Whether GST composition rate of 1% on turnover of goods and 6% on services applicable simultaneously?

Pradeep Jain , Last updated: 18 June 2020
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GST update on whether composition rate of 1% on turnover of goods and 6% on services applicable simultaneously? 65/2020-21

The composition scheme prescribed under section 10 of CGST Act, 2017 was introduced with the objective of minimum compliance for assessees operating at small level. However, the conditions with which this benefit was granted made this scheme less attractive. One of the conditions for availing the composition benefit is that the assessee is not engaged in supply of services except to the extent of 10% of the turnover in State or Rs. 5 Lakhs, whichever is higher. It is worth noting that similar scheme is provided vide notification no. 02/2019-Central Tax Rate dated 07.03.2019 for supplier of services with tax rate of 6% having annual turnover in preceding year upto Rs. 50 Lakhs. Now, the question arises is whether it is possible for an assessee to avail benefit of section 10 of CGST Act, 2017 for turnover of goods and benefit of notification no. 02/2019-Central Tax Rate dated 07.03.2019 simultaneously? This question was raised before the Karnataka AAR in the case of M/s EMPATHIC TRADING CENTRE and the decision pronounced by the AAR is the subject matter of discussion of the present update.

The applicant is availing benefit of composition scheme and is engaged in supply of goods and supply of renting of immovable property service and his aggregate annual turnover is much less than Rs. 50 Lakhs. It was contended by the applicant that sincehe is engaged in supply of goods and supply of service which is totally unrelated and unconnected, whether the applicant is liable to pay 1% on turnover of goods and 6% on turnover of services OR 6% on total turnover of goods and services under composition scheme?

Whether GST composition rate of 1 on turnover of goods and 6 on services applicable simultaneously

The AAR held that there is no dispute that both the activities of the applicant are taxable and also supplied by the same person. The provisions of section 10 of the CGST Act, 2017 were analysed and it was concluded that it was possible to pay 1% on the total turnover only if the proportion of service element provided did not exceed 10% of the turnover in State or Rs. 5 Lakhs whichever is higher. Furthermore, the provisions contained in notification no. 02/2019-Central Tax Rate dated 07.03.2019 were also examined and it was found that the notification is not a composition scheme but an optional scheme. Moreover, one of the conditions prescribed in the notification is that the supplies are made by a registered person who is not eligible to pay tax under section 10(1) of the CGST Act, 2017. It was held that since the applicant is availing benefit under section 10(1) of the CGST Act, 2017, he is not eligible for benefit of notification no. 02/2019-Central Tax Rate dated 07.03.2019.

However, it was ruled that if the applicant opts out of the composition scheme under section 10(1) of the CGST Act, 2017, and obtains separate registrations for supply of goods and supply of services, he shall be liable to pay 6% GST on each of the turnovers of the registrations. This is for the reason that all registrations under same PAN are to opt for the same benefit.

Therefore, it can be concluded that it is not possible for an assessee to opt for benefit of composition under section 10(1) of CGST Act, 2017 prescribing GST rate of 1% with respect to turnover of goods and opt for benefit under notification no. 02/2019-Central Tax Rate dated 07.03.2019 prescribing GST rate of 6% for turnover of services simultaneously. The benefit under section 10(1) of the CGST Act, 2017 and notification no. 02/2019-Central Tax Rate dated 07.03.2019 are mutually exclusive and cannot be opted for simultaneously. Hence, if the proportion of service is within the prescribed limit of 10% of turnover or Rs. 5 Lakhs whichever is higher, benefit of 1% under section 10(1) of the CGST Act, 2017 can be availed. However, if the condition of section 10(1) as regards proportion of service element is not satisfied, then benefit of notification no. 02/2019-Central Tax Rate dated 07.03.2019 can be availed by paying CGST @3% and SGST @ 3% but with the condition that the benefit of composition scheme under section 10(1) is opted out by the assessee.