To ease the burden of small business in terms of compliance, under GST a composition scheme has been provided. The GST composition scheme will make compliance with GST laws easy and hassle free. In this chapter, we will go through the various provisions of CGST Act related to a composition dealer. This scheme is beneficial to the dealer who is not supposed to make B2B supplies (Supply to registered person). Some ideal cases for composition scheme may be the shopkeepers, small traders operating within a state and medium and small scale manufacturers.
Section 10 of the CGST Act, 2017 contains the provisions related to composition scheme. In terms of section 21 of the UTGST Act, 2017 provisions related to composition scheme of the CGST Act, 2017 would be applicable to Union Territory tax (UTGST). Composition rules provides for procedural requirements for compliance of composition scheme.
B- ELIGIBILITY CONDITIONS FOR COMPOSITION SCHEME
Composition levy is optional to the registered taxable person. Taxpayer has to make intimation every year in Form CMP-01 to get benefit of composition scheme. Following are conditions, restriction and eligibility criterion for opting composition scheme:
- Aggregate Turnover of the taxpayer shall be Fifty lac or less in the preceding financial year. Aggregate turnover means [Section 2( of the CGST Act] aggregate value of all supplies (inclusive of taxable, exempt, export, services, inter-State etc.) of persons having same PAN number computed on all India basis but excludes Central tax, State tax, Union Territory tax, Integrated tax and cess.
- Even while applying for the composition scheme an undertaking in Form GST Reg 01 is required to given that the turnover will be less than fifty lac in current year also. The option availed for payment of tax under composition scheme shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the specified limit.
- The Government may, by notification, increase the said limit of fifty lakh rupees to such higher amount, not exceeding one crore rupees, as may be recommended by the Council.
- Composition scheme is available only to supply of goods only. It is not available for supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II. This part covers the restaurant services. In other words, services are not eligible for composition scheme except the restaurant services.
- The taxpayer shall not be engaged in making any supply of goods which are not leviable to tax under this Act. Taxpayers dealing in supplies not covered in this Act will not be eligible for the composition scheme.
- The taxpayer shall not be engaged in making inter-State supply.
- The taxpayer shall not be engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52.
- The taxpayer shall not be a manufacturer of notified goods.
- Where more than one registered persons are having the same Permanent Account Number (issued under the Income-tax Act, 1961), the registered person shall not be eligible to opt for the scheme under sub-section (1) unless all such registered persons opt to pay tax under that sub-section. All the persons under one PAN will have to opt the composition scheme. If any of them decide to go for normal taxation, other persons will become ineligible for the composition scheme.
- Composition scheme is neither available to casual taxable person nor to non-resident taxable person.
C- RATES OF COMPOSITION SCHEME
Payment of tax under the composition scheme wifi be dependent on the output supply made by taxpayer. They are required to make payment at the prescribed rates but not exceeding:
(a) one per cent of the turnover in State or turnover in Union territory in case of a manufacturer,
(b) two and a half per cent of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II i.e. restaurant services and
(c) half per cent of the turnover in State or turnover in Union territory in case of other suppliers,
This amount is payable under the CGST law. Same amount will be payable under the relevant SGST or UTGST law also. Final liability on a composition taxpayer will be double of prescribed rate.
D- COMPLIANCE PROCEDURE FOR TRANSITION
Intimation in Form CMP-01: In terms of registration rules and section
139 of the CGST Act provisional registration certificate will be given on appointed day to every person registered under any of pre-GST regime laws. Any person who has been granted registration on a provisional basis and who opts to pay tax under section 10, shall electronically file an intimation in Form GST CMP-0l within 30 days of the appointed day.
No tax collection from appointed date: where the intimation in Form GST CMP-01 is filed after the appointed day, the registered person shall not collect any tax from the appointed day but shall issue bill of supply for supplies made after the said day.
Restriction on stock:
E- COMPLIANCE REQUIREMENT FOR COMPOSITION SCHEME
Option in Form GST REG 01: Composition scheme can be opted in application form for registration GST Reg 01.
Intimation: Any registered person who opts to pay tax under section 10 shall electronically file intimation in Form GST CMP-02, prior to the commencement of the financial year for which the option to pay tax under the aforesaid section is exercised.
The registered person paying tax under section 10 may not file a fresh intimation every year and he may continue to pay tax under the said section subject to the provisions of the Act and Composition rules.
Switching over from composition scheme to normal Scheme: If a taxable person paying tax on compounding basis crosses the compounding threshold and becomes a regular taxable person, then he can avail ITC in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he becomes liable to pay tax under normal scheme and to avail credit aforesaid he shall furnish the statement in Form GST ITC-0l within 30 days of becoming eligible to take ITC. Such credit shall not be eligible to take credit of any supply after expiry of once year from the date of invoice.
ITC on capital goods shall be claimed after reducing 5% points per quarter of year or part thereof from the date of invoice or such other documents on which capital goods were received by the taxable person.
Details in ITC 01 need to be certified by A practicing Chartered Accountant or Cost Accountant if the aggregate value of claim on account of central tax, state tax and integrated tax exceeds two lakh rupees.
In case taxable persons ceases to be composition dealer and need to pay tax under normal scheme than Form GST CMP-04 has to be filed within 7 days.
Details of opening stock: Details of stock, including the inward supply of goods received from unregistered persons, held by the person opting for composition scheme on the day preceding the date from which he opts to pay tax under the said section, in Form GST CMP-03 within sixty days of exercising the option to pay tax in composition scheme.
Bill of Supply: Taxable person opted for composition scheme has to issue “Bill of supply” as document evidencing the supply. The words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued.
Display: Composition dealer should mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.
F- LIABILITY TO DEPOSIT GST ON REVERSE CHARGE
The provisions of this section are subject to section 9(3) and 9(4) of the CGST Act. These sections provide for the liability of recipient to deposit GST in case of reverse charge and for purchase from unregistered supplier. It makes a composition dealer liable to pay GST in case of reverse charge or for purchases made from an unregistered dealer.
G- DISADVANTAGES OF COMPOSITION SCHEME
No utilization of input tax and collection of tax: A taxable person registered under the composition scheme will not be eligible to avail or utilize the input tax credit. Also he will not be eligible to collect any amount of tax from his customers. Final burden of amount payable by a composition dealer will be borne by him.
Liability to pay for ineligibility: If the proper officer has reasons to believe that a taxable person has paid tax under sub-section (1) despite not being eligible, such person shall, in addition to any tax that may be payable by him under any other provisions of this Act, be liable to a penalty and the provisions of section 73 or section 74 shall, mutatis mutandis, apply for determination of tax and penalty.
H- SWITCHING OVER FROM NORMAL LEVY TO COMPOSITION SCHEME
Where any registered person who has availed of input tax credit opts to pay tax under section 10. He shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi finished or finished goods held in stock and on capital goods, reduced by such percentage points as prescribed in ITC rules, on the day immediately preceding the date of exercising of such option and such information shall be furnished in ITC-03.