There would always be a segment of taxpayers who would find it difficult to completely fulfill the compliance requirement of tax laws, may be due to their small size or nature of their operations. From the tax collector view-point also, the cost of collecting tax from such tax payers is far more in percentage terms than the tax collected from them but this argument cannot be used to exempt them from payment of tax. To meet this dual objective of simplicity for tax collector and tax payer, a scheme called Composition Scheme is offered to taxpayer, by which the taxpayers are given the option to pay an amount calculated on some parameter in lieu of tax calculated based on complex calculations expected by that law. In the GST law also, the composition schemes will be offered to certain set of taxpayers.
Below information/ detail is based on The Central Goods & Service tax Act, 2017 and Final Composition Rule as on 1st June, 2017.
Let us understand this topic in details:
“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;
There is a certain amount of ambiguity as to whether the value of inward supplies would form part of ‘aggregate turnover’ since the definition covers all taxable supplies and excludes only inward supplies to the extent liable to tax under reverse charge mechanism.
In our view aggregate turnover under GST is calculated as follows:
|1.||Outward Taxable Supplies||Included|
|2.||Outward supplies in case tax is payable under reverse charge basis by the recipient||Not Included|
|3.||Exempt Supplies (Nil rated, Wholly exempt or Non taxable)||Included|
|4.||Export of Goods or Service||Included|
|6.||Central Tax, State Tax, Union Territory Tax, Integrated tax, Cess||Not Included|
|7.||Inward Supplies including inwards supplies on which tax is payable under reverse charge basis by the recipient.||Not Included|
PERSON ELIGIBLE TO PAY TAX UNDER COMPOSITION SCHEME
Only registered person whose ‘aggregate turnover’ (aggregate of turnover in all States having same PAN) does not exceed Rs. 50.00 lakhs in the preceding financial year will be eligible to opt for payment of tax under the composition scheme.
RATE OF TAX
The rate of tax under composition scheme would be as under:
|Categories of registered person||Central
|State / UTGST Rate||Total
|Manufacturer other than goods notified||1.00%||1.00%||2.00%|
|Other Supplier like agent, Traders||0.50%||0.50%||1.00%|
|Composite supply of food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption) Example: Restaurants, Eating Joints, Mess, Canteens, Outdoor Caterer, etc||2.50%||2.50%||5.00%|
Note:-A taxable person opting for composition scheme will be required to pay tax on supplies taxable under RCM [Section 9(3) & Section 9(4)] at regular rates and not the composition rate.
Tax under composition is calculated by above rate on ‘turnover in state or turnover in union territory’ which means:
|2.||Exempt Supplies (Nil rated, Wholly exempt or Non taxable)||Yes|
|3.||Export of Goods or Service||Yes|
PERSON NOT ELIGIBLE TO PAY TAX UNDER COMPOSITION SCHEME
– Supplier making inter-state outward supplies of goods.
– Supplier engaged in making supply of goods through Electronic Commerce Operator (it appears to be against the vision of Digital India)
– Manufacturer of such goods as may be notified by the Government
– Casual taxable person or a non-resident taxable person
– Supplier of services other than discuss in above table i.e. food/restaurants service
– Supply of goods which are not leviable to tax under this act
CONDITIONS FOR OPTING TO PAY TAX UNDER COMPOSITION SCHEME
– Composition dealer shall not collect any tax from the recipient on supplies made by him.
– Composition dealer shall not be entitled to any credit of input tax paid on his inward supplies.
