GST - Levy and Composition scheme

Madhukar N Hiregange , Last updated: 10 April 2017
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The GST Bill 2017 has been put in public domain and in this article the concept of levy and composition has been examined by the paper writer.

Background

Under GST law, Central/State Goods and Service tax (Central Tax) & Integrated tax (IGST) shall be levied on all intra-state or inter-state supplies of goods and/or services at specified rate and collected in prescribed manner.

In this backdrop, the paper writers have examined the scope of levy and composition scheme under the GST regime.

Levy and Collection of Central Goods and Services Tax

i. Central tax levied on value determined of all intra-State supplies of goods or services or both

ii. Tax not levied on alcoholic liquor for human consumption

iii. At rates not exceeding 20%, as notified by the Government on the recommendations of the Council.

iv. Petroleum crude, HSD, petrol, natural gas and aviation turbine fuel kept out for now. GST to be levied from date notified by the Government on the recommendations of the Council.

v. The Government may, on the recommendations of the Council, by notification, specify

Categories of supply of goods or services or both, on which the tax shall be paid on reverse charge basis by the recipient.
The registered person shall pay tax on supplies of goods and or services made by unregistered person to him on reverse charge basis. This is similar to unregistered person concept under VAT laws at present. Now extended to services.

vi. Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of which shall be paid by the e-commerce operator if such services are supplied through it

Levy and collection of IGST:

Levy on value determined of the interstate supply of goods and or services, except on alcoholic liquor for human consumption.
Tax rate not to exceed 40% as notified by Govt on recommendation of Council
Tax to be paid on import of goods and or services
Petroleum crude, HSD, petrol, natural gas and aviation turbine fuel to be levied from date notified by the Government on the recommendations of the Council.
Tax to be paid on specified goods or services received by recipient under reverse charge. List of supplies to be notified by Govt. on recommendation of council.
Tax to be paid on interstate supplies of goods and or services done by unregistered person to registered recipient
IGST to be paid by e-commerce operator on specified services notified by Govt. on recommendation of Council.

Composition levy under GST law

A registered person, whose aggregate turnover in the preceding financial year did not exceed Rs. 50 Lakhs, may opt to pay tax under composition instead of normal scheme at such rate of turnover in State or UT as prescribed, not exceeding, -

(a) 1% of the turnover in case of a manufacturer,

(b) 2.5% of the turnover in case of persons engaged in making supplies of food/drink as part of service and

Final rate maybe 2% for manufacturers , 5% for small restaurants and 1 % for traders as SGST would also be applicable on these transactions. Added to the lack of input credit, there maybe a higher cost than those under the normal net. Therefore those under composition may only supply to end consumer who does not want credit.

The Government may increase the limit of Rs. 50 lakhs upto Rs 1 Crore by notification as may be recommended by the Council.

The registered person shall be eligible to opt for composition if following conditions are satisfied:

he is not engaged in the supply of services other than supplies of food/drink as part of service [restaurant service];
he is not making any supply of goods which are not leviable to tax under this Act;
he is not making any inter-State outward supplies of goods;
he is not making any supply of goods through an electronic commerce operator required to collect tax at source under section 52; and
he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council.
No stock of goods which are procured interstate or imported.

Where more than one registered persons are having the same PAN, the registered person shall not be eligible to opt for the scheme unless all such registered persons opt to pay composition tax.

Other relevant provisions:

A taxable person who pays tax under composition levy shall not collect any tax from the recipient on supplies made by him.
He shall not be entitled to any credit of input tax.
The composition option would lapse from day when aggregate turnover exceeds the limit specified during financial year.
The registered taxable person liable to pay composition levy, is also to pay tax on receipt of goods and / or services on which tax is payable by him on reverse charge basis.
The input tax credit of composition tax paid is not available.
If the proper officer has reasons to believe that a taxable person was not eligible to pay tax under the composition scheme, such person shall, be liable to tax payable under other provisions of this Act. This impact could be disastrous.
In addition he would also be liable to a penalty.
No penalty shall be imposed without giving a notice to show cause and without a reasonable opportunity of being heard to the person proceeded against.

Common issues:

Whether annual permission is required for opting to pay composition levy ?
Comment: The option exercised by a registered person to pay tax shall remain valid so long as he satisfies all the conditions mentioned

Whether permission of proper officer is required to exit from composition levy scheme?
Comment: The registered person who wants to withdraw from the composition scheme shall, before the such withdrawal date, file an application in FORM GST CMP-04, duly signed, electronically on the Common Portal.

Whether interstate procurement/purchases of goods and/or services is allowed to taxable person under composition levy scheme?
Comment: No, the person opting composition cannot procure goods in course of interstate trade or imported from outside India or received from branch situated outside state or from his agent or principal outside State.

Whether composition to be opted by all taxable persons having same PAN within State or all over India?
Comment: Yes, it has to be opted by all taxable persons having same PAN.

Conclusion:

In the article the paper writers have examined basic concept of levy and composition levy under GST law. Businesses would consolidate and be under the regular scheme so that their supplies to other businesses are safeguarded. Composition would probably be only for supplies to final consumers.

The authors can also be reached at madhukar@hiregange.com or roopa@hiregange.com.