The word “composition” denotes mixture of more than one character. In general sense “composition” is an agreement between the parties where one party agrees to pay less than what has agreed in full satisfaction of the whole of the claim. Therefore one can say it is a beneficial agreement.
Background
It is an agreement between ‘Government’ and ‘Dealer’, where it is agreed to pay lesser rate of tax compared to what has actually stated in the provision upon certain terms and conditions.
Before the introduction of ‘Value Added Tax’ in
Who is eligible to opt under KVAT Act, 2003?
Any dealer other than the one who does inter-state trade is eligible to opt (except in the case of works contractor). Basically there are two types of dealers who can opt for the scheme:
1) Dealers without turnover limit
2) Dealers with turnover limit
Dealers without turnover limit
The dealers running the following business can opt for the composition scheme, irrespective of their turnover:
(1) Execution of Works Contract
(2) Hotel
(3) Restaurant
(4) Catering
(5) Sweet Meat Stall or Ice Cream Parlor
(6) Bakery
(7) Mechanized crushing unit producing granite or other metals
Dealers with turnover limit
Any dealer other then the above mentioned dealers who desire to opt for composition scheme, the total turnover shall not exceed 15 lakhs per annum.
Registration
An application in VAT Form-1 to be submitted to the jurisdictional Registering Authority whose taxable turnover exceeds Rs.2 Lakhs per annum or taxable turnover exceeds Rs.15,000/- during any month.
Rate of Tax
The rate of tax specified under KVAT Act, 2003 is 4% on total turnover for dealers without turnover limit except dealer running crushing unit and producing granite or other metals and 1% for dealers with turnover limit.
For dealer running mechanised crushing unit producing granite metals
i) 16,500/- pm for each mechanized crushing machine of size exceeding 16” x 9”
ii) 8,250/- pm for each mechanized crushing machine of size exceeding 12” x 9”
but not exceeding 16” x – 9”
iii) 4,000/- pm for each mechanized crushing machine of size upto 12” x 9”
For dealer running mechanized crushing unit other than producing granite metals
i) 10,000/- pm for each mechanized crushing machine of size exceeding 16” x 9”
ii) 5,000/- pm for each mechanized crushing machine of size exceeding 12” x 9”
but not exceeding 16” x – 9”
iii) 3,000/- pm for each mechanized crushing machine of size upto 12” x 9”
Benefits
The composition scheme of tax is introduced to relieve the dealers from the maintenance of detailed books of accounts especially the small dealers and works contractors, hotels etc., where it is a very tedious task. This saves a lot of labour and efforts involved in keeping the books of accounts. There are no complex procedures to be to be followed by the composite dealers.
Works Contractors:
ü A works contractor has to bi-furcate his turnover into turnover pertaining to local purchases and turnover pertaining to interstate purchases to arrive at the eligible turnover for composition.
ü Regular rate of tax on turnover pertaining to interstate purchases.
ü A works contractor is entitle for deduction on the amount paid to sub contractor provided sub contractor is a registered dealer.
ü Work contractor is liable to pay at normal rate of duty for any sale other than by way of works contract. Here is not eligible to take any deduction of input tax on purchase made by him.
ü A works contract dealer purchasing goods from un-registered dealers is required to discharge tax on such purchases under Section 3(2) at schedule rate of tax. The value of such goods can be deducted from the total works contract turnover to arrive at the eligible turnover on which composition tax can be paid.
Filing of returns
The composition dealers are required to file the monthly/quarterly return as in Form VAT 120. Even COT dealers can file the revised return within six months from the end of the relevant tax period if there is an omission or incorrect statement
The turnover under composition scheme is on receipts basis and under regular scheme the turnover is based on the receipts or total turnover whichever is higher.
Liability to pay tax
ü If a Composition tax dealer purchase goods from unregistered dealer then the composition tax dealer is liable to pay tax on such purchases.
ü If a composition tax dealer purchases goods from a registered dealer (either COT or VAT), then the seller (registered dealer) is liable to pay the tax.
Basic difference between the VAT regular scheme and the Composition Scheme: -
|
VAT System |
COT System |
|
1) Eligible to collect tax |
1) Eligible to collect tax except hotelier, Restaurateur, caterer, dealer running Sweetmeat stall or ice cream parlor or Bakery |
|
2) Eligible for input tax credit subject to Restrictions |
2) Not eligible for input tax credit |
|
3) Tax rates applicable as per schedules (i.e., 1% or 4% or 12.5% or 20%) |
3) Tax rates not as per schedules (i.e., 1% or 4%) |
|
4) Issue of tax invoice |
4) Issue of bills of sale |
|
5) Eligible for deduction towards labour & other like charges |
5) No deduction towards labour & other like charges |
|
6) Tax on transfer of property alone |
6) Tax on total turnover including labour & other like charges |
State has power to levy tax on transfer of property in goods under Article 246 of the Constitution of India (entry 54 List II of Seventh Schedule). On the other hand state has no jurisdiction to levy tax on labour & other like charges. Composition scheme is contrary to the regular system of VAT; where tax shall be levied on total turnover including labour & other like charges at reduced rate.
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