Composition Scheme. CA Yashwant J. Kasar B.Com, FCA, DISA, CISA, PMP, FAIA

Transcription

1 Composition Scheme under GST CA Yashwant J. Kasar B.Com, FCA, DISA, CISA, PMP, FAIA

2 General Principles applicable to composition schemes In State of Kerala v. Builders Association of India 104 STC 134 = AIR 1997 SC 3640 = (1997) 2 SCC 183 = 1997 AIR SCW 977, it was held that Government can evolve a convenient, hassle-free and simple method, which is 'rough and ready method', at the option of assessee (termed as 'taxable person' under GST). It was held that legislature can evolve such alternate, simplified and hassle-free methods of assessment, making it optional to assessee (termed as 'taxable person' under GST). - In the field of taxation, legislation must be allowed greater 'play in joints'. Allowance must be made for 'trial and error' by the legislature Contractor who has opted to the alternate method of taxation cannot complain. Having voluntarily, and with the full knowledge of the alternate method of taxation, opted to be governed by it, a contractor cannot be heard to question the validity of relevant sub-sections or the rules - followed in Mycon Construction Ltd. v. State of Karnataka 2002 AIR SCW 2156 = 127 STC 105 (SC) * Karnataka State Construction Corporation v. State of Karnataka (2004) 138 STC 75 (Kar HC DB) - same view in Punjab Bearings Industries v. UOI 2006 (203) ELT 187 (P&H HC DB) * T Shivkumar v. CCT (2010) 31 VST 261 (Karn HC DB). CA YASHWANT J. KASAR 2

3 Once a dealer (termed as 'taxable person' under GST) opts for composition of tax, he is not entitled to claim any other exemption - T H Venkate Gowda v. CCT (2007) 5 VST 553 (Karn HC DB) * Bhadauria Gram Sewa Sansthan v. ACST (2006) 148 STC 356 (All HC FB) * DCCT v. B V Subba Reddy(2010) 31 VST 530 (Karn HC DB). CA YASHWANT J. KASAR 3

4 Who can OPT for Composition Scheme A Registered person whose aggregate turnover in the preceding financial year did not exceed 75 lakh rupees, (The Government, by notification and with recommendation of Council, is empowered to increase this threshold limit up to Rs.1 crore).in its meeting held on 18th June, 2017, the GST Council has recommended that the turnover limit for Composition Levy for CGST and SGST purposes shall be Rs.50 lakh in respect of the following Special Category States namely: 1. Arunachal Pradesh, 2. Assam, 3. Manipur, 4. Meghalaya, 5. Mizoram, 6. Nagaland, 7. Sikkim, 8. Tripura, and 9. Himachal Pradesh The turnover limit for Composition Levy for CGST and SGST purposes for Uttarakhand and the State of Jammu & Kashmir will be Rs.75 lakh. CA YASHWANT J. KASAR 4

5 Subject to turnover limits prescribed a Registered person may opt to pay under composition scheme if: He is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II; 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 (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration (food/restaurant services) He is not engaged in making any supply of goods which are not leviable to tax under this Act; Hence, suppliers supplying alcoholic liquor for human consumption, petroleum crude, high speed diesel, motor spirit (petrol), natural gas and aviation turbine fuel, or making inter-state outward supply of goods on which tax is levied under IGST Act are apparently not eligible for composition scheme. He is not engaged in making any inter-state outward supplies of goods; He is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and CA YASHWANT J. KASAR 5

6 Subject to turnover limits prescribed a Registered person may opt to pay under composition scheme if: He is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council. In its meeting held on the GST Council has recommended that manufacturers of the following goods shall not be eligible for composition levy: Sr. No. Classification(Tariff item/chapter) Description Ice cream and other edible ice, whether or not containing cocoa Pan Masala Tobacco and manufactured tobacco substitutes 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 unless all such registered persons opt to pay tax under composition scheme. CA YASHWANT J. KASAR 6

7 How to calculate aggregate turnover for Rs. 75 lakh limit Aggregate turnover is defined under Sec.2(6) as "aggregate turnover" means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-state supplies of persons having the same Permanent Account Number, to be computed on all India basis i.e.in all business verticals in a state and all other States and UT but excludes central tax, State tax, Union territory tax, integrated tax and cess; CA YASHWANT J. KASAR 7

