GST - Pinnacle - Composition Scheme

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CA Intermediate – May 2019
Intermediate – May 2019
GST
No.
8
Chapters
Pg. No.
Composition Scheme
By
Prof. Jimit Doshi
ID-T
Page | 197
CA Intermediate – May 2019
Composition Scheme
Section 10 – Composition Levy
1) Who can opt for Composition Scheme

A registered person whose turnover is below Rs 1 crore can opt for Composition Scheme. In case
of North-Eastern states and Himachal Pradesh, the limit is now Rs 75 lakh.

Turnover of all businesses registered with the same PAN should be taken into consideration to
calculate turnover.
Notification No. 8/2017 – Central Tax (as amended by N/N 46/2017)
- Prescribed limit - Rs 1 Crore,
For following States – Prescribed limit – Rs 75 Lakhs
(i) Arunachal Pradesh,
(ii) Assam,
(iii) Manipur,
(iv) Meghalaya,
(v) Mizoram,
(vi) Nagaland,
(vii) Sikkim,
(viii) Tripura,
(ix) Himachal Pradesh
It is notable that Uttarakhand and J&K does not figure for lower limit
2) What are the GST rates for a composition dealer?

Following chart explains the rate of tax on turnover applicable for composition dealers :
Rate of
Composition
ID-T
In case of
CGST
SGST / UTGST
Total rate
Traders*
0.5%
0.5%
1%
Manufacturers
0.5%
0.5%
1%
Restaurant services
2.5%
2.5%
5%
≈ % of Turnover in a State / UT
≈ As per notification dated 01.01.2018, turnover in case of traders has been
defined as ‘Turnover of taxable supplies of goods’.
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CA Intermediate – May 2019
Section 2(6) - "Aggregate turnover"
Section 2(112) - "Turnover in State / UT"
MEANS - the aggregate value of all
a) Taxable supplies (excluding the value of
inward supplies on which tax is payable
by a person on reverse charge basis),
b) Exempt supplies
c) Exports
d) Inter-state supplies
- of a person having the same PAN
- to be computed on all India basis
MEANS - the aggregate value of all
a) Taxable supplies (excluding the value of
inward supplies on which tax is payable
by a person on reverse charge basis),
b) Exempt supplies made within a State / UT
c) Exports
d) Inter-state supplies
- made from the State / UT by the taxable
person
but excludes Central tax, State tax, Union
but excludes Central tax, State tax, Union
territory tax, Integrated tax and Cess
territory tax, Integrated tax and Cess
For example A dealer ‘X’ has two offices in Delhi. In order to determine whether ‘X’ is eligible to avail benefit
of the composition scheme, turnover of both the offices would be taken into account and if the
same does not exceed Rs 1 Crore, X can opt to avail the composition levy scheme (subject to
fulfilment of other prescribed conditions).
3) How should GST payment be made by a composition dealer?

GST Payment has to be made out of pocket for the supplies made.

In case of reverse charge falling u/s 9(3) [Notified Goods / Services for RCM], composition
scheme cannot be availed

