Khandhar Mehta & Shah 1 KMS Intellectus # 2 Concept of Composition Scheme under GST Basic requirements under Composition Scheme Flow chart to decide eligibility Calculation of Turnover Procedural Requirement Taxability in case of advances Withdrawal from Composition Scheme Effect on ITC in case of change over Practical Issues KMS/GST/2018-19/02
Basic requirements under Composition Scheme 2 Government has given relief to the small tax payers by way of granting option to them to take registration as composition dealer. Certain relaxations are given to the person opting under composition scheme so that burden of small tax payer can be reduced. Government has also made some special provisions with respect to Composition Scheme which are exclusively applicable to the person opting for paying Tax under the said scheme. Following table shows provisions in brief: Particulars Turnover criteria to be considered for preceding financial year Supply for availing benefit of scheme Availability of Input Tax Credit (ITC) Liability for collection of Tax from recipient Eligibility to opt for Composition Scheme in case of more than one registration under same PAN Specification to be adhered Rs. 75 Lakhs for special category States* and Rs. 1 Crore for other States Benefit of composition scheme is not available in case of supply of: Goods covered under heading 1. 2105 00 00 - Ice cream and other edible ice, whether or not containing cocoa, 2. 2106 90 20 - Pan masala, 3. 24 - All goods, i.e. Tobacco and manufactured tobacco substitutes All Services except services covered under clause (b) of paragraph 6 of Schedule II. Not available to composition dealer Cannot collect Tax from recipient of Supply All the registered persons under same PAN must opt for the said scheme. A Single unit out of the total units registered under same PAN cannot opt for composition scheme individually. * Special category states are Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Himachal Pradesh.
Flow chart to decide eligibility to opt as Composition Dealer 3 Person engaged in supply of Goods Is he supplying goods covered under specified heading? * Yes No Services covered under clause 6(b) of Schedule II? Person engaged in supply of Services No Is he doing any interstate outward supply? No Yes Person is not eligible to opt under Composition Scheme Yes Is he supplying goods through an E-commerce operator? Yes No No Whether Turnover is Rs. 75 Lakhs / 1 Crore? * Goods covered under heading 2105 00 00, 2106 90 20 and 24 Yes Person is eligible to opt under Composition Scheme
Calculation of Turnover for eligibility for the Scheme 4 Person, who fulfills all the criteria for eligibility (as per the above-mentioned flow chart) should calculate turnover to decide eligibility as follows: Turnover for a person providing Taxable Goods as prescribed Services of Schedule - II (6) (b) + Exempt Services Aggregate turnover of taxable supplies + exempt supplies + export of goods / services + interstate supplies of persons having same PAN to be computed on all India basis (Aggregate turnover of all taxable supplies + exempt supplies of goods / services + export of goods / services + interstate supplies of persons having same PAN to be computed on all India basis) Value of Exempt Services From the perspective of composition dealer, we need to calculate turnover twice; one at the time of deciding eligibility and other at the time of payment of GST. At the time of deciding eligibility, person needs to take into account all its establishments which are located in the different States of India. However, at the time of payment of GST, turnover of the relevant State or Union Territory only needs to be taken into account.
Calculation of turnover for payment of Tax under composition scheme is explained below: 5 Turnover to pay GST For Manufacturers For Services of Schedule II (6) (b) Any other eligible supplier 1% of 5% of 1% of Turnover in the State Turnover of Taxable supplies of goods Conditions to be fulfilled There are specified conditions which needs to be followed by registered person once opted for composition scheme:- 1. He is neither a casual taxable person nor a non-resident taxable person; 2. 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, where the option is exercised under sub-rule (1) of rule 3; 3. The goods held in stock by him on the appointed day have not been purchased from an unregistered supplier and where purchased, he pays the Tax under sub-section (4) of section 9; 4. He shall pay Tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both;
5. He was engaged in the manufacture of goods as notified under clause (e) of sub-section (2) of section 10, during the preceding financial year; 6 6. He shall mention the words "composition taxable person, eligible to collect Tax on supplies" at the top of the bill of supply issued by him; and 7. 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. Procedure Required to be followed by Composition Dealer: - A person may opt under Composition Scheme at different point of time and based on the time when he opts for composition scheme there will different effective dates of registration and also he is required to file different Forms. Different requirements which need to be fulfilled along with the applicable time limit is enumerated in the table provided below:
Procedural Requirements 7 Particulars Explanation Form of Intimation to be filed Migration From earlier Tax regime to GST as Composition dealer CMP - 01 (Within 30 days from the appointed day) Form for providing details of Stock CMP - 03 (90 days from the date of exercising the option) Effective Date 01.07.2017 New Registration Taking new registration under GST as composition dealer Part B of REG - 01 - Date of Registration Roll Over Last year opted as composition dealer and in current year also wants to continue as composition dealer - (As per the provisions of law) Continuing registration Change over Last year opted as Normal dealer and in current year wants to opt as composition dealer CMP - 02 (Prior to the commencement of Financial year) ITC - 03 (180 days from the commencement of Financial year) First day of New Financial Year The above-mentioned procedure is required to be fulfilled by the person at the time of opting under Composition Scheme. However, whether person is eligible to opt under Composition Scheme or not needs to be decided at first; as there are certain other conditions also besides the condition of turnover.
