencement of the relevant financial year.
(4) Any person who files an intimation under sub-rule (1) to pay tax under section 10 shall furnish the details of stock, including the inward supply of goods received from unregistered persons, held by him on the day preceding the date from which he opts to pay tax under the said section and file electronically return in FORM GST CMP-03, on Common portal within 60 days from the date on which the option for composition levy is exercised or extended period by the Commissioner.
(5) Any intimation under sub-rule (1) or sub-rule (3) in respect of any place of business in any State or Union territory shall be deemed to be an intimation in respect of all other place business registered on the same PAN.
2. Effective date for composition levy:
(1) The option to pay tax under section 10 shall be effective from the beginning of the financial year, where the intimation is filed under sub-rule (3) of rule 3and sub-rule (1) of the said rule.
(2) The intimation under sub-rule (2) of rule 3, shall be considered only after grant of registration to the applicant and his option to pay tax under section 10 shall be effective from the date fixed under sub-rule (2) or (3) of rule 10.
3. Conditions and restriction for composition levy:
(1) 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 under sub-rule (1) of rule 3;
(c) The goods held in stock by him have not been purchased from an unregistered person and where purchased, he pays the tax under sub-section (4) of section 9;
(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 manufacturer of goods as notified under clause (e) of sub-section(2) 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 business.
(h) The registered person making purchases from a registered person paying tax under composition scheme will also not be allowed to avail ITC credit; and
(i) The registered person opting for composition scheme and paying tax under the said scheme cannot be made supply to SEZ unit or Developer of SEZ as such supplies are considered as inter-State supplies.
(2) The registered person paying tax under section 10 may not file a fresh intimation every year and he may continue to pay tax under the said section subject to the provisions of the Act and these rules.
4. Validity of Composition levy:
(1) The option exercised by a registered person to pay tax under section 10 shall remain valid so long as he satisfies all the conditions mentioned in the said section and these rules.
(2) The person referred to in sub-rule (1) shall be liable to pay tax under sub-section (1) of section 9 from the day he ceases to satisfy any of the conditions mentioned in section 10 or the provisions of this Chapter and shall issue tax invoice for every taxable supply made thereafter and he shall also file an intimation for withdrawal from the scheme in FORM GST CMP-O4 within 7 days of occurrence of such event.
(3) The registered person who intends to withdraw from the composition scheme shall, before the date of such withdrawal, file an application in FORM GST CMP-04, duly signed, electronically on the Common Portal.
(4) Where the proper officer has reasons to believe that the registered person was not eligible to pay tax under section 10 or has contravened the provisions of the Act or the provisions of this Chapter, he may issue a notice to such person in FORM GST CMP-05 to show cause within 15 days of the receipt of such notice as to why option to pay tax under section 10 shall not be denied.
(5) Upon receipt of reply to the show cause notice issued under sub-rule (4) from the registered person in FORM GST CMP-06, the proper officer shall issue an order in FORM GST CMP-07 within 30 days of receipt of such reply, either accepting the reply, or denying the option to pay tax under section 10 from the date of the option or from the date of the event concerning such contravention, as the case may be.
(6) Every person who has furnished an intimation under sub-rule(2) or filed an application for withdrawal under sub-rule (3) or a person in respect of whom an order of withdrawal of option has been passed in FORM GST CMP-07 under sub-rule (5), may electronically furnish at the Common portal, a statement in FORM GST ITC -01 containing details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date on which the option is withdrawn or denied, within 30 days, from the date from which the option is withdrawn or from the date of order passed in FORM GST CMP-O7, as the case may be.
(7) Any intimation for withdrawal under sub-rule (2) or (3) or denial of the option to pay tax under section 10 in accordance with sub-rule(5) in respect of any place of business in any State or Union territory , shall be deemed to be an intimation in respect of all other places of business registered on the same PAN.
