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Composition Dealer

Sanket Galande (CA-Inter) (126 Points)

09 December 2019

can a composition dealer sale his franchise & charge franchise fees?
if yes, then what is the GST implication on the transaction?

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10 Replies

Pankaj Rawat (GST Practitioner) (55057 Points)
Replied 10 December 2019

Yes ..If you have obtain registration under composition scheme prescribed in Notification 2/2019 CT (r) ( Can supply services)

Else the value of supply of Services shall.not be exceed of 10% of Turnover for previous year or 5 lac whichever is lower

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Sanket Galande (CA-Inter) (126 Points)
Replied 10 December 2019

But the value of supply of services is more than 5 lakhs.

Shivam RC (Student) (23683 Points)
Replied 10 December 2019

The value of Supply of Services should be Rs. 5 lakhs or "10% of the AGGREGATE TURNOVER", whichever is HIGHER.

So if the value of your services does not exceeds 10% of your Aggregate Turnover, you can sale your Franchise.

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Sanket Galande (CA-Inter) (126 Points)
Replied 10 December 2019

I think it is lower of 5 lac or 10% of aggregate turnover.

Pankaj Rawat (GST Practitioner) (55057 Points)
Replied 10 December 2019

Yes correct , the same has been inserted vide amendment Act ,2018, s.5(a)(ii) , effective from 1/2/2019

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Shivam RC (Student) (23683 Points)
Replied 10 December 2019

@ Pankaj Rawat and Sanket Galande,

Kindly refer the Second Proviso to sub - Section (1) of Section 10 of the CGST ( Amendment ) Act 2018 . It clearly states that Rs. 5,00,000 or 10% of Aggregate Turnover, whichever is "HIGHER".

EXTRACT OF THE PROVISION from the CGST Law has been reproduced below for your kind perusal :

"Provided further that a person who opts to pay tax under clause [a] or clause [b] or clause [c] may supply services [other than those referred to in clause [b] of paragraph 6 of Schedule II], of value not exceeding ten per cent. of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is HIGHER. "

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Rajan Kumar (55 Points)
Replied 11 December 2019

@ sanket
since supply of franchise is supply of service so there is an restriction on supply of service to dealer registered u/s 10. Further central govt. on recommendation of GST council has later provides notifications in this respect,

1) notification no. 2/2019 applicable w.e.f. 1st apr 2019, provides that the small supplier's whose aggregate turnover in preceding f.y was upto 50 lacs. can pay tax @ 6% (3% cgst & 3% sgst).

2) proviso added to section 10(1) composition dealer may supply of service not exceeding 10% of turnover in a state in the previous year or 5 lacs which ever is less. applicable w.e.f 1 Feb 2019.

so, if you not fit in any of above two than you need to opt for regular scheme.

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PRASANT BISOYI (261 Points)
Replied 11 December 2019

Dear Sanket, the second proviso of Sec10(1) of CGST, Act 2017 says about supplier of goods falling under composition scheme i.e. manufacturer or other supplier of goods can supply of services other than restaurant services, by follow the condition: 10% of aggregate turnover or Rs.5lakhs whichever is higher.

As per Notification:2/2019 of CGST(R) also the supplier can supply services by follow those conditions given in notification till the aggregate turnover of Rs.50lakh only.

So, u may follow notification for ur issue.

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Sanket Galande (CA-Inter) (126 Points)
Replied 11 December 2019

Thanks to all for your guidance.
but my problem is that, Franchisor is registered as composition dealer providing service of restaurant..
so how to deal with that?

PRASANT BISOYI (261 Points)
Replied 11 December 2019

If ur providing restaurant service and ur are opting composition scheme then u can not charge tax on ur outward supply and u can not avail ITC also. So, finally u have to pay 2.5%+2.5% to Government on ur turnover and instead of tax invoice u have to issue bill of supply with the heading of Composition dealer registered under Sec 10 of CGST Act, 2017.