JUNE 10, 2019

By Hiral Raja

PRIOR to introduction of GST, majority of the State VAT Acts had composition schemes for small taxpayers selling their goods to end consumers. The most striking feature of a composition scheme is small taxpayers are not burdened with huge compliance requirements. They do not take any input tax credit and pay tax as a percentage to the total turnover. However, under VAT, different states had different turnover limits for small taxpayers to opt for composition schemes.

Hence, at the time of introduction of GST, there was clear thought that there will be a need for composition scheme especially for small taxpayers supplying their goods/services to end consumers and there can be a single turnover limit for all states (other than the special category states for whom there can be a separate limit). Accordingly, section 10 was enacted in the CGST Act, 2017 providing for a composition scheme mainly for such traders/manufacturers of goods. This scheme was subsequently modified to increase the turnover limit as well as to provide for certain basic turnover of services also to be included in the turnover limit for such traders/manufacturers of goods.

Composition Scheme u/s. 10:

- This scheme can be opted by a taxpayer in lieu of normal GST registration (i.e. availment of GST credit and payment of output tax) as per provisions of section 9(1) of the CGST Act, 2017.

- Applicable to a registered taxpayer whose aggregate turnover in the previous financial year does not exceed Rs. 1.5 crores However, in case of following States, this scheme is applicable to a registered taxpayer having aggregate annual turnover in the previous financial year not exceeding Rs. 75 lacs:

- Arunachal Pradesh;

- Manipur;

- Meghalaya;

- Mizoram;

- Nagaland;

- Sikkim;

- Tripura;

- Uttarakhand

- Such registered taxpayer may supply services of value not exceeding 10% of the turnover in the State/Union Territory in the previous financial year or five lakh rupees, whichever is higher. This indicates that in case service component is lower and/or is incidental to the main trading/manufacturing of goods and is within the limits laid down herein, then such trader/manufacturer can participate in the composition scheme.

- Such registered tax payer would not be eligible to opt for composition scheme, if:

- He is engaged in making supply of non-taxable goods.

- He is engaged in any interstate outward supplies of goods.

- He is engaged in supply of goods through an electronic commerce operator required to collect tax at source.

- He is a manufacturer of certain notified goods like ice-cream, edible ice, pan masala, tobacco and manufactured tobacco substitutes.

- Such taxpayer must pay tax as under:

- Such registered taxpayer shall not collect any tax from recipient on supplies made by them nor shall they be entitled to any credit of input tax.

- This scheme is mainly for manufacturers and suppliers of goods having turnover below Rs. 1.5 crores only and having some incidental/small component of services in the turnover.

In order to ensure that small services providers as well as providers of services with some portion of goods also get advantage of composition scheme, Government notified another composition scheme vide Notification No. 02/2019 dtd. 07th March 2019 - Central Tax (Rate).

Composition Scheme notified vide notification No. 02/2019:

- This scheme is applicable to registered taxpayers having supplies of goods or services or both upto an aggregate turnover of Rs. 50 lakhs made on or after 01st April.

- This scheme is applicable to only those registered taxpayers:

- Whose aggregate turnover in previous financial year was fifty lakhs or below;

- Not eligible to pay tax in the composition scheme laid down in 10(1) of the CGST Act;

- Not engaged in interstate supply of goods

- Not engaged in supply of non-taxable goods

- Neither a casual taxable person nor a non-resident taxable person

- Not engaged in making any supply through electronic commerce operator required to collect tax at source u/s. 52;

- Not engaged in supply of certain notified goods like ice-cream, edible ice, pan masala, tobacco and manufactured tobacco substitutes.

- Registered taxpayers under this scheme have to pay tax at the rate of 6% (CGST + SGST) on value of taxable supplies.

- Registered taxpayers under this scheme cannot collect any tax from the recipient on supplies made by him nor shall he be entitled to input tax credit.

- Registered taxpayers shall issue a bill of supply instead of tax invoice mentioning on the top of the bill of supply namely - 'taxable person paying tax in terms of notification No. 2/2019 - Central Tax (Rate) dtd. 07.03.2019.'

- Such registered taxpayers shall continue to pay tax under reverse charge mechanism.

Hence, it is pertinent to note that while there are two composition schemes available for registered taxpayers, a registered taxpayer needs to verify whether he is eligible to Composition scheme under the first scheme i.e. Composition scheme u/s. 10(1) of the CGST Act, 2017. In case he is eligible, then he needs to avail the composition scheme specified u/s. 10(1) of the CGST Act, 2017, since it is more beneficial (tax rate is lower).

In case registered taxpayer is not eligible to avail the first composition scheme, only then he needs to verify whether he is eligible under the second scheme i.e. composition scheme notified vide Notification No. 02/2019 dtd. 07th March 2019 - Central Tax (Rate). In case he is eligible, then he needs to avail the composition scheme laid down vide Notification No. 02/2019 dtd. 07th March 2019 - Central Tax (Rate). In case he is ineligible under this scheme also, then he has no choice but to pay tax as per the provisions of section 9(1) of the CGST Act 2017 by taking normal GST registration (i.e. by availment of GST credit and payment of output tax).

(The views expressed are strictly personal.)