5. Rate of tax for the Composition levy:
The category of registered persons, eligible for composition levy under section 10 and the provisions , specified in the second column of the table below shall pay tax under section 10 at the rate specified in the last column of the table: –
|Sl. No.||Category of registered person||Rate of tax|
|1||Manufacturers, other than manufacturers of such goods as may be notified by the Government.||2 % ( 1%CGST + 1% SGST / UTGST)|
|2||Supplies making supplies referred to in clause (b) of paragraph 6 of schedule II, i.e. Restaurant Service.||5 % ( 2.5%CGST + 2.5 % SGST / UTGST)|
|3||Any other supplier eligible for composition levy under section 10 and the provisions of this Chapter||1 % ( .5%CGST + .5 % SGST / UTGST)|
The above Rates of tax for the composition are applicable vide Notification No.8/2017-Central Tax, dated 27-06-2017.
Filing of return under Composition Scheme:
It is prescribed at rule 62 of the CGST Rules,2017, every registered person opting for composition scheme and paying tax under section 10 shall furnish the quarterly return in FORM GSTR.4 electronically through the common portal, the return has to be filed by 18’th of month succeeding the last month of quarter to which return pertains and every registered person furnishing return under composition scheme shall discharge his liability towards tax, interest, penalty, fees or any other amount payable by debiting the electronic cash ledger as maintained by him in the Common GSTN portal.
Sub-rule (1) of Rule 80 of the CGST Rules, 2017, every registered person paying tax under section 10 shall furnish the annual return in FORM GSTR-9A, electronically through the Common GSTN portal.
Key Features of Composition Scheme:
(1) Composition scheme is meant for only small traders / businessmen, who were not engaged in the manufacturing activities of goods during the preceding financial year and who’s turnover less than Rs.75 Lakhs / Rs.50 Lakhs.
(2) For computing aggregate turnover of Rs.75 lakhs / Rs.50 lakhs, the turnover of exempted goods and export goods would not be added and aggregate turnover would be based on All India basis for the same PAN.
(3) The threshold limit for Composition Scheme is Rs.75 lakhs / Rs.50 Lakh (for special category States, except Jammu and Kashmir and Uttarakhand, where it is Rs.75 lakhs). As soon as this limit exceeded in a Financial Year, registered person shall be liable for tax as normal supplier.
(4) The person has opted for composition scheme shall not be engaged in making any inter-Sate outward supplies of goods and Casual Taxable persons or non-resident taxable persons are not eligible to opt for composition scheme.
(5) He is not engaged in making any supply of goods which are not leviable to tax under GST Act, or supply of goods through an electronic operator who is required to collect tax at source are not eligible to opt for composition scheme.
(6) The registered person under Composition Scheme cannot import or export goods and services, not purchased goods from the unregistered dealers and procured goods by way of inter-state supply of goods.
(7) The persons are engaged in manufacturer of Ice Cream and other edible ice, Pan Masala and Tobacco products of Chapter 24, not eligible to opt for Composition Scheme.
(8) The registered person under Composition scheme shall not charge and collect any tax from the recipient on supplies of goods made by him and not is entitled to any credit of input tax.
(9) The registered person under Composition Scheme on supplies of goods shall issue bill of supply and mention the top of the bill as “composition taxable person, not eligible to collect tax on supplies”.
Conclusion: Since the Composition scheme is based on annual turnover of the registered person of the previous financial year and limited to annual turnover of Rs.75 lakhs / Rs.50 lakhs, in that case most probably the Composition Scheme would be administered by the State GST officers, so there is need of proper legislation / enactment of state GST law by the various State Governments as well as Union territories for smooth operation of the composition scheme under their control. Let us hope the GST council will coordinate with the various State Governments / Union territories for the proper legislation of laws for the composition scheme, so that this composition scheme will certainly provide real benefits to the small traders and business entities as targeted by the Central Government.
Ramesh Chandra Jena, B. A (Hons)., M.A (Eco)., D.M.M., LL.B.
Senior Manager- Indirect Taxation, KSK Energy Ventures Limited.