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TMI BlogComposition levy of GSTX X X X Extracts X X X X X X X X Extracts X X X X ..... Composition levy of GST - By: - Gnanamuthu samidurai - Goods and Services Tax - GST - Dated:- 5-6-2020 - - COMPOSITION LEVY Section 10 of the Central Goods and Service Tax Act hereinafter referred to as the Act deals with Composition of levy of tax. When the GST Act was introduced as per Section 10(1) of the Act any registered person whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees may opt to pay tax under Compounding may do so in lieu of the tax payable by him , an amount calculated at such rate as may be prescribed , but not exceeding (a) 1% of the turnover in State or turnover in Union Territory in case of manufacturer. (b) two and half percent of the turnover in State or turnover in Union Territory in case of persons engaged in making supplies referred to in cl.(b) of para 6 of Sch.II of the Act. and (c) half per cent of the turnover in State or turnover in Union Territory in case of other suppliers, subject to such conditions and restrictions as may be prescribed. However, the proviso to Sec. 10(1) had given power to Government to increase the monetary limit upto one crore by issuing noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication on the basis of the recommendations made by the council. Further a person who opt to pay tax under cl.a,b, and c as stated above may supply services of the value not exceeding 10% of turnover in a State or Union Territory In the preceding financial year or 5 lakh rupees whichever is higher. At the same time the registered person should not deal with composite supply under cl. B of para 6 of Sch II of the Act. On the basis of the proviso, the Government issued a Notification No. 8/2017 Central Tax dated 27/06/2017 increasing the limit to seventy five lakh Rupees. However the amount to be calculated at the rate of (i) one per cent on the turnover in State in case of a manufacturer, (ii) two and a half per cent of the turnover in State in case of persons engaged in making supplies referred to in cl.(b) of para 6 of Sch. II of the Act and (iii) half percent of the turnover in State in case of other suppliers. It is pertinent to note that, in the said notification the word Union Territory was also removed. Further by the said notification, it is held that the registered person who manufactures Ice creams and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edible ice, whether or not containing cocoa, Pan Masala and all goods i.e., Tobacco and manufactured tobacco substitutes are not entitled to opt for composition levy under sub section (1) of section 10 of the Act. Thereafter the above said notification was further amended by Notification No. 46/2017 Central Tax dated 13/10/2017 and the monetary limit of seventy five lakh rupees was enhanced to one crore rupees . Thereafter a further Notification No.1/2018 - Central Tax dated 01/01/2018 was issued by the Central Government on the recommendations of the council and the rate of tax of one per cent in cl.(i) of Notification 8 of 2017 was reduced to half per cent and in so far as cl. (iii) is concerned the rate of half per cent is removed and instead half per cent of the turnover of taxable supplies of goods was substituted. On 29/01/2019, Notification No. 5 was introduced by which the limit of aggregate turnover limit was increased to one crore w.e.f. 01/02/2019. Further as per the said notification the registered person has to calculate the tax at the rate specified in rule 7 of Central Goods and Services Tax Rules 2017 . Now by no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification No. 14/2019 Central Tax dated 07/03/2019 (Act No. 31 of 2018) the said amount was increased to one crore fifty lakh rupees. It is to be noted Sec. 10 of the Act came into force from 22/06/2017. Similarly CGST Rules also came into force from 22/06/2017 vide Notification No. 3/2017 Central Tax dated 19.06.2017 . At the time of introduction of the CGST Act the rate of tax prescribed under Sec. 10 was 1%, 2.5% and % respectively on the turnover in State or Union Territory when the aggregate turnover in the preceding financial year did not exceed fifty lakh may opt to pay in lieu of the tax payable by him under sub section (1) of section 9 an amount calculated at such rate as may be prescribed. At the same time when the rule was framed, the Rule 7 states as follows: 1. Manufacturers, other than manufacturers of such goods as may be notified by the Government has to pay tax at 1%. 2. Suppliers making supplies referred to in cl.b of para 6 of Sch II , the rate of tax is 2.5% and 3. Any other supplier eligible for composition levy under section 10 and the provisions of this chapter the rate of tax is %. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The said rule had not whispered/mentioned anything about the State turnover or Union Territory turnover. However, the CGST Act is very clear that the aggregate turnover means it includes both State as well as Union Territory. It is only in Notification No. 3/2018 Central Tax dated 23/01/2018 the rule 7 was made in consonance with the Act and it was made effective from 01.01.2018. This is how the composition levy was fixed at 1.5.crores as on date. Further rule 7 states that 1. Manufacturers, other than manufacturers of such goods as may be notified by the Government has to pay tax at half per cent only of the turnover in the State or Union Territory. 