GST - COMPOSITION LEVY

[Mr. M. GOVINDARAJAN]

Composition levy

The term ‘composition levy’ has not been defined in Central Goods and Services Tax Bill, 2017 (‘Bill’ for short).  Section 10 of the Bill provides for the composition levy.  Section 10(1) provides that notwithstanding anything to the contrary contained in this Act but subject to the provisions of Section 9(3) and 9(4) of the Bill (Dealing with reverse charge mechanism), a registered person may opt to pay, in lieu of GST payable by him, if his aggregate turnover in the preceding financial year did not exceed ₹ 50 lakhs.   The Government may increase the above said limit to ₹ 1 crore on the recommendation of GST Council.

Aggregate turnover

Section 2(6) of the Bill defines the term ‘aggregate turnover’ as 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.

Eligibility

Section 10(2) provides that the registered person shall be eligible to opt if-

• he I not engaged in the supply of services other than supplies referred to in Schedule II para 6(b) viz., serving of food or any other article for human consumption;
• he is not engaged in making any supply of goods which are not leviable to tax under this Act;
• he is not engaged in making any inter-State outward supplies of goods;
• 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
• he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council.

Where more than one registered persons are having the same PAN, the registered person shall not be eligible to opt unless such registered persons opt to pay tax under this scheme.

Lapse of option

Section 10(3) provides that the option availed by a registered person shall lapse with effect from the day on which the aggregate turnover during a financial year exceeds ₹ 50 lakhs.

Rate for composition levy

Section 10(1) of the Bill reads with Rule 5 of Composition Rules provides that the category of registered persons, eligible for composition of levy and the specified rate as detailed below-

• Manufacturers, other than manufacturers of such goods as may be notified by the Government – 1%;
• Suppliers making supplies referred to para 6 (b) of Schedule II – 2.5%;
• Any other supplier eligible for composition of levy under Section 10 and the rules – 0.5%

Section 10(1) provides that the an eligible registered person may opt to pay an amount calculated at the above rate but not exceeding-

• 1% of the turnover in State or turnover in Union territory in case of a manufacturer;
• 2.5% of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in para 6(b) of Schedule II;
• 0.5% of the turnover in State or turnover in Union territory in case of other suppliers

subject to the conditions prescribed.

Conditions

Rule 3 provides the conditions and restrictions for composition levy which are detailed as below-

• he is neither a casual taxable person nor a non-resident taxable person;
• 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;

• the goods held in stock by him have not been purchased from an unregistered person and where purchased, he pays the tax under Section 9(4);
• he shall pay tax under Section 9(3) or 9(4) on inward supply of goods or services or both received from un-registered person;
• he was not engaged in the manufacture of goods as notified in Section 10(2)(e) during the preceding financial year.

Section 10(4) provides that a taxable person, who opts this scheme, shall not collect any tax from the recipient on supplies made by him nor shall be entitled to any credit of input tax.

Intimation of option

Rule 1 makes an obligation to the person who opt composition levy to intimate the same in the prescribed form. 

Rule 1(1) provides that any person who has been granted registration on a provisional basis shall electronically file intimation in Form GST CMP – 01, duly signed, on the common portal prior to the appointed day, but not later than 30 days after the said day.  Such period may be extended by the Commissioner in this behalf.  Where the intimation 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 delay.

Rule 1(2) provides that any person who applies for registration 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.

Rule 1(3) provides that any registered person who opts to pay tax shall electronically file an intimation in Form GST CMP – 02, duly signed on common portal prior to the commencement of the financial year for which the option is exercised and furnish the statement in Form GST ITC – 3 in accordance with the provisions of ITC Rule 9(4) within 60 days from the commencement of the relevant financial year.

Rule 3(2) provides that the registered person paying tax under composition levy may not file fresh intimation every year and he may continue to pay tax under the section10 subject to the provisions of the Act and the rules.

Deemed intimation

Rule 1(5) provides that intimation under Rule 1(1) or Rule 1(3) in respect of any place of business in any State or Union territory shall be deemed to be intimation in respect of all other places of business registered on the same PAN.

Stock details

Rule 1(4) provides that any person who files an intimation to pay tax 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, electronically in Form GST CMP – 03, on the common portal, within 60 days of the date from which the option for composition levy is exercised or within such further period as may be extended by the Commissioner in this behalf.

Effective date

Rule 2(1) provides that the option to pay shall be effective from the beginning of the financial year, where the intimation is filed under Rule 1(3) and the appointed date where intimation is filed under Rule 1(1).  The intimation shall be considered only after grant of registration to the application.  His option to pay tax shall be effective from the date fixed under Registration Rule 3(2 ) or 3(3).

Validity

Rule 4(1) provides that the option exercised shall remain valid so long as he satisfies all the conditions prescribed.   

Withdrawal

The person referred to in Rule 4(1) shall be liable to pay tax under Section 9(1) from the day he ceases to satisfy any of the conditions and shall issue tax invoice for every taxable supply made thereafter.   He shall also file intimation for withdrawal from the scheme in Form GST CMP 04 within 7 days of occurrence of such event. 

Show cause notice

Where the proper officer has reasons to believe that the registered person was not eligible to pay tax or has contravened the provisions of the Act or the rules, 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 should not be denied.   The registered person shall file reply to the show cause notice 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 composition levy from the date of option or from the date of the event concerning such contravention, as the case may be.

Such person shall electronically furnish at the common portal, a statement in Form GST ITC 01 containing the 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 order passed in GSTCMP 07.

Any intimation for withdrawal or denial of the option in respect of any place of business in any State or Union territory shall be deemed to be intimation in respect of all other places of business registered on the same PAN.

Penalty

Section 10(5) provides that if the proper officer has reasons to believe that a taxable person has paid tax despite not being eligible under this scheme, such person shall, 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 Sections 73 and 74 shall, mutatis mutandis apply for determination of tax and penalty.

Discussions to this article

[CA.LALIT MUNOYAT]

The given rates of composition are under one Act, and same rate would be applicable in the other Act also. So, effectively, the composition rates (combined rate under CGST and SGST/UTGST) are 1%, 2% and 5% for normal supplier, manufacturer and restaurant service respectively.

Secondly what about a trader who is well within ₹ 50 lakhs of traded turnover say ₹ 45 Lakhs but has also supplied interstate goods worth ₹ 0.25 Lakhs, will he still be eligible for composition.

[ANIL ANIKHINDI]

Composition levy-

A person opts for composition during 1st year say 2017-18 (after fulfilling all conditions). During 2nd year 2018-19, his turnover crosses 50 lakhs (say in December 2018) and he comes out of composition levy for remaining period. In 3rd year 2019-20, his turnover again falls below 50 lakhs. Can he opt for composition levy for 4th year 2020-21 based on the condition of previous year i.e. 2019-20 turnover below ₹ 50 lakhs?

[MARIAPPAN GOVINDARAJAN]

The point raised both of the experts are to be clarified by the Government.

[CA.LALIT MUNOYAT]

Well so far as the rates are concerned, they would be double considering both CGST & SGST Act. This has been clarified by the Government.

Secondly so far as the eligibility condition is concerned, he would be eligible for the 4th year 2020-21 based on the condition of previous year i.e. 2019-20 turnover below ₹ 50 lakhs?. This is clear from the language of the section itself.