73 Relevant Legal Provisions Section Rules Section Subject Matter Rules Subject Matter CGST Sec. 10 Composition levy Rule 3 IGST Sec 20 Application of provisions of CGST Act, 2017 - No composition scheme under IGST Act Relevant Definitions CGST 2 (6) Aggregate turnover 2 (78) Non-taxable supply 2 (112) "Turnover in State" or "Turnover in Union territory 2 (108) Taxable supply 2 (72) Manufacture 2 (47) Exempt supply . Eligible Registered person ATO in the PY Eligible registered person registered in SCS - Spl Caterory States (other than Uttrakhan and J&K) Rs 75 lakhs Others eligible registered person (including those in Uttrakhand and J&K) Rs 1 Crore CGST Rules, 2017 Rule 3 Intimation of Composition Levy Rule 4 Effective date of Composition levy Rule 5 Conditions and Restrictions for availing Composition Scheme Rule 6 Validity of Composition Levy Rule 7 Rate of Tax of composition levy -- amended by N/N 3/2018 .
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Relevant Legal Provisions Section Rules Section Subject Matter Rules Subject Matter CGST Sec. 10 Composition levy Rule 3
IGST Sec 20 Application of provisions of CGST Act, 2017
- No composition scheme under IGST Act
Relevant Definitions CGST 2 (6) Aggregate turnover 2 (78) Non-taxable supply 2 (112) "Turnover in State" or
"Turnover in Union territory
2 (108) Taxable supply
2 (72) Manufacture 2 (47) Exempt supply
.
Eligible Registered person ATO in the PY Eligible registered person registered in SCS - Spl Caterory States (other than Uttrakhan and J&K) Rs 75 lakhs Others eligible registered person (including those in Uttrakhand and J&K) Rs 1 Crore
CGST Rules, 2017 Rule 3 Intimation of Composition Levy
Rule 4 Effective date of Composition levy
Rule 5 Conditions and Restrictions for availing Composition Scheme
Rule 6 Validity of Composition Levy
Rule 7 Rate of Tax of composition levy -- amended by N/N 3/2018 .
74
75
76 Composition Scheme - Eligibility 1. Can every taxable person opt to pay tax under composition scheme?
(IDTC FAQ) Ans No. in terms of Sec 10 of CGST Act (read with relevant notification), a registered taxable person whose aggregate turnover in
the preceding financial year does not exceed Rs 1 crores may opt to pay tax under composition scheme. He can opt for composition only if he is not a causal taxable person or non-resident taxable person (Rule 5 of CGST Rules, 2017). In other words, he can opt for composition only if he is a normal taxable person. Further, in terms of Sec 10(2) even a normal Taxable TP shall be eligible to opt for composition scheme only if he fulfills following conditions
1. He is not engaged in supply of services other than service of restaurant/catering service;
2. He is not engaged in any non-taxable supply of goods; 3. He is not engaged in inter-state supply of goods; 4. He is not engaged in supply of goods through an ECO who is required to collect tax at source under
section 52; 5. He is not manufacturer supplier of certain notified goods - Ice Cream/Edible Ice, Pan Masala and Tobacco
products; 6.
Note:
No Composition for Certain manufacturer: N/N 8/2017-CT + N/N 2/2017-UTT Tariff item / Sub-Heading / Heading / Chapter Description 1 21 05 00 00 Ice cream and other edible ice, whether or not containing cocoa 2 21 06 90 20 Pan Masala
3 24 All Goods, i.e., Tobacco and Manufactured tobacco substitutes
• Manufacturer of ice-cream, edible ice, pan masala or tobacco products shall not be eligible to avail composition scheme.
This is so even if they are manufacturing other products also. • Trader of ice cream, edible ice, pan masala or tobacco products shall be eligible to avail composition scheme. .
2. Who are not eligible to opt for composition scheme?
(CBEC FAQ) Ans. Broadly, following categories of registered person are not eligible to opt for the composition scheme:
(i) a casual taxable person and a non-resident taxable person. (Rule 5 of CGST Rules, 2017)
(ii) Other taxable persons are not eligible under following cases: (Sec 10(2) of CGST Act) 1. Person who is engaged in supply of services other than service of restaurant/catering service;
2. Person who is engaged in any non-taxable supply of goods; 3. Person who is engaged in inter-state supply of goods; 4. Person who is engaged in supply of goods through an ECO who is required to collect tax at source under
section 52; 5. Manufacturer supplier of certain notified goods - Ice Cream/Edible Ice, Pan Masala and Tobacco products;
3. Whether a supplier of services is eligible to pay tax under composition scheme?
(IDTC FAQ)
77 Ans. No. A supplier of services is not eligible to opt for composition scheme. However, a supplier supplying composite supply involving
supply of service or goods being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption) is eligible to opt for payment of taxes under composition scheme.
