Composition Scheme under GST Regime, Composition Levy under GST

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Composition Scheme under GST Regime, Composition Levy under GST, Composition Scheme as per GST Bill 2017: Big Question is Whether the composition scheme is available for all the dealers in first year of GST?. The word ‘composition’ comes from the Latin componere, meaning “put together”. It is a feature of Indirect Tax laws that in order to provide a comfort to an assessee from complying with the requirement of paying tax on value addition by maintaining detail of ‘inputs’ and ‘outputs’, an option is provided to go for a put together scheme. As per the scheme, the assessee is made free from the requirement of maintaining complete details of its inputs and outputs and permits the assessee to make payment of a single put-together amount better known as ‘composition fees’.

Composition Scheme under GST Regime,

The Central Goods Services Tax Bill, 2017 (CGST Bill, 2017) also provides for the option of availing the benefit of the Composition Levy to small business houses. The provision related to Composition levy is contained under Section 10 of the CGST Bill, 2017. The said Section provides for an option to a ‘Registered person’ whose ‘aggregate turnover’ during the preceding FY did not exceed fifty lakh rupees. The Government has the power to increase the said limit of fifty lakh rupees upto one crore rupees, by way of a notification

A person shall be liable to be registered under the CGST Bill, 2017, in all the States or Union territories from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees (ten lakh rupees in special category states).

The ‘aggregate turnover’ as defined in CGST Bill, 2017 is the aggregate value of all:

  • taxable supplies (excluding the value of inward supplies on which tax is payable on reverse charge basis),
  • exempt supplies, COMPOSITION LEVY under gst
  • 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.

The exact rates of Composition Levy are yet to be prescribed, however the maximum rates are classified under the following three categories:

  • Manufacturer: Maximum one per cent of the turnover in State or turnover in Union territory.
  • Specific Service providers: Only such service providers who are supplier of food related services (restaurant services) specifiedunder paragraph 6(b) of Schedule II (supply, by way of or as part of any service or in any other manner whatsoever of goods, being food or any other article for human consumption of any drink (other than alcoholic liquor for human consumption) whichare kept under composition levy at a maximum two and a half per cent.
  • Other suppliers : Half per cent of the turnover in State or turnover in Union territory.

Point to be notedis that the above rates are provided in CGST Bill, 2017 therefore the actual pay out of composition rate will be double of the above rates i.e. either 1%, 2% or 5% bifurcated into CGST and SGST/UTGST

The Composition scheme can be availed by the following categories of registered persons:

  • The registered person is not engaged in the supply of service other than supplies referred to in clause (b) of paragraph 6 of Schedule II
  • The registered person is not engaged in making any supply of goods which are not leviable to tax under GST Laws.
  • The registered person is not engaged in making any interState outward supplies of goods.Under the earlier draft GST law the above exception was not clear. The language doesn’t specify the interstate transaction, i.e. whether inward or outward supplies both were to be included for the purpose of determination of eligibility under the Composition levy. However, now it has been cleared under Section 10 that bar is only on outward supplies while it is permitted for the registered person to procure inter-state supplies under Composition Levy.
  • The registered person should not be engaged in making any supply of goods through an electronic commerce operator. This restriction constrains numerous small suppliers/vendors from availing the benefit of Composition scheme. Although there is a valid reason behind the imposition of this restriction – the supply from an e-commerce operator may result into inter-state outward supplies in many cases.
  • The taxable person should not be a manufacturer of such goods as may be notified by the Government on the recommendations of the Council.

The benefit of Composition scheme will be available only when all the registered entities under a single Permanent Account Number opts for such scheme.The Registered person paying tax under composition scheme is required to pay tax on quarterly basis and also required to file a quarterly return in Form GSTR-4 by the 18th of the month following the end of the quarter instead of any statement of outward or inward supplies.The proper officer may cancel the registration where the said person has not furnished returns for three consecutive tax periods.

The person registered under Composition scheme is neither permitted to collect any tax from the recipient of supplies made by him nor can he avail any credit of input tax paid.

The option availed by a registered person shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds fifty lakh rupees.

The conditions and restrictions for composition levy are as follows:

  • The personshould neither be a casual taxable person nor a non-resident taxable person.
  • The goods held in stock on the appointed day had 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 1 of Composition Rules.
  • the goods held in stock by him have not been purchased from an unregistered person and where purchased, he pays the tax under reverse charge basis in compliance of sub-section (4) of section 9;
  • The person shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both received from un-registered persons;
  • The person 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
  • The person shall mention the words “composition taxable person” on every notice or sign board displayed at a prominent place at his principal place of business and at every additional place or places of business.

The taxable person who has paid tax under composition scheme even when not being eligible will be liable to a penalty and the provisions of Section 73 or Section 74 shall, mutatis mutandis, apply for determination of tax and penalty

The option exercised by the registered person to pay tax under the Composition scheme shall remain valid so long as he satisfies all the conditions

Registered person can withdraw from composition scheme at his option by filing an application.

Challenge in Transition Year

  • Registered persons have to file option within 30 day from the transition date to avail the option of paying tax as per composition scheme;
  • Goods in stock on transition date must not have 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.

Whether the composition scheme is available for all the dealers in first year of GST?

The limit of Rs 50 Lakhs has been mentioned twice in section 10 of the CGST Bill, 2017. First, in sub section (1) and second in sub section (3). In sub section (1) the term used is ‘aggregate turnover in the preceding FY doesn’t exceed Rs 50 Lakhs’. The term ‘aggregate turnover’ has been defined u/s 2(6) of the CGST Bill as the aggregate value of all taxable supplies…… The term ‘taxable supply’ has been defined u/s 2(108) of the CGST Bill, 2017 as ‘supply of goods or services or both which is leviable to tax under this Act’. Now for the first year of GST, during the preceding FY (2015-16) no dealer’s turnover will be leviable to tax under the CGST law. Hence, a view can be taken that for all the dealers the option to avail composition shall be available for the first year.

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