CONTENT OF BILL OF SUPPLY
If a registered taxable person supplying Exempted goods/services or paying tax under composition scheme (sec-10), then the supplier shall issue bill of supply instead of Tax Invoice which shall contains the following details:
|Name, Address & GSTIN of the supplier||Y|
|A consecutive serial number, can be in one or more multiple series but unique for a FY (NOT EXCEEDING SIXTEEN CHARACTER)||Y|
|Date of its issue||Y|
|Name, Address & GSTIN/UIN of the recipient||Y|
|HSN Code or SAC||Y|
|Description of goods or service||Y|
|Discount or Abatement||Y|
|Signature or digital signature of supplier or his authorised representatives||Y|
COMPOSITION SCHEME IS AN OPTION
The taxable person should make an application exercising his option to pay tax under this scheme. There are three possibilities in which such option can be exercised:
|Taxable Person migrating from existing registration to GST registration (all existing persons who want to opt composition under GST)||Exercising Option in Form GST CMP 01 prior to appointed date or within 30 days after the appointed date||From the appointed date.|
|Taxable Person obtaining new registration under GST laws||Such option can be exercised at the time of obtaining registration under section 22 in Part B of Form GSTREG-1||From date of registration|
|Taxable Person switching from normal levy in one FY to composition scheme in next FY||Such option can be exercised by filing intimation in Form GST CMP 02 prior to commencement of the year for which the option to pay tax under composition scheme is exercised.||From the beginning of the financial year|
|Note: Composition scheme once granted, the eligibility would be valid lifetime unless the permission is cancelled or is withdrawn or the person becomes eligible for this scheme|
RETURN COMPLIANCE UNDER COMPOSITION SCHEME
|SECTION||Person Liable||FORM||Due date for payment of tax||Due Date for filing of return||Periodicity
|39(2)||Composition Dealers||GSTR-4||On or before the due date of filing of return i.e 18th||Within 18th days after end of such quarter||Quarterly|
|39(2)||Composition Dealers||GSTR-4A||–||Auto-populated details of inward supplies made available to the recipient registered under composition scheme on the basis of FORM GSTR-1 furnished by the supplier.||–|
|44(1)||Composition Dealers||GSTR-9A||–||31st December of next fiscal year||Annual|
TAX/INPUT TAX CREDIT TREATMENT IN SPECIAL CASES
Migration from Composition Scheme (Current Regime) to Normal Levy (GST Regime)
– A registered person shall be entitle to take credit of eligible duties* in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day. (Not on Capital Goods)
– Every registered person shall submit an application within 60 days from the appointed day in Form GST TRAN-1 shall specify separately the amount of tax or duty to the credit said person shall be entitled and shall also specify separately details of stocks held on the appointed day
– The registered person shall subject to following condition is eligible to avail the above credit:-
* Eligible Duties
– The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957;
– The additional duty leviable under sub-section (1) of section 3 of the Customs Tariff Act, 1975;
– The additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, 1975;
– The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978;
– Te duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985;
– The duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985;
– The National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001
Note:- Credit of value added tax in case State of Goods & Service Tax Act
Migration from Normal Levy/Composition Scheme (Current Regime) to Composition Scheme (GST Regime)
– A registered person is not eligible to be carried forward input tax credit carried forward in the return.
– File an intimation in Form GSTCMP-01 to opt for composition scheme, prior to appointed day but not later than 30 days after the appointed day.
– Where the intimation in FORM GST CMP-01 is filed after the appointed day, the registered person shall not collect any tax from the appointed day but shall issue bill of supply for supplies made after the said day.
– There is no specific provision in GST law requiring the tax payer to pay/debit any tax credit (Excise, CVD, SAD, additional excise duty under central law and VAT under state laws, etc.) involved in inputs, inputs contained in semi-finished or finished goods as on the appointed date.
Conditions:- The goods held in stock by him on the appointed day should have not been include
– purchased in the course of inter-State trade or commerce (Not exports) or
– imported from a place outside India or
– received from his branch situated outside the State or
– received from his agent or principal outside the State
– The goods held in the stock on the appointed by him have not been purchased from an unregistered supplier and where purchased, he pays the tax under sub-section (4) of section 9 (Clarification would be come in this matter)
DETAILS TO BE FURNISHED IN FORM CMP-03 WITHIN 60 DAYS FROM THE APPOINTED DAY BY THE PERSON WHO OPTS FOR COMPOSITION SCHEME AT THE TIME OF MIGRATION
– Stock of purchases made from registered person under the existing law
|Sr. No.||GSTIN||Name of the supplier||Bill/ Invoice No.||Date||Value of Stock||VAT||Central Excise||Service Tax||Total|
– Stock of purchases made from unregistered person under the existing law
|Sr. No.||Name of unregistered person||Address||Bill/ Invoice No.||Date||Value of Stock||VAT||Central Excise||Service Tax||Total|
|Details of tax paid Amount
Debit Entry No.