2. Suppliers making supplies referred to in cl.b of para 6 of Sch II , the rate of tax is 2.5% only of the turnover in the State or Union Territory and 3. In so far as item 3 is concerned earlier, any other supplier eligible for composition levy under section 10 and the provisions of this chapter the rate of tax is % only of the turnover in the State or Union Territory . Earlier goods was alone included in the schedule, but now goods and services is include by Notification No. 03/2019 Central Tax d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 29/01/2019 . Now the CGST rule itself is amended to that effect. WHO IS ENTITLED TO OPT FOR COMPOPSITITON: Initially, subject to sub-section (3) and (4) of section 9 , any person whose aggregate turnover i.e., State and Union Territory did not exceed fifty lakh rupees may opt to go for composition. However he has to pay Tax in lieu of tax payable by him under sec. 9 (1) at the prescribed rate. Now the aggregate turnover is increased to 1.5 crore rupees . Hence as on date the registered persons whose aggregate turnover is not exceeding 1.5 crore in the preceding year is entitled to the scheme. However the composition tax payer has to pay tax when the transaction comes under reverse charge mechanism. Further the registered person has to exercise his option to go for composition in all the States separately, even though he is registered in various States. HOW TO OPT FOR COMPOSITION: The relevant provision for composition is Sec. 10 of the CGST Act and Chapter II of CGST Rules i.e., Rule 3 to 7 . Rule 24 of CGST rules permits migration of persons registered under Tamil Nadu Value Added Tax Act 2006. Those persons who obtained registration on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a provisional basis under rule 24(1)(b) of this Act may file FORM GST CMP-01 electronically duly signed or verified through electronic verification Mode on the common portal prior to the appointed date (Appointed dated means the day on which the provisions of this Act came into force) but not later than 30 days. However, the period can be extended by the Commissioner. However the registered person should not collect any tax, but can issue bill for supply for supplies made after the said day. Any person wants to register under rule 8(1) may give his option in Part B of FORM GST REG 01 and the same will be considered as intimation to pay tax under composition. Those persons who opt for composition under section 10 has to file FORM GST CMP 02 . Similarly if any person files an intimation to opt for composition he has to file FORM GST CMP 03 furnishing details of stock on the date of opting for composition within 90 days from the date of exercise of option or within the extended period by the Commissioner. Further prior to the commencement of financial year for which the option is exercised , then the registered person has to file FORM GST ITC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 in accordance with provisions of sub-rule(4) of rule 44 within a period of sixty days from the commencement of relevant financial year. Further the person who got registration under rule 24 or section 10(1) also has to file FORM GST ITC 3 in accordance with rule 44(4). The person also can not furnish FORM GST TRAN 1 after furnishing FORM GST ITC 3. Further the place of business shown in the intimation under sub-rule 3(1), (3) and (3A) will be deemed to be the intimation in respect of all other places of business registered on the same PAN number. EFFECTIVE DATE FOR COMPOSITION: The option under section 10 is effective from the beginning of the financial year if the intimation is filed under sub rule(3) of rule 3 , and from the appointed day if it is filed under sub rule(1) of rule 3 . In so far as registration under rule 8 is concerned the effective date will be fixed under sub rule (2) or (3) of rule 10 . CONDITIONS AND RESTRICTIONSFOR COMPOSITION : The person opting for composition has to follow the following conditions i.e., 1. he should not be a casual taxable person or non resident taxable person. 2. The stock held on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appointed day should not have been purchased in the course of inter state trade, imported or received from the branch and should not have been purchased from unregistered supplier provided the tax should have been paid under sec. 9(4). 3. he should pay tax under sub-section (3) or (4) of section 9 on inward supply of goods or services or both. 4. He should have manufactured the goods as notified under cl.(e) of sub-section (2) of section 10 during the preceding year. 5. He should mention on top of every bill that composition taxable person, not eligible to collect tax on supplies . 6. He should mention at all places i., every notices, sign boards displayed at a prominent place at his principal place and all additional places of business that he is a composition taxable person. 