2020 (4) TMI 874 - AAR - GST

Rate of tax - Benefit Composition Scheme available or not - Supply of services and goods - appellant engaged in the business of supplying goods under the trade name Empathic Trading Centre and is also a supplier of ser-vice of renting of immovable property - rate of composition tax applicable is 1% for the turnover of goods (sales) and 6% for the turnover of service (rent) - HELD THAT - The applicant admittedly is supplying services and hence the eligibility for composition scheme is dependent on the satisfaction of the condition stipulated in the second proviso to sub-section (1) of section 10. If the turnover of services of the applicant exceeds ten per cent of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher, then he shall not be eligible to composition scheme. Even if the applicant obtains separate registration, one for the goods and other for the services, he would not be eligible for composition for both the lines of business. Hence the applicant is not eligible for composition under section 10 of the CGST Act if the turnover of services of the applicant exceeds ₹ 5 Lakhs or ten percent of turnover is the state, whichever is higher. N/N. 2/ 2019 - Central Tax (Rate) dated 07.03.2019 - HELD THAT - The said notification prescribes the rate of tax for the first supplies of goods or services or both upto an aggregate turnover of fifty lakh rupees made on or after the 1st day of April in any financial year, by a registered person and is not issued under section 10 of the CGST Act, 2017. Hence it is not a composition scheme but is an optional scheme. If the applicant opts out of the Composition levy and he obtains separate registrations for the two lines of business, as per second condition, he shall be liable to pay tax at 3% CGST and 3% SGST on the each of the turnovers of the registrations. The tax is on the entire aggregate turnover i.e all the first supplies of goods or services or both upto an aggregate turnover of ₹ 50 Lakhs . Hence the applicant is liable to pay tax under CGST Act at 3% and at 3% under KGST Act, if he opts to pay tax under the said Notification after opting out of Composition levy on the entire value of supplies made and he cannot apply different schemes for different types of transactions. Thus, the applicant is eligible to be in the composition scheme under section 10 of the CGST Act, 2017 if the turnover of services of the applicant does not exceed ten per cent of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher.

Summary

Issues:
1. Eligibility of the applicant for the composition scheme under section 10 of the CGST Act, 2017.
2. Applicability of the rate of composition tax on turnover of goods and services.
3. Interpretation of Notification No.2/2019 - Central Tax (Rate) dated 07.03.2019.

Issue 1: Eligibility for Composition Scheme:
The applicant, engaged in both goods and services businesses, sought clarification on eligibility for the composition scheme under section 10 of the CGST Act. The ruling emphasized that eligibility hinges on the turnover of services not exceeding ten percent of the total turnover or five lakh rupees, whichever is higher. If services turnover surpasses this threshold, the applicant is ineligible for the composition scheme. Even if the applicant registers separately for goods and services, composition scheme eligibility remains linked to the overall turnover limit.

Issue 2: Rate of Composition Tax:
The ruling clarified that the applicant, if registered under the composition scheme, cannot opt for different tax rates for goods and services. The applicable rate on the entire turnover is 3% CGST and 3% KGST. The applicant cannot pay 1% on goods turnover and 6% on services turnover. Opting out of the composition scheme would subject the applicant to the standard tax rates on each business segment.

Issue 3: Interpretation of Notification No.2/2019:
The ruling analyzed Notification No.2/2019, highlighting that it does not establish a composition scheme but offers an optional tax scheme for first supplies below a specified turnover limit. The conditions mandate that the applicant must be ineligible for section 10 of the CGST Act to qualify for this scheme. As the applicant is registered under section 10, they do not meet the criteria for this optional scheme. If the applicant opts out of the composition scheme, they would be liable to pay 3% CGST and 3% KGST on the entire turnover under this notification.

This judgment by the Authority for Advance Ruling, Karnataka, addressed the applicant's queries regarding composition scheme eligibility, composition tax rates, and the interpretation of Notification No.2/2019. The ruling provided detailed insights into the provisions of the CGST Act, emphasizing the conditions for availing composition benefits and the implications of different tax schemes based on the applicant's business structure and turnover thresholds.