TURNOVER OF COMPOUNDING DEALER EXCEEDING BASIC LIMIT

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mohamed ali & co (Querist)
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19 December 2024 A Trader who is dealing in cooking masala powder paying tax under compounding system and paying1%. During 2020-21 his turnover exceeeded the basic limit of Rs. 1.50 crore to Rs. 1.53 crore. Enforcement wing officials visited the place of business and collected 5% GST on the excess turnover of Rs. 3 lakhs. But now the assessing officer issued notice in DRC01A proposing to levy tax at 18% GST on the entire turnover of Rs. 1.53 crore. Can the experts throw some light how to respond to this Notice.....

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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19 December 2024 Under the GST composition scheme, a trader dealing in goods like cooking masala powder can opt for the scheme if their aggregate turnover does not exceed Rs. 1.5 crore in the previous financial year. If the turnover exceeds this limit in a particular financial year, the trader must transition from the composition scheme to the regular GST scheme for that year. However, the transition does not automatically revert the tax paid under the composition scheme for the period it was applicable.
The composition scheme allows for a payment of tax at a fixed rate (1% for traders in goods), but this is only valid up to the turnover limit. Once the limit is exceeded, the trader must comply with regular GST rates for the excess turnover. However, the tax on the excess amount should be calculated at the regular GST rate on that excess turnover, not retroactively on the entire turnover.
The tax on excess turnover (Rs. 3 lakhs in your case) should be calculated at the standard GST rate (which is 18% for many goods including masala powder). However, this should not be applied retrospectively to the entire turnover. The correct approach would be to apply the standard rate only to the Rs. 3 lakhs, not the entire Rs. 1.53 crore.
Cite section 10 of the CGST Act, which deals with the composition levy. This section implies that once you exceed the threshold, you're required to pay tax at the normal rates on the excess amount, not on the entire turnover. Here, the notice proposing 18% on the entire turnover seems to misinterpret the law or its application.
It would be advisable to consult a local GST expert or a tax consultant.

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