Manner of application of composition scheme v Issue Bill of Supply (mention clearly thereon – Composition TP – not eligible to collect GST) v Quarterly Compliances
o GST payable [@5%] on quarterly basis – by 18th of following month § ITC not admissible to composition supplier § GST liability shall be discharged in cash (i.e., through e-credit ledger)
.
o GSTR-4 (return) shall be filed on quarterly basis - by 18th of following month .
E 2. Supplier of restaurant service serving Alcoholic liquor also: Such restaurant is dealing in non-taxable supply, thus shall
not be eligible to opt for composition supply. 3. Restaurant supplying food/drinks through ECO- say, food panda: Eligible for composition.
• Person supplying goods through ECO who is liable to collect TCS – ineligible for composition scheme – 10(2)(d) • Person supplying services through ECO who is liable to collect TCS – eligible for composition scheme – 10(2)(d)
. .
4. M (Pvt) Ltd. is having business establishment in Agra and Indore. From both these establishments, he is making
intra-state supplies. The company crosses threshold exemption limit Dec 1, 20XX. It wants GST registration for establishment in Agra under normal provisions. For establishment in Indore, it wants registration under Composition Scheme. Discuss whether it is possible.
Ans. A company or any other person can opt for Composition Scheme if relevant conditions are satisfied. It is not possible to opt for
Composition Scheme for one establishment/place of business only. All the units having same permanent account number (PAN) will have to opt for Composition Scheme. If M (Pvt) Ltd. wants to pay tax under Composition Scheme, it will have to opt the same even for Agra office.
5. Discuss whether payment of GST under Composition Scheme is possible in the cases given below —
1. X is a painter. A Trade Fair is organized by Maharashtra Government in Mumbai from 20 Jan, 20XX to 27 Jan, 20XX. X wants to display and sell his paintings in the Mumbai Trade Fair. He has not sold any of his paintings earlier. His turnover in Trade Fair is not likely to be more than Rs. 10 lakh. He wants to opt for Composition Scheme.
2. X is in the business of manufacture of pan masala. With effect from December 1, 20XX, he wants to manufacture biscuits for rural market along with pan masala. He wants to opt for Composition Scheme with effect from December 1, 2017. His annual turnover (even after commencement of biscuits manufacture) will not be more than Rs. 50 lakh.
Ans. 1. X is a “casual taxable person”. “Casual taxable person” means a person who occasionally undertakes transactions involving
supply of goods / services in the course or furtherance of business (whether as principal, agent or in any other capacity) in a State / Union Territory where has no fixed place of business. A casual taxable person making taxable supply in India has to take compulsorily registration under GST provisions (Sec 24 of CGST Act). For causal taxable person, there is no threshold limit of ‘aggregate turnover’. He is liable to pay GST even if his turnover is only of 10 lakhs. He shall apply for registration at least 5 days prior to the date of commencement of Trade Fair.
As per Sec 10 of CGST Act, a casual table person is not eligible to avail composition scheme. He shall get himself registered as regular supplier and not as composition supplier.
2. X manufactures pan masala. A manufacturer of ice-cream, pan masala and tobacco products, cannot opt for Composition
Scheme. (Pay GST normal rate on all supplies – supply of panmasala as well as supply of biscuits) 6. Discuss whether the Composition Scheme is possible in the cases given below —
78 1. X is in the business of manufacture of garments. He is registered under GST under normal provisions. His
annual turnover is not more than Rs. 80 lakh. With effect from October 1, 20XX, he wants to opt for Composition Scheme. He owns a flat in a commercial building and gets monthly rent of Rs. 10,000.
2. Y is in the business of manufacture of hand bags (made of synthetic leather). He turnover is not more than Rs. 1 crore. He sells his entire stock through Amazon, an electronic commerce operator. He is registered under normal provisions of GST. His consultant advises him to opt for Composition Scheme. Can he do so?
