Composition Scheme under GST

PROPORSITION IN COMPOSITION SCHEME UNDER GST

Tax runs the society and the legislature always outreach to make the levy and collections of the tax in a broader base i.e. include as many persons as possible in the taxable net. The government always encourage small tax payers to come voluntarily within the taxable net and try to make the procedure simplified for them. Section-9 of the Goods & Services Tax Act, 2017 is a charging section for the levy and collection of the tax by which the central tax (CGST) is payable on all supply of the goods and services on the value determined at the rate notified by the government. However a concession is made to the small tax players whose turnover do not exceed Rupees seventy five lakhs or Rupees fifty lakhs (for the special category states, Notification No. 8/2017-Central Tax, dated 27.06.2017) at the rate prescribed in Section-10 and the rules made there under:

Before we delve into the composition scheme one basic thing to be noted is the composition scheme is only available for the intra-state supply and the same is not available for any supply related with goods or services made inter-state. Section-10 of the CGST Act which defines composition levy is read as follow:

Composition levy.

10. (1) Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed Rupees fifty lakh rupees, may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not exceeding -

(a) one per cent. of the turnover in State or turnover in Union territory in case of a manufacturer,

(b) two and a half per cent. of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, 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:

Provided that the Government may, by notification, increase the said limit of fifty lakh rupees to such higher amount, not exceeding one crore rupees, as may be recommended by the Council.

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

(a) he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II;

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

(c) he is not engaged in making any inter-State outward supplies of goods;

(d) 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

(e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council:

Provided that where more than one registered persons are having the same Permanent Account Number (issued under the Income-tax Act, 1961), the registered person shall not be eligible to opt for the scheme under sub-section (1) unless all such registered persons opt to pay tax under that sub-section.

(3) The option availed of by a registered person under sub-section (1) shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under sub-section (1).

(4) A taxable person to whom the provisions of sub-section (1) apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.

(5) If the proper officer has reasons to believe that a taxable person has paid tax under sub-section (1) despite not being eligible, such person shall, in 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 section 73 or section 74 shall, mutatis mutandis, apply for determination of tax and penalty.

CONDITIONS FOR COMPOSITION LEVY:

The conditions to opt the composition levy as it is a departure from the charging section are as follow:

  1. The aggregate turnover of the person opting this scheme must not exceed seventy five lakhs in the preceding financial years.
  2. he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II;
  3. The person opting the scheme should not be engaged in the supply of services which is not mentioned in clause b of para 6 of schedule II of the act, so for other category of services except the supply related to food or drinks as mentioned in clause 6b of schedule II is not included.
  4. Any supply of goods not leviable to tax under this act is not part of the composition levy.
  5. Any outward inter-state supply of good.
  6. Electronic commerce operator who is required to collect tax source.
  7. Any manufacturer of goods who is notified by government on the recommendation of the council.

INPUT TAX CREDIT:

The person under this scheme will neither charge a tax nor is entitled for any input tax credit on goods supplied to him.

TAX INVOICE:

The taxable person opting for the composite levy will not issue any tax invoice and instead of that will issue a bill of supply containing such particulars as required in the bill of supply in terms of section 31 sub-clause(3)(c) shall be issued containing following details as follows:

RATE OF TAX:

The rate of tax for the registered person as notified in the rules is as follow:


S.No.

Category of registered persons

Rate of Tax

1.

Manufacturers, other than manufacturers of such goods as may be notified by the Government

one per cent

2.

Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II

two and a half per cent.

3.

Any other supplier eligible for composition levy under section 10 and the provisions of this Chapter

half per cent.


FORMS USED IN THE COMPOSITION LEVY:

The GST Act is a new act and appears to be a compliance oriented Act. In the rules it has prescribed certain forms which are to be filled and complied with by the person opting the composition scheme


FORM

PARTICULARS

FORM GST CMP-01

Intimation for opting the scheme.

FORM GST REG-01

Intimation by the registered person to pay tax under Section-10 (provisional).

FORM GST CMP-02

Intimation by registered person opting to pay tax.

FORM GST ITC-03

Statement in terms of section-18(3) of the GST Act regarding reversal of credit.

FORM GST CMP-03

Statement of details of stock and inward supply on the day preceding the date of opting the scheme.

FORM GST CMP-04

Intimation for withdrawal from the scheme.


RETURNS:

In the composition Scheme as opted by the small tax payers the requirement of the filing of the return is minimum i.e. on quarterly basis and once annually.

VALIDITY AND RENEWAL OF THE OPTION:

The composition scheme opted by the registered person will remain valid so long the conditions prescribed above are satisfied. However the moment registered person exceeds the monetary limit or ceases to satisfy any of the conditions of section 10 of the rules he will be liable for the payment of tax in terms of section 9 of the act and shall issue an invoice in terms of section 31(1) of the CGST Act, 2017.

The Central Government has excluded following Tariff item from the composition Scheme (Notification No. 8/2017-Central Tax, dated 27.06.2017), as per following details:


S.No.

Tariff item, subheading, heading or Chapter

Description

(1)

(2)

(3)

1

2105 00 00

Ice cream and other edible ice, whether or not containing cocoa

2

2106 90 20

Pan masala

3

24

All goods, i.e. Tobacco and manufactured tobacco substitutes


The composition scheme intended for the small tax payer will be useful in future and the procedures which appears to be alien or cumbersome atleast now will be user-friendly in future.

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Prabhat Kumar 
on 12 August 2017
Published in GST
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