8 Rates of taxes under Composition Scheme Manufacturer-other than manufacturer of goods notified by Government Food/restaurant services- other than alcoholic liquor for human consumption 2% (CGST+SGST) 5% (CGST+SGST) Any other eligible supplier like Trader 1% (CGST+SGST) CA YASHWANT J. KASAR 8

9 Composition Tax payable even on exempted goods also - The tax is payable on 'turnover'. Thus, tax is payable even on goods which are exempt from GST (like milk, food grains etc.). This should be kept in mind. Who is 'manufacturer : "Manufacture" means processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use and the term "manufacturer" shall be construed accordingly - section 2(72) of CGST Act. Thus simple activities like packing, re-packing, labelling, testing, repairs, mixing etc. will not qualify as 'manufacture'. CA YASHWANT J. KASAR 9

10 Certain more conditions and restrictions for composition levy A taxable person cannot opt under composition scheme, say for supply of one class of goods and opt for regular scheme of payment of taxes for supply of other classes of goods or services. The scheme is qua taxable person and not qua class of goods Applicable on all transaction on a single PAN whether registered as separate business vertical or registered in separate State/UT A casual taxable person or a non resident taxable person cannot opt for composition scheme. He shall be liable to pay tax under Reverse Charge Mechanism both under Sec.9(3) and Sec.9(4) at regular rate of tax and NOT at composition rate In case of migration of existing registration into GST- the goods held in stock by him on the appointed day have not been purchased in the course of inter-state trade or commerce or imported from a place outside India or received from his branch situated outside the State or from his agent or principal outside the State The goods held in stock by him have not been purchased from an unregistered supplier and where purchased, he pays the tax under sub-section (4) of section 9 i.e. under Reverse Charge CA YASHWANT J. KASAR 10

11 Certain more conditions and restrictions for composition levy Taxable person opting to pay tax under the composition scheme shall not collect tax on the outward supplies. Taxable person opting to pay tax under the composition scheme will not be eligible to claim any input tax credits including the Tax paid by him under reverse charge The taxable person shall not affect any inter-state outward supplies. This means that even stock transfers to branches outside the State would not be permitted. However, insofar as it relates to inter-state inward procurements / receipts, there is no restriction except where migrating from existing registration. He shall 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 Customer who buys goods from taxable person who is under composition scheme is not eligible for composition input tax credit. CA YASHWANT J. KASAR 11

12 Composition option can be exercised in three possible scenarios Various Scenarios of opting the scheme 1 The taxable person migrating to GST from current regime 2 The person taking NEW registration under GST 3 A registered person under GST opting for Composition scheme How to opt Can opt by filing FORM GST CMP-01 not later than 30 days from the Appointed date. Can opt at the time of obtaining registration in Part B of FORM GST REG-01 Can opt by filing FORM GST CMP-02 prior to commencement of F.Y. for which option is exercised Effective date Effective from Appointed date Effective form the date of registration Effective from the beginning of the financial year CA YASHWANT J. KASAR 12

13 Where the intimation in form GST CMP-01 is filed after , the registered person shall not collect any tax from but shall issue bill of supply for supplies made after the said day - proviso to rule 3(1) of CGST Rules, 2017 In case of fresh registration, the intimation will be effective from date when he becomes liable to registration, if application filed within 30 days from the day he becomes liable to register i.e. retrospective effect. If application for fresh registration is filed beyond 30 days after he become liable for registration, the registration will be effective only on the date registration is granted i.e. prospective. This is provided in rule 10 of CGST Rules, CA YASHWANT J. KASAR 13

14 Invoices A registered person opting for composition scheme shall not issue a tax invoice. He shall issue a BILL OF SUPPLY (Sec.31 (3) (c)) containing various details as given below (Rule-4) Name, address and GSTIN of the supplier; A consecutive serial number not exceeding sixteen characters, in one or more multiple series, containing alphabets or numerals or special characters -hyphen or dash and slash symbolized as "-" and "/"respectively, and any combination thereof, unique for a financial year; Date of its issue; Name, address and GSTIN or UIN, if registered, of the recipient; HSN Code of goods or Accounting Code for services; Description of goods or services or both; Value of supply of goods or services or both taking into account discount or abatement, if any; and CA YASHWANT J. KASAR 14

15 Invoices Signature or digital signature of the supplier or his authorized representative: 1. The registered person may not issue a bill of supply if the value of the goods or services or both supplied is less than two hundred rupees subject to the following condition that a. the recipient is not a registered person; and b. The recipient does not require such invoice, and shall issue a consolidated tax invoice for such supplies at the close of each day in respect of all such supplies. Every registered person opting for composition scheme shall mention the words "composition taxable person, not eligible to collect tax on supplies" at the top of the bill of supply issued by him. CA YASHWANT J. KASAR 15

