‘Composition Levy’ (the Scheme) is expressed as an alternative method for levy of tax* under the recently passed CGST Act, designed for small taxpayers with turnover within the prescribed limit and subject to other conditions (see below). The Scheme seeks to reduce the burden of regulatory compliance, impose lower rates of taxation and provide incentives to the said small businesses etc. engaged in the supply of taxable goods.
*Tax is required to be paid on ‘reverse charge’ basis by the recipient of such categories of goods or services (or both) as notified for such purposes.
*CGST on supply of ‘taxable goods or services’ (or both) by an unregistered supplier to a registered person, is required to be paid by the latter recipient on ‘reverse charge’ basis.
Section 2 of the Central Goods and Services Tax Act 2017 (CGST Act) lists the various definitions (subject to context) to various key words, terms and phrases, some of which for the purpose of ‘composition levy‘ have been provided below ––
“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 but excludes central tax, State tax, Union territory tax, integrated tax and cess.
“Electronic commerce” means the supply of goods or services or both, including digital products over digital or electronic network;
“Electronic commerce operator” means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.
“Input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes—
(a) the integrated goods and services tax charged on import of goods;
(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;
(c) the tax payable under the provisions of sub-section (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;
(d) the tax payable under the provisions of sub-section (3) and sub-section (4) of section 9 of the respective State Goods and Services Tax Act; or
(e) the tax payable under the provisions of sub-section (3) and sub-section (4) of section 7 of the Union Territory Goods and Services Tax Act, but does not include the tax paid under the composition levy;
“Input tax credit” means the credit of input tax.
“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.
“Notification” means a notification published in the Official Gazette and the expressions “notify” and “notified” shall be construed accordingly.
“Output tax” in relation to a taxable person, means the tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis.
“Outward supply” in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business.
“Proper officer” in relation to any function to be performed under this Act, means the Commissioner or the officer of the central tax who is assigned that function by the Commissioner in the Board.
“Quarter” shall mean a period comprising three consecutive calendar months, ending on the last day of March, June, September and December of a calendar year.
“Recipient” of supply of goods or services or both, means—
(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;
(b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and
(c) where no consideration is payable for the supply of a service, the person to whom the service is rendered,
and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied;
“Registered person” means a person who is registered under section 25 but does not include a person having a Unique Identity Number.
“Reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act.
“Supplier” in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied.
“Taxable supply” means a supply of goods or services or both which is leviable to tax under this Act.
“Turnover in State or Turnover in Union territory” 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) and exempt supplies made within a State or Union territory by a taxable person, exports of goods or services or both and inter-State supplies of goods or services or both made from the State or Union territory by the said taxable person but excludes central tax, State tax, Union territory tax, integrated tax and cess.
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Important Features of the Scheme
- Available to a ‘registered’ person (not a ‘casual taxable person’ nor a ‘non-resident taxable person’ and subject to such prescribed conditions and restrictions including applicable ‘Composition Rules‘);
- ‘Aggregate turnover’ in the preceding financial year does not exceed Rs.50 lacs**;
- Such eligible person may opt to pay in lieu of the tax otherwise payable, an amount calculated at such rate as may be prescribed, but not exceeding ––
(a) 1 percent of the turnover in State or turnover in Union territory in case of a manufacturer,
(b) 2.5 percent of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in Schedule II, paragraph 6(b)^ thereunder, and
(c) 0.5 percent of the turnover in State or turnover in Union territory in case of other suppliers.
**The Government may by notification, increase the said limit of Rs.50 lacs to a higher amount, not exceeding Rs.1 crores, as may be recommended by the GST Council.
Other Conditions and Restrictions
The registered person is eligible to opt for the Scheme if such person is ––
- Not engaged in the supply of services (other than supplies referred to in clause (b) of paragraph 6 of Schedule II^);
- Not engaged in making any supply of goods which are not leviable to tax under the Union Act;
- Not engaged in making any ‘inter-State’ outward supplies of goods;
- Not engaged in making any supply of goods through an ‘electronic commerce operator’ (required to collect tax at source under section 52); and
- Not a manufacturer of such goods as may be notified by the Government on the recommendations of the GST Council.
Where more than one registered persons are having the same Permanent Account Number ‘PAN’ (issued under the Income Tax Act 1961), the registered person cannot be eligible to opt for the Scheme unless all such registered persons opt to pay tax accordingly.
^‘Composite 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.
Quarterly GST Returns
A registered person paying tax under the Scheme is required to furnish a quarterly return (instead of monthly) electronically through the ‘Common Portal‘.
Scheme Option Lapse
The Scheme option availed of by a registered person will lapse with effect from the day on which the said aggregate turnover during a financial year exceeds the limit specified (i.e. current limit of Rs.50 lacs).
Non-collection of Tax and ITC Ineligibility
A taxable person under the Scheme is prohibited from collecting any tax from the recipient on supplies made by such person and neither is such person entitled to any credit of ‘input tax’ paid.
Availing Scheme by Ineligible Person and Penalty
Where the ‘proper officer’ has reasons to believe that a taxable person has paid tax under the Scheme despite ineligibility, such person in addition to any tax that may be payable under any other provisions of the Union Act, will be liable to a penalty and the following provisions will apply mutatis mutandis for determination of tax and penalty —
- Section 73 (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful misstatement or suppression of facts) or
- Section 74 (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts).
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