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TMI BlogComposition levy on GST , IMPACT on IndustryX X X X Extracts X X X X X X X X Extracts X X X X ..... Composition levy on GST , IMPACT on Industry - By: - CA.Tarun Agarwalla - Goods and Services Tax - GST - Dated:- 25-1-2017 - - Composition scheme under Model GST Law, its impact on industry A. Introduction: 1. The New Model GST Law ( henceforth MGL ) as made available in the public domain as on 26 th November 2016 have brought out many changes with respect to the provisions with respect to composition levy. Composition Levy has been present in indirect taxes to address the small business units or specific business units having complexity in the valuation of taxable amount.MGL section 9 talks about payment of taxes in lieu of normal tax liability under section 8 of MGL , talks about Levy in general. Composi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion scheme also brings a lesser compliance requirements, however, composition scheme normally successful in B to C segment rather than B to B segment. 2. At present almost all the state VAT laws normally have provisions for taxpayers to opt for composition scheme. Broadly two type of taxpayers is having the option to avail the composition scheme subject to restrictions and conditions. I e. works contractor (including Real estate, builders) and Retail traders having turnover up to specified threshold Limit. 3. At present with the current understanding of law, it can view that the composition scheme would only be available to small traders or specific manufacturers up to turnover limit of ₹ 50 Lakhs B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Laws of Composition Levy as per MGL 4. Eligibility and features for composition scheme under MGL a) An alternate levy for small businesses, whose aggregate turnover in preceding financial year doesn't exceed ₹ 50 Lakh. b) Eligible taxable persons may have to apply for the composition and the proper officer as per the provisions of law may grant the permission. c) Registration as a taxable person is compulsory to opt for the scheme. At present minimum exemption limit have been raised to 20 lakhs and for special category states, it is ₹ 10 Lakhs. d) Further composition levy facility is to be used on all India PAN basis. It means all the registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation across India belongs to the same PAN must avail the scheme. e) Once on a particular day, the aggregate turnover exceeds ₹ 50 lakhs, the scheme deemed to be withdrawn from such date. f) If the proper officer has reasons to believe that a taxable person was not eligible for the scheme, the taxable person shall pay tax under normal provisions and penalty. 5. Restriction for the scheme: - under the provision of section 9(1) of MGL , Composition semen could not be allowed in the following class of taxable persons:- a) who is engaged in the supply of services, or b) who makes any supply of goods which are not liveable to tax under this Act, or c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who makes any inter-State outward supplies of goods; or d) who makes any supply of goods through an electronic commerce operator who is required to collect tax at source under section 56 ; or e) Who is a manufacturer of such goods is as may be notified on the recommendation of the Council. 6. The rate of Taxes and Input Tax credit : - Composition levy in lieu of tax is to be paid at a rate not less than 2.5 % in case of the manufacturer and 1% for others (basically Traders). Further, the taxable person opting for this scheme, neither entitled to collect any tax from the recipient and nor can avail any Input Tax Credit C. Transitional provision Switching over and other Issues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Where on any day any registered taxable person become ineligible for the scheme, he shall, be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods ( some percentage may be reduced as prescribed) on the day immediately preceding such date. 8. Section 9 of the MGL specifically allowed the composition scheme only to supply of goods and not services. As per Schedule II to the MGL , all the supplies affected as works contract (including Real estate, builders) would be regarded as services and not goods. In this respect the following issues may found relevant:- a) The transitional provisions section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 172 may be used fully for such cases where a composition dealer may not be eligible under MGL . b) Works contractor normally be under composition scheme of Sate VAT and service tax normally be paid under abatement forging the CENVAT on inputs. In this case the Cenvat Credit on stocks, semi fished and finished stocks may not be available under section 172 of MGL . However, section 169 related to the general availability of credit may come for rescue. However, it is the subject matter of further analysis. 9. What would be regarded as composition scheme under earlier law gave not been provided in the MGL. For instance, there are cases in excise where the special rate of duty has been allowed without taking any CENV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT credit. In the MGL it is given that, Persons Manufacturing, specified items may not opt for composition scheme. Hence in such cases, whether section 172 or section 169 of MGL would come to rescue is subject to further analysis. 10. Some definitions which are very relevant to the subject of the composition are enumerated as follows:- a) aggregate turnover means the aggregate value of all taxable and non-taxable supplies , exempt supplies and exports of goods and/or services of a person having the same PAN, to be computed on all India basis and excludes taxes, if any, charged under the CGST Act , SGST Act and the IGST Act , as the case may be. Aggregate turnover does not include the value of supplie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on which tax is levied on reverse charge basis and the value of inward supplies b) inward supply in relation to a person, shall mean receipt of goods and/or services whether by purchase, acquisition or any other means and whether or not for any consideration c) outward supply in relation to a person, shall mean supply of goods and/or services, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other means made or agreed to be made by such person in the course or furtherance of business. 11. Impact on decisions in GST a) As the small dealers in the majority of states are operating with the existing turnover limit of ₹ 50 lakhs. The impact may not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much. However, the majority of them may not cover due to the enhancement of taxable limit of ₹ 20 lakhs from the existing ₹ 10 lakhs. b) The persons present in more than one state with the same PAN may face a new difficulty in tracking the turnover limit of ₹ 50lkh, collectively. c) Input tax credit as per section 18(3) of MGL , the carry forward credit and compliance there off may discourage to the scheme. d) A majority of works contract cases were availing the composition scheme as there was no turnover limit earlier. However, at present, the segment was regarded as service and hence not eligible at all for the composition scheme. e) In the case of work contractor, builder, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the credit available with respect to ITC in VAT Laws and CENVAT as far as excise and service tax is concerned need to be reviewed in light of transitional provisions contained in section 169 and 172 . D. Conclusion A basic study of the provisions and the principles of GST, the law related to GST is being so drafted that it can be useful for a very small segment of the taxable persons. The purpose could be to justify the seamless flow of credit in the GST value chain. However, during the transitional period, the affected industries need to be vigilant and optimize the impact of indirect taxes on the business . - Reply By Ganeshan Kalyani as = Since works contract is termed as service in the proposed GST law. The credit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f tax paid on works contract should be allowed seemlessly under GST. In present tax regime the same is allowed but not seemless. The credit provision to be amended suitably to allow input tax credit. Dated: 25-1-2017 - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... 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