16 Accounts & Records A registered person opting for composition scheme shall maintain all records as prescribed under Sec. 35 & 36 and in Accounts and records Rules. Some relaxations are given to them like non-preparation of register of tax invoice issued/received / input credit availed etc. CA YASHWANT J. KASAR 16

17 Returns Quarterly returns prescribed to be filed by 18th of the month succeeding the Quarter in Form GSTR-4 The registered person shall make payment of tax no later than the last date on which he is required to of file the return Returns to be furnished for every tax period whether or not any supplies of goods or services or both have been made during such tax period. The registered person shall furnish one annual return for every financial year electronically on or before 31st December following the end of such financial year in Form GSTR-9A. Proper officer may cancel registration the if the person opting for composition scheme does not furnish return for three consecutive tax period i.e. 3 quarters. (Sec 29(2)(b)) CA YASHWANT J. KASAR 17

18 Transitional Provisions Any registered person migrating from existing system to GST and opting to pay tax under Sec.10 i.e. under Composition Scheme cannot carry forward the balance of CENVAT credit/ eligible duties in the returns relating to the period ending the day immediately preceding the appointed day in the GST regime. Further A registered person, who was either paying tax at a fixed rate or paying a fixed amount in lieu of the tax payable under the existing law shall NOT be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day Any migrating registered person who opt for Composition levy under section 10 shall furnish the details of stock, including the inward supply of goods received from unregistered persons, held by him on the day preceding the date from which he opts to pay tax under the said section, electronically, in FORM GST CMP-03, on the Common Portal within sixty days of the date from which the option for composition levy is exercised or within such further period as may be extended by the Commissioner in this behalf. CA YASHWANT J. KASAR 18

19 Withdrawal/Cancellation of Permission 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. Once granted, the eligibility would be valid so long as he satisfies all the conditions mentioned in the said section and composition rules unless the permission is cancelled or is withdrawn or the person becomes ineligible for the scheme. The option of composition availed of by a registered person under Sec 10 shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified or due to non-compliance of any of the eligibility conditions prescribed in Sec 10 and the composition rules and he may also opt out of composition scheme at his will and from that day normal provisions of GST taxability will apply and he will issue Tax invoice for every taxable supply and he shall also file an intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days of occurrence of such event. CA YASHWANT J. KASAR 19

20 Withdrawal/Cancellation of Permission Where the proper officer has reasons to believe that the registered person was not eligible to pay tax under section 10 or has contravened the provisions of the Act or these rules, he may issue a notice to such person in FORM GST CMP-05 to show cause within fifteen days of the receipt of such notice as to why option to pay tax under section 10 should not be denied and may pass an order in FORM GST CMP-07 for cancellation of permission after giving opportunity to the registered person and demanding the following: Differential tax and interest viz., tax payable under the other provisions of the Act after deducting the tax paid under composition scheme Penalty determined based on the demand provisions under Section 73 or 74. The registered person shall file a statement in FORM GST ITC-01 containing details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date on which the option is withdrawn or denied, within 30 days, from the date from which the option is withdrawn or from the date of order passed in FORM GST CMP-07. CA YASHWANT J. KASAR 20

21 List of from Composition Formats/Forms Sr. No. Form No. Description 1. GST CMP-01 Intimation to pay tax under section 10 (composition levy) (Only for persons registered under the existing law migrating on the appointed day) 2. GST CMP-02 Intimation to pay tax under section 10 (composition levy) (For persons registered under the Act) 3. GST CMP-03 Intimation of details of stock on date of opting for composition levy (Only for persons registered under the existing law migrating on the appointed day) 4. GST CMP-04 Intimation/Application for withdrawal from composition Levy 5. GST CMP-05 Notice for denial of option to pay tax under section GST CMP-06 Reply to the notice to show cause 7. GST CMP-07 Order for acceptance / rejection of reply to show cause notice CA YASHWANT J. KASAR 21