Thus, the GST payment to be made by a composition dealer comprises of the following:
 GST on supplies made.
 Tax on reverse charge
ID-T
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CA Intermediate – May 2019
SECTION 10(2) – CONDITIONS TO BE FULFILLED FOR COMPOSITION SCHEME
1) Eligible registered person who can opt for Composition Scheme i.e Ineligible suppliers
The registered person shall be eligible to opt under sub-section (1), if––
Service providers not eligible [except Restaurants and Caterers]
a) he is not engaged in the supply of services other than supplies referred to in clause (b)
of paragraph 6 of Schedule II [i.e restaurant service];
No Non – taxable supply [i.e Alcoholic Liquor for human consumption or petroleum
products]
b) he is not engaged in making any supply of goods which are not leviable to tax under
this Act;
No inter-state sales / transfers [exports barred, as they are inter-state supplies]
c) he is not engaged in making any Inter - State OUTWARD supplies of goods;
No supply through E-Commerce Operator
d) he is not engaged in making any supply of goods through an electronic commerce
operator who is required to collect TCS u/s 52; and
Ice-cream, Pan Masala & Tobacco manufacturers barred
e) he is not a manufacturer of such goods as may be notified by the Government on the
recommendations of the Council
(1)
Ice cream and other edible ice, whether or not containing cocoa
(2)
Pan masala
(3)
Tobacco and manufactured tobacco substitutes
Composition Scheme will apply to all registered person with same PAN
Provided that
… where more than one registered persons are having the same Permanent Account
Number,
… the registered person shall not be eligible to opt for the scheme under sub-section (1)
… unless all such registered persons opt to pay tax under that sub-section.
ID-T
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CA Intermediate – May 2019
a)
DIFFICULY FACED BY SUPPLIERS WHO WISH TO OPT FOR COMPOSITION SCHEME
Order No. 01/2017-Central Tax --- dated 13th Oct, 2017
(i) It is hereby clarified that if a person provides restaurant / outdoor caterer service and also supplies any
Exempt Services including services by way of extending deposits, loans or advances in so far as the
consideration is represented by way of interest or discount, the said person shall not be ineligible for the
composition scheme under section 10 subject to the fulfilment of all other conditions specified therein.
(ii) It is further clarified that in computing his aggregate turnover in order to determine his eligibility for
composition scheme, value of supply of any exempt services including services by way of extending deposits,
loans or advances in so far as the consideration is represented by way of interest or discount, shall not be
taken into account.
e)
Notification No. 8/2017 – Central Tax (as amended by N/N 46/2017)
The registered person shall not be eligible to opt for composition levy u/s 10(1) of the said Act if such person
is a manufacturer of the following goods –
1) Ice cream and other edible ice, whether or not containing cocoa
2) Pan masala
3) Tobacco and manufactured tobacco substitutes
Provided that…
Would be applicable for all transactions under the same PAN
If a taxable person has multiple business verticals and if he has opted for separate registrations for
each such vertical, composition scheme would become applicable for all the business verticals and it
cannot be applied for select verticals only.
For e.g:
If a taxable person has the following businesses separately registered:
— Sale of footwear (Registered in Karnataka)
— Sale of mobiles (Registered in Karnataka)
— Franchisee of McDonalds (Registered in Kerala)
In the above scenario, the composition scheme would be applicable for all the 3 units.
Taxable person will not be eligible to opt for composition scheme say for sale of footwear and sale of mobiles and
opt to pay taxes under the regular scheme for franchisee of McDonalds.
Example - - ABC Industries, a manufacturer in Mumbai, is engaged in supply of goods in Mumbai as well as
Chennai (i.e. inter-State supply of goods).