Taxability in case of Advance Received 8 Section 12 and 13 of CGST Act, 2017 contains the provisions for Time of Supply. Time of Supply decides where the payment of Tax is required to be made by the registered person. As provided in the said section, all the registered persons are required to pay Tax on advances received by him. However, the said clause has been amended by way of Notification No. 66/2017 Central Tax dated 15.11.2017 whereby it is stated that normal taxpayers are not required to discharge Tax liability on advances received in respect of goods. It should be noted that the said relaxation is not available for the Composition Dealer and thus taxability for advances will flow as under: Advances received In respect of Goods In respect of Services By Normal Taxpayer By Composition Taxpayer By Normal Taxpayer By Composition Taxpayer# Tax is not required to be paid at the time of receipt of Advance Tax is required to be paid at the time of receipt of Advance # It provides service provider covered under clause (b) of paragraph 6 of Schedule II of CGST Act, 2017
Withdrawal from Composition Scheme 9 Under the following circumstances dealer shall opt out from composition scheme: Withdrawal from Composition Scheme When aggregate turnover exceeds limit i.e. Rs. 1 Crore / 75 lakhs Contravention of any condition prescribed for composition dealer Voluntarily Withdrawal On account of Order passed by officer denying the option to pay tax u/s 10 Proper officer may issue Show Cause Notice if he feels that person is not eligible for composition scheme GST CMP- 05 GST CMP- 06 Registered person needs to give reply to notice within 15 days of issue of SCN Proper officer will issue order within 30 days from receipt of reply either accepting or denying reply GST CMP- 07
Change from Normal Scheme to Composition Scheme: - 10 Person who has availed ITC + Opts to pay Tax u/s 10 Shall pay an amount by debiting Electronic Credit / Cash Ledger Equivalent to the ITC of inputs held in stock, inputs contained in semifinished and finished goods held in stock and capital goods on the day immediately preceding the day of exercising such option Reduced by such % as prescribed by Government Any amount lying in Electronic Credit Ledger after such payment shall lapse. Change from Composition Scheme to Normal Scheme:- When a registered person ceases to pay tax u/s 10 Shall be entitled to take Input Tax Credit In respect of inputs held in stock, inputs contained in semi - finished and finished goods held in stock In respect of capital goods as reduced by such % as prescribed by Government On the day immediately preceding the date from which he becomes liable to pay Tax as normal tax payer
Practical issues 11 Where a person has opted to pay Tax under composition scheme, whether he is required to pay Tax on the value of advances received from customer for supplying goods? Yes, person who has opted to pay Tax under composition scheme is not required to pay Tax on advances received by him for supply of goods. Government has issued Notification No. 66/2017 - Central Tax dated 15.11.2017 which exempts the registered persons other than the persons who opted to pay Tax u/s 10 from payment of GST on advances received by him for supply of goods. Government has expressly excluded the composition dealer from exemption given vide afore mentioned Notification. Thus, composition dealer is required to pay Tax on all advances received by him. Further, as stated in notes to GSTR-4 under return Rules, it is stated that Table 6 of the said form shall capture the details of outward supplies including advance and net of goods returned during the current tax period. Accordingly, in case of Tax has been paid on advances, then the same should be reported in Table 6 of GSTR-4. A person who was paying Tax under composition scheme in the preceding financial year and wants to continue as composition dealer in the current financial year, whether he is required to fill CMP-02 for current financial year? Rule 5 (2) of CGST Rules, 2017 provides as under: "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 these rules." As per the above mentioned rule, person who wants to continue under composition scheme needs not to file fresh intimation every year. However, as of now portal is providing option to file
intimation to the persons who are already paying Tax under composition scheme. So, prudently it is will be advisable to file intimation again before the commencement of financial year. 12 Registered person paying Tax under normal scheme; wants to opt for composition scheme and has reversed ITC in respect of stock held by him. What will be the situation of credit after such payment? Once person has paid amount as required to be paid by him in respect of stock held on the date immediately preceding the day of exercising the option by way of debit in Electronic Credit Ledger or Electronic Cash Ledger, any amount lying in Electronic Credit Ledger shall lapse as per Sec: 18(4) of CGST Act, 2017. Meaning thereby there will not be any balance of credit lying in ITC leger. Supplier registered in State of Gujarat supplies goods within Gujarat only. However, for supplying the said goods he sends semi-finished goods for further processing to registered job worker located in Maharashtra. After completing the process, job worker sends back goods to supplier located in Gujarat and then supplier sells the said goods within Gujarat. Whether the goods sends for job work by supplier results in outward supplies and whether he can opt for composition scheme or not? In the instant case, goods sent by supplier to job worker outside Gujarat State will not be considered as outward supply'. Accordingly, supplier fulfills the conditions in respect of intrastate supply of goods. If other conditions in addition to the condition of intra-state sale of goods are fulfilled by supplier, then he can very well opt for composition scheme. Mr. A who has opted to pay Tax under composition scheme and has availed legal services from advocate. Whether he is liable to pay Tax under RCM and if yes then at what rate of Tax shall be applied? Yes, Mr. A has to discharge Tax under RCM in case services are received from advocate. Where Tax needs to be paid under RCM @ 18% on the services received from the advocate. One can t change concessional rate of Tax which applies on outward supply made by composition dealer.
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