3. In case 2, whether composition scheme will be available if 98% hand bags manufactured by Y are sold directly to departmental stores and Only 2 per cent goods are sold through Amazon.
Ans. 1. X has income from manufacture of garments. Besides, he has rental income from commercial property which is chargeable to GST. Mr X, registered person, is engaged in supply of commercial renting service (chargeable to GST – not an exempt service) and thus, he cannot opt for composition scheme. (Author: Pay GST normal rate on all supplies – supply of garments as well as supply of renting service)
2. Y cannot opt for Composition Scheme. Section 10(2) debars a person who is engaged in making any supply of goods through an electronic commerce operator to opt for Composition Scheme.
3. Y cannot opt for Composition Scheme. Section 10(2) debars a person who is engaged in making any supply of goods through an electronic commerce operator to opt for Composition Scheme.
Composition Scheme – optional facility for small taxpayer 7. Discuss in brief as to composition scheme under GST?
(CBEC FAQ) Ans. Composition levy scheme is a very simple, hassle free compliance scheme for small taxpayers. It is a voluntary and optional
scheme. Benefits of composition scheme • Easy compliance as no elaborate accounts and records to be maintained • Simple Quarterly Return • Quarterly payment of tax
Provisions related to composition levy have been provided under section 10 of the Central GST Act, 2017 and CGST Rules, 2017. Under this scheme, a registered taxable person, whose aggregate turnover does not exceed Rs. One crores (Rs. 75 lakh for special category States except J & K and Uttrakhand) in the preceding financial year may opt for this scheme. .
A taxpayer registered under composition levy scheme has to pay an amount equal to certain fixed percentage (flat rate) of his annual turnover as tax to the government. This tax has to be paid on quarterly basis. Such taxpayer does not have to maintain elaborate accounts and records and instead of two monthly statements and a return (which a normal taxpayer has to file under GST), he has to file a simple quarterly return in FORM GSTR-04. However, upon opting for this scheme, he cannot issue tax invoice* under GST law and can neither collect GST from his customers nor can claim Input Tax credit on his purchases.
Note: * Bill of Supply: A taxable person opting for the scheme has to issue bill of supply as he is not eligible to issue taxable invoice
under GST. He has to mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of every bill of supply issued by him.
.
* No need to specify HSN Code for Composition Supplier: A registered composition supplier no need to specify HSN code of goods in the bill of supply or return. [Detailed discussion under Chapter of INVOICING]
.
8. Whether Composition scheme is mandatory for small supplier?
(IDTC FAQ) Ans. Composition Scheme is optional. No supplier is bound to avail composition scheme.
79 9. A taxable person having same PAN can opt to pay tax under composition scheme by seeking separate
registration for branches? (IDTC FAQ)
Ans. No. A registered person shall not be eligible to opt for the composition scheme unless all such registered persons (branches having separate registration under a single PAN) opt to pay tax under composition scheme.
[Imp.] 10. Mohan Enterprises has two registered business verticals in Delhi. Its aggregate turnover for the preceding year
for both the business verticals was Rs. 70 lakh. It wishes to pay tax under composition levy for one of the vertical in the current year while under normal levy for other vertical. You are required to advice Mohan Enterprises whether he can do so?
(Study Material) Ans. A registered person with an aggregate turnover in a preceding financial year up to Rs. 1 crore is eligible for composition levy
in Delhi. Since the aggregate turnover of Mohan Enterprises does not exceed Rs. 1 crore, it is eligible for composition levy in the current year.
However, all registered persons having the same Permanent Account Number (PAN) have to opt for composition scheme. If one such registered person opts for normal scheme, others become ineligible for composition scheme. Thus, Mohan Enterprises either have to opt for composition levy for both the verticals or under normal levy for both the verticals.
[Imp.] 11. Mr A, an intra-state supplier of goods, crosses threshold limit in Oct, 20XX. He does not opt for composition
scheme and gets himself registered as ‘normal supplier’. Subsequently in Nov, 20XX, he wishes to opt for composition scheme (as Government has increase the composition limit). Can he switch over to composition scheme in Nov, 2017?
Ans. A person registered under normal provisions of GST can opt for composition Scheme. Such option can be exercised electronically
in Form GST CMP-02 but only for beginning of the financial year. However, a concession has been provided under Rule 3(3A). As per rule 3(3A), a registered supplier can opt for composition scheme with effect from the first day of the month succeeding the month in which such person files an intimation in Form GST CMP-02. This concession is available till 31st March, 2018. Such a person is required to file Form GST ITC-03 (declaring stock as on the date of switching over to composition scheme) within 90 days from the effective date of option for composition scheme.
