Gst registration wrongly taken under composition scheme but business done under regular scheme

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Aaquib Patel (Querist)
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19 May 2022 Client applied for gst registration in F.Y.17-18 through gst suvidha kendra but was unaware that the registration was done under composition scheme.. he started his business assuming regular registration and charged 18% gst on sales and taking itc credit. he came to know about it while filing returns later on when the registration got converted to regular due to turnover going above 1 cr.
he has now received a notice for the same with 100% interest and penalty as a result of ineligible itc taken.
what are the options available to him? any mode of relief?

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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07 July 2024 Given the situation where your client inadvertently applied for GST registration under the Composition Scheme but was operating as a regular taxpayer, here are the options and considerations:

1. **Understand the Notice**: Your client should carefully review the notice received from the GST department. It's crucial to understand the exact details of the penalty and interest imposed and the reasons stated by the department.

2. **Rectification of Registration**: Since the turnover crossed Rs 1 crore, the registration should have been converted from Composition Scheme to Regular Scheme automatically. Your client should verify if this conversion happened correctly in the GST portal.

3. **Communication with GST Authorities**: Your client can communicate with the GST department to explain the inadvertent mistake. Providing supporting documents and evidence of sales made, invoices issued, and taxes paid can help clarify the situation.

4. **Payment of Tax, Interest, and Penalty**: If ineligible ITC (Input Tax Credit) was claimed due to the mistaken registration under Composition Scheme, your client would need to pay the tax liability along with applicable interest and penalty as per the notice. The interest and penalty are typically levied on the tax amount that was wrongly availed as ITC.

5. **Request for Relief or Waiver**: Depending on the circumstances and the extent of the mistake, your client can request the GST department for relief or waiver of interest and penalty. This would typically involve writing a letter explaining the situation and seeking leniency based on genuine mistake and compliance with rectification upon realization.

**Consultation with a Tax Advisor**: It's advisable for your client to seek guidance from a tax advisor or a GST consultant who can assist in drafting responses to the GST department, handling the rectification process, and representing your client's case effectively.

**Future Compliance**: Ensure that your client is fully compliant going forward. This includes accurate reporting of turnover, correct application of GST rates, timely filing of returns, and proper utilization of ITC.

In summary, while your client may face the challenge of paying interest and penalty for the ineligible ITC claimed, proper communication with the GST department and adherence to rectification procedures can help mitigate further issues and ensure future compliance.

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