Switching over from Normal Levy (GST Regime) to Composition Scheme (GST Regime)
– He shall pay an amount equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi- finished or finished goods held in stock by way of debit in electronic credit ledger or electronic cash ledger.
– On capital goods as reduced by such percentage as may be prescribed.
– On the day immediately preceding the date of exercising composition option
– Any balance lying after payment of such amount shall be lapse.
– Furnish a statement in FORM GST ITC-3 within sixty days from the commencement of the relevant financial year.
REVERSAL OF INPUT TAX CREDIT (DETAILS IN FORM GST ITC-03)
For inputs lying in stock, and inputs contained in semi-finished and finished goods lying in stock
– The ITC shall be calculated proportionately on the basis of corresponding invoices on which credit has been availed by the registered taxable person on such inputs
For capital goods lying in stock
– The input tax credit involved in the remaining residual life in months shall be computed on pro- rata basis taking the residual life as five years;
Capital goods have been in use for 4 years, 6 month and 15 days.
The residual remaining life in months= 5 months ignoring a part of the month
Input tax credit taken on such capital goods=Ç
Input tax credit attributable to remaining residual life=C multiplied by 5/60
– The amount determined above shall form part of the output tax liability of the registered person and the details of the amount shall be furnished in FORM GST ITC-03
– The amount shall be determined separately for input tax credit of IGST and CGST.
– Where the tax invoices related to the inputs lying in stock are not available, the registered person shall estimate the amount based on the prevailing market price of goods on the effective date of occurrence of any of the events i.e opt for composition scheme & taxable supply becomes wholly exempt as the case may be.
Switching over from Composition Scheme (GST Regime) to Normal Levy (GST Regime)
– A person shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods.
– On the day immediately preceding the date from which he becomes liable to pay tax u/s 9
– Input tax credit cannot be availed in respect of any supply of goods or services or both to him after the expiry of 1 Year from the date of issue of tax invoice relating to such supply
– The ITC on capital goods shall be claimed after reducing the tax paid on such capital good by 5% per quarter of year or part thereof from the date of invoice or such other documents.
– The registered person shall make a declaration in FORM GST ITC-01 to the effect that he is eligible to avail of ITC.
– The declaration shall specify the details relating to the input lying in the stocks, inputs contained in semi-finished or finished goods lying in stocks or as the case may be capital goods.
– The declaration shall be duly certified by a practicing chartered accountant or cost accountant if aggregate value of claim on account of central tax, state tax, integrated tax & union territory tax exceeds Rs.2.00 lakhs.
Summaries table for existing dealer at the time of migration
|Current Regime||GST Regime||Input Tax Credit on Stock|
|Composition||Normal||Yes (Subject to conditions)|
VALIDITY OF COMPOSITION LEVY/ WITHDRAWAL FROM COMPOSITION SCHEME
– The registered person opt for composition scheme may not file a fresh intimation every year and he may continue to pay tax under scheme & scheme remains valid so long as he satisfies all the conditions mentioned in the acts and rules.
SUO MOTTO BY DEALER
– The registered person who is not eligible to continue under composition scheme shall file an intimation of withdrawal in FORM GST CMP-04 within 7 days of occurrence of such event rendering him ineligible to continue under composition scheme and shall issue tax invoice for every supply made
– 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.
BY PROPER OFFICER
– Where the proper officer has reasons to believe that the registered person was not eligible to pay tax under composition scheme or has contravened the provisions of the Act or these rules, he may issue a notice to such person in FORM GST CMP-05 to show cause as to why option to pay tax under composition scheme should not be denied.