Note: 1. Switching over from normal scheme to composition scheme: it will attract ITC reversals in terms of Sec 18(4) of CGST
Act. The amount of ITC reversal shall be computed in following manner:
a) ITC of inputs held in stock; b) Reduced ITC on capital goods in stock (ITC availed * bal life in full month / 60 months - Rule 44 of CGST Rules)
.
* Reversal has to be made even if related invoices of inward supplies are not available. In such case, market price of goods shall be considered for purposes of reversal.
* ITC reversals = output tax liability of the registered person.
Manner of reversing ITC: v ITC shall be added to the output tax liability. v Declaration in Form GST ITC-03 shall be filed (containing details of stock)
Composition TP shall file this e-declaration shall be filed within 90 days of from the effective date of option for composition scheme.
v CA certification: Details furnished in declaration shall be certified by CA or Cost Accountant. .
.
[Imp.] 12. What is the validity period of composition scheme opted by supplier?
(CBEC FAQ) Ans. A person opting for the composition levy scheme can continue to pay tax under the said scheme as long as he satisfies
the eligibility criteria and conditions related to the scheme and do not require to file a fresh application every year.
80 But, such a person shall be liable to pay tax u/Sec 9 of the CGST Act, 2017 from the day he ceases to satisfy any of the
conditions and shall issue tax invoice for every taxable supply made thereafter and he shall also file an intimation for withdrawal from the scheme.
Composition Scheme – manner of operation 13. What are the applicable rates under Composition scheme?
(IDTC FAQ) Ans. Following are the applicable rates of GST under composition scheme:
Eligible Registered person Rate (as prescribed) Total Liability
CGST SGST / UTGST Restaurant and Caterers [= Persons making supplies as referred in Sch II- Para 6(b)]
2.5% 2.5% 5% of TO in the State / UT*
Manufacturer of goods* 0.5%* 0.5%* 2% of TO in the State / UT* Other Supplier (basically, trader of goods) 0.5% 0.5% 1% of TO of taxable supplies
in the State / UT*
Note: Amendment in Composition Scheme a) For manufacturer: Rate has been reduced to 1% (0.5% + 0.5%). Earlier, it was 2% (1% + 1%).
.
b) For trader: TO in the State/UT on which GST is payable shall be only of ‘taxable supplies of goods’ (i.e., supply of taxable goods, i.e., goods on which GST is chargeable. Supply of exempt goods shall not be considered and on that GST, shall not be payable).
.
Taxable Goods TO during tax period GST payable by Manufacturer
GST payable by Trader
Product A (5%) Yes 10 Lakhs GST payable on TO of 80 lakhs GST= 80 Lakhs * 1%
GST payable on TO of 40 lakhs GST= 40 Lakhs * 1%
Product B (28%) Yes 30 Lakhs Product C (Nil - exempt) No 40 Lakhs
Total = 80 Lakhs . Also note following: .
Taxable Goods/ Sr
Taxable Goods/ Sr
TO during tax period
Product A (5%) Yes Such supplier shall not be eligible for Composition Scheme. [Supplier is not eligible for composition if he makes supply of services]
Product A (5%) Yes Such supplier now be eligible for Composition Scheme. [Removal of Difficulty Order has been issued (u/Sec 172) making supplier eligible if he is supplying exempted services]
Product B (28%) Yes Product B (28%) Yes
Service* (18%)
Yes Service* (Exempt)
No
. * Service supplied is other than that of restaurant and catering. 14. Will composition supplier have to deposit GST under CGST/ SGST heads separately?
(Press release) Ans. Yes. GST has to be paid separately under CGST and SGST/UTGST by generating a single challan through the common portal
under a single return. 15. Can small mining leaseholders (person operating mine taken on lease from Governemnt) with a turnover less
than Rs. 1 crore operate under composition scheme?
81 What is the GST rate for minerals and ores in Composition Scheme?
(Press release) Ans. As per Sec. 10(1) of the CGST Act, 2017, a registered person whose aggregate turnover in the preceding FY did not exceed Rs.