22 Switching from composition scheme to normal scheme of payment of tax Section 18(1)(c) of CGST Act states that if taxable person switches over from composition scheme to normal scheme, he is entitled to take credit of input tax in respect of inputs held in stock, 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 section 9 of CGST Act. Following persons will shift from composition scheme to normal scheme - (a) who has furnished an intimation under rule 6(2) or (b) filed an application for withdrawal under rule 6(3) or (c) a person in respect of whom an order of withdrawal of option has been passed in form GST CMP-07 under rule 6(5) rule of CGST Rules, A person switching to normal scheme will have to file a statement in form GST ITC-01, containing details of the stock of inputs and inputs contained in semifinished or finished goods held in stock by him on the date on which the option is withdrawn or denied. The statement should be filed within 30 days from the date from which the option is withdrawn or from the date of order passed in form GST CMP-07, as applicable - rule 6(6) of CGST Rules, CA YASHWANT J. KASAR 22

23 Switch over from normal scheme to composition scheme Section 18(4) of CGST Act states that if any registered person who has availed of input tax credit opts to pay tax under section 10 of CGST Act he shall pay an amount 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, on the day immediately preceding the date of exercising of such option. He shall also pay amount on capital goods, reduced by prescribed percentage points. He should pay the amount, by way of debit in the electronic credit ledger or electronic cash ledger. The mode of calculation has been specified in rule 44 of CGST and SGST Rules, If the taxable person switches from normal scheme to composition scheme at the beginning of financial year and if he was paying tax under normal scheme upto 31st March, he will have to file details of outward and inward supplies upto return of following September or furnishing of Annual return, whichever is earlier - Rule 62(4) of CGST and SGST Rules, However, he will not be eligible to take Input Tax Credit of invoices or debit notes from supplier prior to his opting for composition scheme - proviso to Rule 62(4) of CGST and SGST Rules, CA YASHWANT J. KASAR 23

24 Rule 44: Manner of reversal of credit under special circumstances The amount of input tax credit relating to inputs held in stock, inputs contained in semi-finished and finished goods held in stock, and capital goods held in stock shall, for the purposes of sub-section (4) of section 18 or sub-section (5) of section 29, be determined in the following manner, namely, a) for inputs held in stock and inputs contained in semi-finished and finished goods held in stock, the input tax credit shall be calculated proportionately on the basis of the corresponding invoices on which credit had been availed by the registered taxable person on such inputs; b) for capital goods held in stock, the input tax credit involved in the remaining useful life in months shall be computed on pro rata basis, taking the useful life as five years. CA YASHWANT J. KASAR 24

25 Illustration: Capital goods have been in use for 4 years, 6 month and 15 days. The useful remaining life in months= 5 months ignoring a part of the month Input tax credit taken on such capital goods= C Input tax credit attributable to remaining useful life= C multiplied by 5/60 (2) The amount, as specified in sub-rule (1) shall be determined separately for input tax credit of [ central tax, State tax, Union territory tax and integrated tax ]. (3) Where the tax invoices related to the inputs held in stock are not available, the registered person shall estimate the amount under sub-rule (1) based on the prevailing market price of the goods on the effective date of the occurrence of any of the events specified in sub-section (4) of section 18 or, as the case may be, sub-section (5) of section 29. CA YASHWANT J. KASAR 25

26 (4) The amount determined under sub-rule (1) shall form part of the output tax liability of the registered person and the details of the amount shall be furnished in FORM GST ITC-03, where such amount relates to any event specified in sub-section (4) of section 18 and in FORM GSTR-10, where such amount relates to the cancellation of registration. (5) The details furnished in accordance with sub-rule (3) shall be duly certified by a practicing chartered accountant or cost accountant. (6) The amount of input tax credit for the purposes of sub-section (6) of section 18 relating to capital goods shall be determined in the same manner as specified in clause (b) of sub- rule (1) and the amount shall be determined separately for input tax credit of [central tax, State tax, Union territory tax and integrated tax] Provided that where the amount so determined is more than the tax determined on the transaction value of the capital goods, the amount determined shall form part of the output tax liability and the same shall be furnished in FORM GSTR-1. CA YASHWANT J. KASAR 26

27 The Government has brought composition scheme to help small dealers and they have made an effort to reduce the compliance burden on them and also allowed input credit on stocks to persons opting out of the scheme. However the strict condition of not having stock of inter-state purchase/imports at the time of migration for registered persons opting this scheme and composition tax is payable even on goods which are exempt from GST may remain a deterrent. CA YASHWANT J. KASAR 27

28 Thank You! CA Yashwant J. Kasar B.Com, FCA, DISA, CISA, PMP, FAIA Cell: yashwant@ykc.co.in CA YASHWANT J. KASAR 28