 Here, ABC Industries cannot enter into the composition scheme as it is effecting inter-State supply
of goods i.e. Chennai.
ID-T
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CA Intermediate – May 2019
Lapse of Composition Scheme on exceeding the specified limit of turnover
The option availed of by a registered person under sub-section (1) shall lapse
… with effect from the day on which his aggregate turnover during a financial year exceeds
the limit specified under sub-section (1).
Cannot charge tax to customer nor can get credit for the same
A taxable person to whom the provisions of sub-section (1) apply
… shall not collect any tax from the recipient on supplies made by him
… nor shall he be entitled to any credit of input tax.
Penalty if the person who was not eligible for Composition Scheme opted for it
- If the proper officer has reasons to believe that a taxable person has paid tax under subsection (1) despite not being eligible,
- such person shall, in addition to any tax that may be payable by him under any other
provisions of this Act,
- be liable to a penalty and the provisions of section 73 or section 74 shall, mutatis
mutandis, apply for determination of tax and penalty.
Automatic
withdrawal
from
Composition
Scheme
 If the aggregate turnover in the preceding financial year of a registered person is
upto Rs 1 Cr / 75 Lakhs, then upto Rs 1 Cr / 75 Lakhs in current financial year,
registered person can avail the benefit of composition scheme.
Shall not
collect tax
 Taxable person opting to pay tax under the composition scheme is prohibited from
collecting tax on the outward supplies.
Not entitled
to ITC
 Taxable person opting to pay tax under the composition scheme will not be eligible
to claim any input tax credits.
Cancellation
of permission
 Where the proper officer has reasons to believe that the taxable person was not
eligible to the composition scheme, the proper officer may cancel the permission and
demand the following:
- Differential tax and interest i.e., 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.
ID-T
Thus, Composition Scheme lapses, if turnover crosses limit – Automatic withdrawal
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CA Intermediate – May 2019
COMPOSITION RULES
Intimation for opting Composition Scheme –
Exercise of Option – Option once exercised for one State / UT = Deemed exercised for all State / UT on PAN India
basis
Particulars
New Registration
Person who applies for
registration [for the first time]
Already Registered and paying
normal tax
Registered person
+
who opts to pay tax under section
10
Form
FORM GST
REG-01 [Part B]
Time frame
Effective date
Date fixed under Rule
10(2) or 10(3) of GST Registration Rules
[i.e Effective Date of
Registration]
FORM GST
CMP-02
FORM GST
ITC-03
Prior to the commencement
of the Financial Year
Furnish a Statement in
respect of its Stock within
60 days from the
commencement of the
relevant FY
Beginning of the
financial year
Rule 5 - Conditions and restrictions for composition levy
(1)
The person exercising the option to pay tax under section 10 shall comply with the following
conditions:
Neither a CTP / NRTP a) He is neither a casual taxable person nor a non-resident taxable person;
Payment of RCM on inward supply u/s 9(3)/9(4) b) He shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of
goods or services or both;
Ice-cream, Pan Masala & Tobacco manufacturers barred for next year c) He was not engaged in the manufacture of goods as notified under section 10(2)(e), during
the PRECEDING FINANCIAL YEAR ;
Title of Bill of Supply d) He 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; and
Display at business premises e) He shall mention the words “composition taxable person” on every notice or signboard
ID-T
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CA Intermediate – May 2019
displayed at a prominent place at his principal place of business and at every additional
place or places of business.
(2)
Option once taken to continue for subsequent years 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.
How Should a Composition Dealer raise bill?