7. As per sub-sec (2) of sec. 5 the person who already paid tax under sec. 10 need not file fresh intimation every year and he can continue to pay tax under this section. VALIDITY OF COMPOSITION LEVY: Sec. 6 deals with validity of composition of levy. The composition levy under Section 10 can be followed only if the conditions laid down under the said section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the rules are scrupulously followed. If the person failed to follow the procedures as laid down in the Act and rules, the moment he ceases to the benefit of the Sec. 10 and the rules made thereunder. If he fails to follow the procedure he is liable to pay tax under Sec. 9 (1) of the Act. He has to issue sales tax invoice for every taxable supply made by him. He should also file FORM GST CMP 04 for withdrawal from the scheme within seven days from the date of occurrence. Once the person exceeds the aggregate turnover, he is not entitled to the scheme. As per Sec. 3 the option availed shall lapse with effect from the day on which the aggregate turnover exceeds the limit as prescribed by sub-sec.(1) of section 10 . He shall not collect any tax from the recipient of supplies nor he is entitled to credit of input tax. In case if the person knowing fully well, he is not entitled to the benefit but still avail and the proper officer found it, then the person can be proceeded under sec. 73 and 74 apart from levy of penalty. As stated earlier, as and when the limit prescribed under the Act and rules are exceeded, the composition scheme is autom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atically withdrawn and is not entitled to input tax credit. In case if the person availing composition scheme and the limit crosses in the middle of the year, in such cases the said person is allowed to avail the input tax credit in respect of the stock of inputs and inputs used in the finished and semi finished goods and capital goods held by him for the period not covered under the composition scheme. However within 30 days he has to file FORM GST ITC 01 containing the particulars of such goods and claim input tax credit. FORM AND MANNER OF SUBMISSION OF RETURN: Every registered person who is under the compounding scheme has to file his quarterly return in FORM GSTR - 4 as per rule 62 of the rules . Section 39 of the Act deals with filing of return under Section 10 . The said return has to be filed within 18 days after the end of each quarter as per Sec. 39(2) . Hence the return in FORM GSTR 4 has to be filed on 18 th of the month succeeding every quarter. The said return should include invoice-wise inter-State and intra-State inward supplies received from registered and unregistered persons and consolidated details of outward supplies made. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... INPUT TAX CREDIT : Section 18 deals with availability of credit in special circumstances. As per Sec. 18(4) where any registered person who has availed of input tax credit opts to pay tax under section 10 or where the goods or services or both supplied by him become wholly exempt, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by such percentage points as may be prescribed on the date of exemption. Rule 44 deals with calculation on the manner of reversal of credit under special circumstances. Rule 44 (a) states that the input tax credit shall be calculated proportionately on the basis of the corresponding invoices on which credit had been availed . Similarly rule 44 (b) states that for capital goods held in stock , the input tax credit involved in the remaining useful life in months shall be computed on pro rata basis. The proviso to Sec. 18 (4) states that after payment of such amount , the balance lying in the electronic ledger ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall lapse. METHOD TO CALCULATE AGGREGATE TURNOVER: Sec. 2 (6) defines aggregate turnover . According to the definition, it includes the aggregate value of all taxable supplies, exempt supplies, exports of goods and services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis. However, it excludes the value of inward supplies on which tax is payable by a person on reverse charge basis and also excludes central tax, State tax, Union territory tax, integrated tax and cess. Further aggregate turnover is computed on all India basis for a person having same Permanent Account Number (PAN). It is relevant to note that every person has only one PAN number and that means the aggregate turnover has to be computed for all person. Further taxable supplies, exempt supplies, export of goods or service or both and Inter-state supplies has to be added to aggregate turnover. It excludes the value of inward supplies on which tax is payable by a person on reverse charge basis and taxes including cess paid under GST laws. Further the CBEC vide order No.01/2017 Central Tax dated 13/10/2017 had clarified that a pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson supplying and exempt services including services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, shall not be ineligible for the composition scheme. In computing his aggregate turnover in order to determine his eligibility for composite scheme, value of supply of the exempt services including services by way of extending deposits, loans or advantages shall not be taken into account. In such a scenario, even though the Act says that 1.5 crore is the limit for opting for composition, will any registered person come under the scheme is a predominant question. If this type of calculation is adopted, there would not be much dealer who will be entitled to composition at all. It may help a small set of dealers, which may not be much help for the development of the economy of the country. REGISTRATION AND WITHDRAWAL FROM THE COMPOSITION SCHEME : In order to enjoy the benefit of Composition levy, there are some procedures are prescribed. Rule 3 of CGST rules deals with such procedure. If a person granted provisional registration under cl.