Composition Levy

To reduce the burden of compliance and provide incentives to small businesses etc. supplying taxable goods, the Draft Model GST Law (the Draft Law as revised) through section 9 there under, offers the ‘Composition Levy‘ (the Levy) as an option.

> Read more on ‘Supply’


Important Features of the Levy

  • The Levy is available to registered taxable persons
  • Prior permission from the ‘proper officer’ of the Central or a State Government necessary
  • Such person’s ‘aggregate turnover‘ in the preceding financial year must not have exceeded Rs.50 lacs
  • Pay in lieu of the tax otherwise payable, an amount calculated at such rate (as may be prescribed), but not less than 2.5 percent (for ‘manufacturers’) and 1 percent (any other case) of the ‘turnover in a State’ during the year


Aggregate turnover” has been defined by the Draft Law to mean the aggregate value of all taxable supplies, exempt supplies, exports of goods and/or services and inter-State supplies of a person having the same PAN, to be computed on all India basis and excludes taxes, if any, charged under the CGST Act, SGST Act and the IGST Act, as the case may be.

Explanation- Aggregate turnover does not include the value of inward supplies on which tax is payable by a person on reverse charge basis under sub-section (3) of Section 8 and the value of inward supplies.


Turnover in a State” has also been defined by the Draft Law to mean the aggregate value of all taxable supplies, exempt supplies, exports of goods and/or services made within a State by a taxable person and inter-state supplies of goods and / or services made from the State by the said taxable person excluding taxes, if any charged under the CGST Act, SGST Act and the IGST Act, as the case may be.

Explanation- Aggregate turnover does not include the value of inward supplies on which tax is payable by a person on reverse charge basis under sub-section (3) of Section 8 and the value of inward supplies.

Input tax” in relation to a taxable person, is defined to mean the IGST, including that on import of goods, CGST and SGST charged on any supply of goods or services to him and includes the tax payable under sub-section (3) of section 8, but does not include the tax paid under section 9.

Input tax credit” means credit of ‘input tax’ as defined above.

Inward supply” has also been defined in the Draft Law in relation to a person, to mean the receipt of goods and/or services whether by purchase, acquisition or any other means and whether or not for any consideration.

Outward supply” in relation to a person, is defined to mean supply of goods or services, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other means 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, is defined to mean the officer of goods and services tax who is assigned that function by the Commissioner of CGST / SGST.

Quarter” is defined to mean a period comprising 3 consecutive calendar months, ending on the last day of March, June, September and December of a calendar year.


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The Levy is subject to section 8(3) of the Draft Law, wherein the Central or a State Government may, on the recommendation of the GST Council, by notification, specify categories of supply of goods and/or services the tax on which is payable on ‘reverse charge basis’ i.e. the tax thereon shall be paid by the recipient of such goods and/or services and all the provisions of this Act shall apply to such person as if he is the person liable for paying the tax in relation to the supply of such goods and/or services.

> Read more on GST ‘Registration’


Ineligible and Disqualified Persons

The above said permission and option will not be available to a taxable person –

  • Engaged in the supply of services or
  • Makes any supply of goods which are not leviable to tax under this Act or
  • Makes any inter-State outward supplies of goods or
  • Makes any supply of goods through an electronic commerce operator (required to collect tax at source under section 56) or
  • Manufacturer of such goods as may be notified on the recommendation of the GST Council

It has further provided that no such permission shall be granted to a taxable person unless all the registered taxable persons, having the same PAN (Permanent Account Number as issued under the Income Tax Act 1961 and Rules thereunder) as held by the said taxable person, also opt to pay tax under the said option.

> Read more on ‘Electronic (e)Commerce’


Quarterly GST Returns

A registered taxable person paying tax under the Levy shall be required for each quarter or part thereof (instead of monthly returns), to furnish in such form and manner (as may be prescribed), a return electronically, of inward supplies of goods or services, tax payable and tax paid within 18 days after the end of each such quarter.


Withdrawal of Permission

The above said permission granted to a registered taxable person shall stand withdrawn from the day on which the ‘aggregate turnover’ during a financial year exceeds Rs.50 lacs.


Unavailability of ITC and Penalty

A registered taxable person under the Levy cannot collect any GST tax from the recipient on supplies made nor shall such person be entitled to any credit of ‘input tax’ (ITC) paid.

Furthermore, if the proper officer has reasons to believe that a taxable person was not eligible to avail the option but did so, such person shall, in addition to any tax that may be payable by him under other provisions of this Act, be liable to a penalty and the provisions of section 66 or 67, as the case may be, shall apply mutatis mutandis for determination of tax and penalty.

 

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