1 crore, would be eligible for paying GST under the composition scheme. Applicable composition rate: 1% (whether process of mining amounts to manufacture or not – as composition rate has been
revised to 1% for both manufacturer supplier as well as trader supplier)
[Imp] 16. Whether supplier operating under composition scheme is liable to pay GST Cess?
(IDTC FAQ) Ans. No, GST cess is not payable by composition supplier.
Charging section for GST Cess provides for exclusion of composition supplier from its purview.
Note: 1. Saving of GST Cess is one of the advantage of composition scheme. 2. Thus, supplier of aerated beverages / soft-drinks (like Pepsi etc.) is not liable to pay GST Cess if he opts for composition
scheme. 17. Whether a taxable person under composition Scheme eligible to claim input tax credit?
(IDTC FAQ) Ans. No, a taxable person under composition scheme is not eligible to claim input tax credit.
Note: 1. Though such composition supplier is registered person under GST, but he is not entitled to any ITC. 2. The reason for non-allowance of ITC is that output is taxed at lower rate.
18. Can a customer who buys from a taxable person who is under composition scheme claim composition tax as
input credit? (IDTC FAQ)
Ans. No. The recipient is not eligible to take input tax credit of composition tax paid. Moreover, a taxable person paying taxes under composition scheme is not entitled to collect taxes from the recipient in terms of Section 10(4) of the CGST Act, 2017. Accordingly, there does not arise a question for the recipient to claim input tax credit.
Note: 1. Composition supplier files quarterly return (GSTR-4) by 18th of following month. 2. GSTR-4 contains details of his purchases/inward supplies as well as his sales/outward supplies.
Inward Supplies: Auto-population of details of purchases from GSTR-1 of supplier v Since GSTR-4 contains details of inward supplies also, the supplies made by registered supplier to such composition
supplier is auto-populated from GSTR-1 of registered supplier to the composition supplier in Form GSTR-4A. v Composition Supplier verify, validate and modifies or delete such details which have auto-populated in his GSTR-4A.
based on this, he files his return GSTR-4.
GSTR-4 (outward supplies): No Auto-population of details of sales to recipient Since recipient is not entitled to any ITC on purchases made from composition supplier, details of outward supplies made by composition supplier is not auto-populated to GSTR-2A of the recipient.
.
ATO of Rs 1 crore / 75 Lakhs (Eligibility limit as well as Composition limit)
[Imp.] 19. Mention the eligibility limit of ATO for purposes of composition scheme:
82 a) Supplier operating from J&K; b) Supplier operating from Sikkim; c) Supplier operating from Uttrakhand; d) Supplier operating from J&K as well as from Uttrakhand
(CBEC FAQ) Ans. Following is the eligibility limit of ATO for purposes of composition scheme:
a) Supplier operating from J&K: Eligibility limit is Rs 1 crore; b) Supplier operating from Sikkim: : Eligibility limit is Rs 75 lakhs; c) Supplier operating from Uttrakhand: : Eligibility limit is Rs 1 crore; .
d) Supplier operating from J&K as well Sikkim: : Eligibility limit is Rs 75 lakhs; 20. How to compute ‘aggregate turnover’ to determine eligibility for composition scheme?
(CBEC FAQ) Ans. The methodology to compute aggregate turnover is given in Section 2(6). Accordingly, ‘aggregate turnover’ means value of all
outward supplies (taxable supplies +exempt supplies** +exports + inter-state supplies) of a person having the same PAN and it excludes taxes levied under central tax (CGST), State tax (SGST), Union territory tax (UTGST), integrated tax(IGST) and compensation cess. Also, the value of inward supplies on which tax is payable under reverse charge is not taken into account for calculation of ‘aggregate turnover’.
Note: 1. Supplies under RCM:
v Outward supply under RCM: Such supply shall be included in ATO. (But since supplier is not liable to pay GST on such outward supply, he shall not pay any GST on these supplies). The recipient shall be liable to pay GST. Composition supplier shall pay GST on normal rates.
v Inward supply under RCM: Such supply being inward supply shall not be included in ATO, even if composition supplier is liable to pay GST on such inward supply. As recipient of such supply, composition supplier shall pay GST on normal rates. (in fact, one of the condition of eligibility of composition scheme as specified under Rule 5 of CGST Rules, 2017 is that he shall pay GST on supplies under RCM.