(b) of sub rule(1) of rule 24 then he has file an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intimation in FORM GST CMP 01 duly signed and verified electronically on common portal or through a felicitation centre notified by the Commissioner prior to the appointed date but not later than 30 days from the appointed date. The Commissioner has power to extend the period. If any person who apply under rule 8(1) may give his option in Part B of FORM GST REG 01 which shall be considered as intimation. If any person wants to go for option under section 10 , he has to file FORM GST CMP 02 duly signed and verified through electronic verification code. However, he has to file FORM GST ITC 03 furnishing the details of stock within 60 sixty days as per rule 44(4). Further any intimation under sub-rule(1) or (3) or (3A) in respect of any place of business in any State or Union Territory shall be deemed to be the intimation in respect of all other places of business registered on the same Permanent Account Number. Similarly if a person wants to withdraw from the composition scheme he has file an intimation in FORM GST CMP 4. In case, if any person ceases to satisfy the condition mentioned in Sec.10 or provisions of the Chapter II of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rules, he also has to file the same form within 7 days of the occurrence of such event. Similarly, if the proper officer believes or reason to believe that the registered person had contravened the provisions he may issue a notice in FORM GST CMP 5 to show cause within 15 days. The concerned person has to file reply in FORM GST CMP 6 . Thereafter the proper officer within 30 days issue an order in FORM GST CMP 7 whether accepting the explanation and dropping the further proceeding or deny the option of Compounding. In case the proper officer deny the option, or the persons who opted under sub-rule (2) or (3), has to furnish a statement in FORM GST ITC 01 containing the details of the stock if inputs and inputs in finished and simi-finished form within 30 days and the same is applicable in respect of all other places of business registered on the same Permanent Account Number. PENAL ACTION: As per sub-section (5) of the CGST Act if the proper officer found that if any taxable person has paid tax under sub-section (1) despite not being eligible, such person shall, not only pay the remaining or balance of tax, he is liable to pay penalty , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and also face the consequences of the provisions of Sec. 73 or Sec. 74 of the Act. CONCLUSION: Even though the CGST Act states that Composition levy is an easy method for the purpose of assessment by the assessee under the CGST Act, because there is no need to maintain elaborate books of accounts, simple filing of quarterly return and payment of tax quarterly, from the reading of the abovesaid facts it may be seen that even composition scheme is also a complex one. The composition scheme may be beneficial for a small time trader whose aggregate turnover may be less than 1.5 crores. But in the present scenario 1.5 crore is nothing in the trade world and it can not be a effective remedy for majority of tax payers. Further from the above, It can be seen that the composition levy may be simple and useful for the department but not to the majority of the assesses. Authors: B.Raveendran B,A.BL., DBM., Advocate High Court, Chennai, G.Samidurai M.A., Rtd., Dy.Commissioner(CT)(Tamilnadu) VAT/GST Practitioner - Reply By Ganeshan Kalyani as = Nicely written covering all the provision pertains to composition levy. It enriched my knowledge. Enjoyed readi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng. Thanks. Dated: 6-6-2020 Reply By Ekta Aggarwal as = If I opt for Composition scheme in one state and I have business in other state also, is it compulsory to get registered as composition dealer in other state also? Dated: 9-6-2020 Reply By Gnanamuthu samidurai as = Dear Sri Ekta Aggarwal Thank you for reading the Article and the valid question put forward by you. The answer to your question is well available in the F.A.Q published in the official portal of the CBIC under the head of FAQ on composition levy, according to which, the answer available in question no.21 is re-produced below:- Q 21. In case a person has registration in multiple states? Can he opt for payment of tax under composition levy only in one state and not in other state? Ans. The option to pay tax under composition scheme will have to be exercised for all States. I think that the above answer will meet your requirement. Thank you with regards Gnanamuthu Samidurai Dated: 10-6-2020 - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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