– Registered person shall file reply in FORM GST CMP-06 within fifteen days of the receipt of such notice.
– Within thirty days receipt of such reply, the proper officer shall issue an order in FORM GST CMP-07, either accepting the reply, or denying the option to pay tax under composition scheme from the date of option or from the date of the event concerning such contravention, as the case may be.
– Dealer shall furnish 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 (as the case may be), within 30 days, from the date from which the option is withdrawn or from the date of order passed in FORM GST CMP-07, as the case may be.
– Any intimation or application for withdrawal or denial of the option to pay tax under composition scheme 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.
PENALTY PROVISIONS UNDER COMPOSITION SCHEME
– If officer has reason to believe that composition dealer has wrongly availed benefit of this scheme in addition to any tax payable under the provisions under the provisions of the act, be liable to penalty and the provisions of Section 73 or Section 74 apply for determination of tax & penalty
EXTRA POINTS TO BE CONSIDERED FOR COMPOSITION SCHEME
– 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.
– 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.
– Composition scheme shall be effective only from the beginning of the financial year and cannot be opted in middle of the year, except for new registrations and migration cases. However Composition Scheme may be withdrawn in the middle of the year.
– Composition dealer cannot make exports of goods or services or both because composition dealer cannot make inter-state supplies
Composition Scheme V/s Normal Scheme under GST
|Points||Composition Scheme||Normal Scheme|
|Return Periodicity||Quarterly Return (4 Return+1 Annual)||Monthly Return (36 Return+1 Annual)|
|Tax Liability||Fixed rate of tax on Supply||As per GST rates|
|Working Capital Requirement||Low||High as most of his working capital will be blocked as Input tax credit|
|Area of Business||Limited as Composition Dealer not allow to make inter-state supply||Wide|
|Input Tax Credit||No||Yes|
SYNOPSIS OF FORMS RELATED TO COMPOSITION LEVY
|1.||FORM GST CMP-1 (Migration)||Intimation for composition levy by a person; who has been granted provisional registration and who opts to pay tax under section 10 i.e. Composition Levy (prior to appointed day but not later than 30 days from the appointed day)|
|2.||FORM GST CMP-02 (Opt for composition scheme)||Intimation for composition levy by a registered person who opts to pay tax under section 10 i.e. Composition Levy
(prior to the commencement of the financial year for which option to pay tax under this scheme exercise)
|3.||FORM GST CMP-03
|Details of stock including the inward supply of goods received from unregistered persons to be provided by a person who has been granted provisional registration adopts pay tax under composition levy (Migration)|
|4.||FORM GST CMP-04||Application for withdrawal from the composition scheme when ceases to satisfy any of the condition of the composition scheme.
Application for withdrawal from the composition scheme who intends to withdraw from the composition scheme
|5.||FORM GST CMP-05||Show Cause Notice for denying the option to pay tax under Composition levy by the officer (Reason to believe that not eligible to pay tax u/s 10 or contravened the provision of the Act or these rules)|
|6.||FORM GST CMP-06||Reply to Show Cause Notice|
|7.||FORM GST CMP-07||Order for accepting or denying the option to pay tax under Composition levy upon receipt of reply to SCN|
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The views expressed in this article are of the CA. Kuldeep Pokharna & CA. Nayan Jain, Nyn (Associate member of Team GST Cornor). The information cited in this article has been drawn from various provision of The CGST Act, Rules, ICAI publications and other various sources. While every effort has been made to keep, the information cited in this article error free, team GST Cornor does not take the responsibility for any typographical or clerical error which may have crept in while compiling the information provided in this article.
This article includes general information about legal issues and developments in the proposed law of GST in India. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. We disclaim all liability in respect to actions taken or not taken based on any or all the contents of this article to the fullest extent permitted by law. Do not act or refrain from acting upon this information without seeking professional legal counsel.