2. Taxes applicable on supplies: v Tax under GST law: All types of GST (be it CGST, SGST, UTGST, IGST, GST Cess) shall be excluded in computation
of ATO. .
v Tax under other law (like Excise on tobacco products): All other taxes shall be included in computation of ATO. .
E Removal of Difficulty Order (Sec 172 of CGST Act)
ATO – for purposes of eligibility for Composition Scheme, exempted services shall be excluded CBEC vide Order No. 01/2017-Central Tax dated 13th October, 2017 has clarified that Þ a person supplying any exempt services including services by way of extending deposits, loans or advances in
so far as the consideration is represented by way of interest or discount, shall not be ineligible for the composition scheme.
Þ In computing his aggregate turnover in order to determine his eligibility for composition scheme, value of supply of the exempt services including services by way of extending deposits, loans or advances shall not be taken into account.
Consider following situation Person Business Place of Business Annual Value of Supply Nature of Supply Mr A Restaurant Single 98,00,000 (PY) (Intra-State Supply) (Delhi) (Supplier of Service) (Delhi) 90,00,000 (CY)
.
Mr A is having fixed deposits of 10 lakhs into his bank accounts. (Money inherited by him on death of his parents). Mr A is getting interest of Rs 60,000 on his fixed deposits (FD). This interest income does not attract GST as it is exempted service under GST. [Allowing money to be used by other for consideration/interest = Supply of service] .
83 Whether Mr A is eligible to opt for composition levy? .
Solution. As per Sec 10(2):
• Restaurant / caterers are only category of service providers who are eligible to opt for composition. • They too are eligible only if they are not engaged in supply of any other service.
In above case, Mr A is engaged into restaurant/catering business (which is deemed as supply of service under GST), he apparently seems to be eligible. .
But, under GST law, any activity relating to use of money is also service (refer Sec 2(102) of CGST Act). Interest income is consideration for supply of such service and such supply is thus a taxable supply. Though, interest has been exempted from GST via exemption notification E/N 12/2017-CT + 9/2017- IT. .
Considering the newly issued order, now Mr A shall be eligible to opt for composition levy.
[Imp.] 21. A taxable person can still pay tax under composition scheme even after the turnover in the current financial year
exceeds 1 crore rupees? (IDTC FAQ)
Ans. In terms of Section 10(3), the option availed for paying tax under composition scheme shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds 1 crore rupees.
Note: 1. As soon as limit of 1 crore is crossed, composition supplier shall give intimation of his exit from the composition scheme.
[Intimation in Form GST CMP-04] 2. At this stage, in terms of Sec 18(1)(c) of CGST Act, such composition supplier becomes eligible to avail ITC of following:
a) ITC of inputs held in stock; b) Reduced ITC on capital goods in stock (ITC as reduced by 5% per quarter or part thereof- Rule 40 of CGST Rules)
Manner of claiming ITC: v ITC declaration in Form GST ITC-01: e-declaration shall be filed within 30 days of becoming eligible to book ITC.
.
v Stock details under ITC declaration: Declarations shall contain details of stocks.
v CA certification if aggregate of claim of ITC exceeds Rs 2 Lakhs: Details furnished in declaration shall be certified by CA or Cost Accountant.
.
v Cross verification of ITC details: ITC claimed shall be cross verified with either of following: a) Details furnished by corresponding supplier of such inputs/ CG in his
GSTR-1 (Statement of Outward Supplies furnished by supplier u/Sec 37); OR
b) Details furnished by composition supplier of such inputs/ CG in his GSTR-4 (Return of composition supplier furnished u/Sec 39);
22. A person availing composition scheme in Haryana during a financial year crosses the turnover of 1 crore during
the course of the year i.e. he crosses the turnover of 1 crore in December? Will he be allowed to pay tax under composition scheme for the remainder of the year, i.e. till 31st March?
(Study Material) Ans. No. The option to pay tax under composition scheme lapses from the day on which the aggregate turnover of the person
availing composition scheme during the financial year exceeds the specified limit (1 crore). He is required to file an intimation for withdrawal from the scheme in prescribed form within 7 days from the day on which the threshold limit has been crossed.
