Whether a person who is opting for Composition u/s 10 of the GST, is required to pay GST at composite rate on Exempted Goods also?

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Section 10 - Composition levy.

THE CENTRAL GOODS AND SERVICES TAX ACT, 2017

Yes, as per the provisions of section 10, tax at specified rate is payable on "the turnover in State or turnover in Union territory"

As per the Section 2(11), the meaning of “turnover in State” or “turnover in Union territory” is as follows:

"(112) “turnover in State” or “turnover in Union territory” 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) and exempt supplies made within a State or Union territory by a taxable person, exports of goods or services or both and inter-State supplies of goods or services or both made from the State or Union territory by the said taxable person but excludes central tax, State tax, Union territory tax, integrated tax and cess; "

Therefore, a registered person, paying tax u/s 10 under composition levy, has to pay tax at specified rate on exempted goods also.

Dated: 23-7-2017

Suggestions / Comments

There appears to be some grey area in the composition provision which needs clarification. Provisions of Section 10(2)(b) of CGST Act provides as under:

"(2) The registered person shall be eligible to opt under sub-section (1), if––

(a) ....

(b) he is not engaged in making any supply of goods which are not leviable to tax under this Act;"

Does the expression "which are not leviable to tax under this Act" cover exempted goods or not? The definition of "exempt supply" in Section 2(47) of the CGST Act is as under:

"(47) “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;"

A combined reading of the above provisions suggests that a person who is making supplies of exempted goods as well as taxable goods is not eligible to opt for composition scheme itself. If such is the case, the composition supplier will not be liable to pay composition rate tax on the exempted goods.

However, the above interpretation would lead to a large number of small traders ineligible to opt for composition. It is the general practice that innumerable traders supply both taxable and exempted goods. Therefore, either a suitable amendment or a clarification is needed as regards the provisions of Section 10(2)(b) of the CGST Act.

SURESH ASTEKAR

By: SURESH ASTEKAR
Dated: 24-7-2017

The supplies which are taxable under GST does not become non-taxable supplies merely because there is some exemption notification u/s 11.

For the purpose and meaning of "Exempted supplies" legislature may have included the "non taxable supplies", but a careful reading of Section 10(2)(b) shows that it is not indicating towards exempted supplies, but it prohibits a registered person to opt this scheme who is engaged in "Non-taxable supplies".

Means thereby that clause (b) of sub-section (2) is applicable only for the supplies which are not brought under the ambit of GST at all like Petroleum products (for the time being) and alcohol for human consumption etc.