A composition dealer cannot issue tax invoice. This is because a composition dealer cannot charge
tax from their customers. They need to pay tax out of their own pocket.

Hence, the dealer has to issue a Bill of Supply.

The dealer should also mention “composition taxable person, not eligible to collect tax on supplies”
at the top of the Bill of Supply.
Rule 6 - Validity of composition levy
(1)
Validity of option forever The option exercised by a registered person to pay tax under section 10
… shall remain valid so long as he satisfies all the conditions mentioned in the said section
and these rules.
(2)
Conditions violated – Registration, payment of tax and issuance of tax invoice – File intimation
within 7 days The person referred to in sub-rule (1) shall be liable to pay tax under section 9(1) from the day
he ceases to satisfy any of the conditions mentioned in section 10 or these rules
… and shall issue tax invoice for every taxable supply made thereafter and
… he shall also file an intimation for withdrawal from the scheme in FORM GST CMP-04
within 7 days of occurrence of such event.
(3)
Form for withdrawing from scheme The registered person who intends to withdraw from the composition scheme shall,
… before the date of such withdrawal,
… file an application in FORM GST CMP-04, duly signed, electronically on the Common
Portal.
(4)
Notice for withdrawal of scheme and reply within 15 days 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 15 days of
the receipt of such notice as to why option to pay tax under section 10 should not be denied.
(5)
Order on notice seeking withdrawal of scheme Upon receipt of reply to the show cause notice issued under sub-rule (4) from the registered
person in FORM GST CMP-06,
ID-T
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CA Intermediate – May 2019
… the proper officer shall issue an order in FORM GST CMP-07
… within 30 days of receipt of such reply,
… either accepting the reply, or denying the option to pay tax under section 10 from the date of
option or from the date of the event concerning such contravention, as the case may be.
(6)
Details of stock and credit, if option withdrawn Every person who has
 furnished an intimation under sub-rule (2) or
 filed an application for withdrawal under sub-rule (3) or
 a person in respect of whom an order of withdrawal of option has been passed in
FORM GST CMP-07 under sub-rule (5),
… may electronically furnish at the Common Portal, either directly or through a Facilitation
Centre notified by the Commissioner,
… a statement in FORM GST ITC-01 containing details of the stock of
 inputs and
 inputs contained in semi-finished or
 inputs contained in 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, as the case may be.
(7)
Withdrawal applies on PAN – India basis Any intimation for withdrawal under sub-rule (2) or (3) or denial of the option under sub-rule
(5) in respect of any place of business in any State or Union territory,
… shall be deemed to be an intimation in respect of all other places of business registered on
the same PAN.
Imposition of penalty in case of irregular availment of the composition scheme [Section 10(5) read with rule
6(4) and 6(5)]
If a taxable person has paid tax under the composition scheme though he was not eligible for the scheme, the
(1)
person would be liable to penalty and the provisions of section 73 or 74 of the CGST Act shall be applicable
for determination of tax and penalty.
Further, where the proper officer has reasons to believe that the registered person was not eligible to pay tax
(2)
under composition levy or has contravened the provisions of the Act/provisions of this Chapter, he may issue
a show cause notice to such person in prescribed form.
Upon receipt of the reply to such show cause notice from the registered person in prescribed form, the proper
(3)
officer shall issue an order in prescribed form within 30 days of the receipt of such reply, either accepting the
reply, or denying the option to pay tax under composition levy from the date of the option or from the date of
the event concerning such contravention, as the case may be.
Person contravening the
conditions (maybe Crossing
of turnover)
Particulars
Person ceases to satisfy any of the
conditions mentioned in section
10 or Composition Rules
Form
FORM GST CMP - 04
+
FORM GST ITC - 01*
Time frame
Within 7 days of
occurrence of such
event.
Registered Person voluntary
exiting the Composition
Scheme
Registered Person who intends to
withdraw from the composition
scheme
FORM GST CMP - 04
+
Before the date of
such withdrawal
ID-T
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CA Intermediate – May 2019
FORM GST ITC - 01*
PO 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 Composition
Rules
a) Issuance of SCN
b) Reply to the above SCN
FORM GST CMP - 05
FORM GST CMP - 06
c) Issuance of Demand Order
FORM GST CMP - 07
+
FORM GST ITC - 01*
Within 15 days of the
receipt of such notice
Within 30 days of
receipt of such reply
Additional Linking Returns to be filed by Composite Supplier