23. What are the penal consequences if a taxable person violates the conditions prescribed for composition scheme?
(IDTC FAQ) Ans. Following are the consequence for non-compliance with the conditions specified therein:
1. Such supplier shall be liable to pay additional taxes at the rates applicable to regular taxable person; 2. Such supplier shall be liable to penalty; and
84 The additional amount of tax and consequent penalty shall be recovered in terms of Section 73 & 74 of CGST Act, 2017.
Other Problems 24. Determine whether the supplier in the following cases are eligible for composition levy provided their turnover
in preceding year does not exceed Rs. 1 Crore *: (i) Mohan is engaged in providing legal services in Rajasthan and is registered* in the same State. (ii) Sugam Manufacturers has registered offices in Punjab and Haryana and supplies goods in neighbouring
States. (Study Material)
Ans. (i) A supplier of services engaged in the supplies other than the supplies referred to in Para 6(b) of Schedule II of CGST Act i.e. supply by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink, is not eligible for composition levy. Since Mohan provides legal services, he is not eligible for composition scheme.
* Author’s Note: There seems to be unintentional drafting mistake in the question. Legal services are under RCM and person providing services covered under RCM is not liable to take registration. Thus, Mohan must be an unregistered person. .
Since mistake seems to be unintentional, the above answer has been reproduced as it as keeping the basic spirit of question in mind, i.e., eligibility of supplier of service for composition levy.
Students may do same in their exams. If they wish, they can mention a clear working note. .
(ii) Since supplier of inter-State outward supplies of goods is not eligible for composition levy, Sugam Manufacturers is not eligible for composition levy.
25. Mr. Ram is running a consulting firm and also a readymade garment show room, registered in same PAN. Turnover of the showroom is Rs. 60 lakh and Receipt of the consultancy firm is Rs. 12 Lakh in the preceding financial year. You are required to answer the following:
a) Mr. Ram is eligible for Composition Scheme? b) Whether it is possible for Mr. Ram to opt for composition only for Showroom? c) Rework, if Mr. Ram is running a restaurant and well as readymade garment show room, whether he is
eligible for composition? d) If the turnover of garment showroom is 75 Lakh in the preceding financial year and there is no consulting
firm whether he is eligible for Composition? (ICMA Study Material)
Ans. a) Mr. Ram is providing services (consulting firm providing consultancy services which are chargeable to GST and not exempt supply). The registered person making supply of of such services is not eligible to avail composition scheme. Hence, Mr Ram is not eligible for composition scheme.
b) If a business is ineligible to opt for composition then all other business registered under the same PAN shall automatically ineligible for the composition scheme. So Mr. Ram is not eligible for composition scheme only for showroom.
c) Restaurant services and readymade garments show room are eligible for the composition scheme. Hence Mr. Ram is eligible for Composition Scheme. Since, his aggregate turnover is Rs. 72 lakhs (i.e. less than Rs. One crore – it has been presumed that applicable limit for Mr Ram is 1 crore).
d) Yes, Mr. Ram is eligible for composition scheme as turnover of his firm does not exceed Rs. One crore in the preceding F.Y.
26. Mr. Rahim is dealer who is selling taxable goods, exempted goods and non-taxable goods (i.e. Liquor). His turnover in the preceding financial year is Rs. 35 lakh, Rs. 10 lakh, Rs. 15 lakh goods which are leviable to GST, exempted and non-taxable respectively. Whether MR. Rahim is eligible for Composition Scheme?
(ICMA Study Material)
85 Ans. If a person is selling/supplying the goods, which are not leviable to tax under GST, then he is not eligible to opt for composition
scheme. In this case aggregate turnover in the preceeding FY is not exceeding Rs. One crore, even then, Mr. Rahim is not eligible for
composition Scheme as he is making non-taxable supply of goods. 27. Mr. H registered in Hyderabad, who is selling goods from Telangana to Tamil Nadu. Turnover of Mr. H is Rs. 73
Lakh in the preceding financial year. Whether Mr. H is eligible for Composition? Whether your answer will change if Mr. H is making purchase from Tamil Nadu and selling goods in Telangana?
(ICMA Study Material) Ans. So far as turnover is concerned, Mr H is eligible for composition scheme as his ATO in the preceding FY is not excceding Rs 1
Crore (the applicable limit for Hyderabad). However, since Mr. H is making interstate outward supply, he is not eligible to opt for composition. If Mr. H is making purchase form Tamil Nadu then he is eligible for composition as there is restriction on outward interstate
supply not on inward interstate supply. Miscellaneous 28. From viewpoint of GST, state out differences between Normal taxable person and a composition taxable
person?
Regular / Normal TP Composition TP
Meaning Discharging liability as per Sec 9 of CGST Discharging liability as per Sec 10 of CGST
GSTR-3 (RETURN) - by 20th GSTR-4 (RETURN) - by 18th
86 ANNUAL RETURN ANNUAL RETURN
GSTR-9 (RETURN) - by 31ST Dec GSTR-9A (RETURN) - by 31ST Dec
29. Mr A of UP is a supplier of goods. His only customer is a SEZ unit in state of UP. Whether he can opt for
composition scheme? Ans. No.
Under GST law, supply to SEZ is considered as ‘inter-state supply’ even if location of supplier (UP in given case) and place of supply of goods (UP in given case) are in same state (Sec 7(5)(b) of IGST Act, 2017). Composition scheme is not available to supplier of goods making inter-state outward supply. Thus, Mr A is not eligible to opt for composition scheme.
30. Mr A is supplier of goods making intra-state supplies. He is registered composition supplier. He has obtained an
export order. His CA has advised him to ignore the export order as this will make him ineligible for composition scheme. Is his CA right?
Ans. Yes.
Under GST law, export supply is considered as ‘inter-state supply’ (Sec 7(5)(a) of IGST Act, 2017). Further, as per Sec 10, composition scheme is not available to a person who is engaged in making inter-state supply. Thus, advice of CA to the composition supplier is right.
31. Mr A is manufacturing garments. He sells them intra-state supplies. He is registered as composition supplier.
ZODIAC Ltd. has approached Mr A for manufacture of garments on job-work basis for it. Mr A is finding the proposal attractive as job-work charges offered are quite lucrative (Rs 1,000 per piece) and further it will help him in utilization of his idle production capacity. His CA is against acceptance of this proposal on the reasoning that this will disentitle Mr A from composition scheme. Is his CA is right?
[based on CBEC FAQ] Ans. Yes.
Under GST law, job-work (treatment / processing of goods of other persons) is treated as supply of service (Sec 7(1)(d) of CGST Act read with Schedule II).
.
Further, as per Sec 10, composition scheme is not available to a person who is engaged in making supply of services. Thus, if Mr A (manufacturer supplier of garments) accepts job-work for Zodiac Ltd., then he will become ineligible for composition scheme. Thus, advice of CA to the composition supplier is right.
32. FY 2018-19: First Year of business operation For the cases given below, whether Mr A can opt for composition scheme at time of GST registration
Composition Tax - Supply of Product A: @1% of TO - Supply of Catering Sr: @5% of TO
4. ------ Coaching – 18% Not eligible [Sec 10]
Normal Tax - @18%
5. Product A – 18% Coaching – 18% Not eligible [Sec 10]
Normal Tax - Supply of Product A: @18% - Supply of Coaching Sr: @18%
6. ----- Rest/ Catering – 12% Eligible [Sec 10 read with Removal of difficulty order issued u/Sec 172]
Composition Tax - Supply of Catering Sr: @1% of TO - Supply of service of extending
deposits (which is an exempt service): No GST* (Author’s view)
Interest – Nil (Exempt Supply)
7. ----- Rest/ Catering – 12% Eligible [Sec 10 read with Removal of difficulty order issued u/Sec 172]
Composition Tax - Supply of Catering Sr: @1% of TO - Supply of service of renting of
residential dwelling for use as residence: No GST* (Author’s view)
Residential Renting (RR) – Nil (Exempt Supply)
8. ----- Coaching – 18% Not eligible [Sec 10]
Normal Tax - Supply of Coaching Sr: @18% - Supply of service of renting of
residential dwelling for use as residence: 0 GST* (being exempt)
Residential Renting (RR) – Nil (Exempt Supply)
9. Product A – 18% Interest – Nil (Exempt Supply)
Eligible [Sec 10 read with Removal of
Composition Tax - Supply of Goods: @1% of TO
88 difficulty order issued u/Sec 172]
- Supply of service of extending deposits (which is an exempt service): No GST* (Author’s view)
10. Product A – 18% ------ Eligible [Sec 10]
Composition Tax - Being a trader, he as per amended
provisions is required to pay composition tax only on 1% of TO of taxable supplies of goods. (i.e., for traders only turnover of supply of taxable goods (goods on which tax is payable) shall be considered and not exempt goods)
- Thus, he is required to pay Composition tax only on TO of Product A. [No composition tax is payable on TO of product B]