The GST Act has prescribed lesser compliance for the businesses covered under composite levy. The following returns
are to be filed by a composite supplier:
Sr No
Particulars
Form
Whether to be Filed
Due date of filing
by Composite
Supplier?
1
Return for Outward
No
Supplies
2
Return for Inward
No
Supplies
3
Consolidated return
Form GSTR-4
Yes, but quarterly
18th of the subsequent
month after the end of the
quarter
All outward supplies of goods and services including auto-populated details from Form GSTR-4A and tax
payable details.
Details of any additions, modifications, or deletions in Form GSTR-4A should also be submitted in Form
GSTR-4.
4
First return
No
5
Annual Return
Form GSTR-9A
Yes
On or before 31st December
of next FY
Discharge of Liability
Manner of
•
Payment
Frequency
•
Late Payment
•
ID-T
Electronic Cash Ledger (Note – ITC is not admissible to supplier opting for
Composition Scheme)
Quarterly basis – by 18th of following month
Interest @ 18% p.a
Page | 206
CA Intermediate – May 2019
Questions for Practice Question 1 Taxpayer ‘A’ is a manufacturer having one unit – A1 in UP and another unit – A2 in MP. Total turnover
of two units in last FY was Rs 55 lakh (Rs 25 lakh + Rs 30 lakh). Total turnover of two units in the second
quarter of this financial year was Rs 15 lakh (Rs 5 lakh + Rs 10 lakh).
Determine whether he is eligible to opt for composition scheme? If yes, what is the GST liability?
Question 2 A person availing composition scheme in Haryana during a financial year crosses the turnover of Rs 1
Crore during the course of the year i.e. he crosses the turnover of Rs 1 Crore in December? Will he be
allowed to pay tax under composition scheme for the remainder of the year, i.e. till 31st March?
Question 3 Determine whether the supplier in the following cases are eligible for composition levy provided their
turnover in preceding year does not exceed Rs 1 Crore:
(i) Mohan is engaged in providing legal services in Rajasthan and is registered in the same State.
(ii) Sugam Manufacturers has registered offices in Punjab and Haryana and supplies goods in
neighbouring States.
Question 4 Mohan Enterprises has two registered business verticals in Delhi. Its aggregate turnover for the
preceding year for both the business verticals was Rs 70 lakh. It wishes to pay tax under composition
levy for one of the vertical in the current year while under normal levy for other vertical. You are
required to advice Mohan Enterpises whether he can do so?
Question 5 Whether a person can avail the composition scheme on Small Retail Trading of goods if he is holding
both incomes like Sale of business: Rs. 25 lakh (Small Retail Trader) and Rental income: Rs. 12 lakh?
Question 6 A Ltd is a manufacturing concern in Pune. During FY 2017-18, total value of supplies including inward
supplies taxed under reverse charge basis is Rs 1,02,60,000 (exclusive of taxes). The break up of supplies
are as follows:
Particulars
Intra-state supplies made under forward charge
Intra-state supplies which are wholly exempt from GST
Intra-state supplies made which are chargeable to GST at ‘Nil’ rate
Value of inward supplies on which tax is payable under RCM
ID-T
Amount (Rs)
50,00,000
32,00,000
18,00,000
2,60,000
Page | 207
CA Intermediate – May 2019
Briefly explain whether A Ltd is eligible to opt for composition scheme in FY 2018-19.
Question 7 XYZ Ltd, a manufacturing concern, had effected intra-state taxable supply of Rs 20,00,000 and inter-state
taxable supply of Rs 25,00,000 in Financial Year 2017-18. The company wants to opt for composition
scheme u/s 10 of CGST Act, 2017. As a GST consultant, advise XYZ Ltd whether it can opt for
composition scheme.
Question 8 XYZ Ltd is having two factories. One factory located in Rajasthan is engaged in manufacture of
readymade garments and another factory located in Gujarat is engaged in manufacture of auto
components. The turnover details of FY 2017-18 are as under:
Particulars
Intra-state supplies of readymade garments in Rajasthan
Intra-state supplies of auto-components in Gujarat
Amount (Rs)
28,00,000
18,00,000
The company wants to opt for composition scheme for factory in Rajasthan and tax at normal rates in
Gujarat. Advise.
Question 9 A Ltd. a manufacturing concern in Maharashtra has opted for composition scheme. It furnishes you
with the following information for Financial Year 2018-19. It requires you to determine its composition
tax liability and total tax liability.
In Financial Year 2018-19 total value of supplies are Rs 85,40,000. The breakup of supplies is as follows –
Particulars
Intra State Supplies of Goods X chargeable @ 5% GST
Intra State Supplies made which are chargeable to GST at Nil rate
Intra state supplies which are wholly exempt under section 11 of CGST Act, 2017
Value of inward supplies on which tax payable under RCM (GST Rate 5%)
Intra State Supplies of Goods Y chargeable @ 18% GST
Amount
(Rs)
30,00,000
18,00,000
2,40,000
5,00,000
30,00,000
What will be your answer if A Ltd is a trader?
ID-T
Page | 208
CA Intermediate – May 2019
Question 10 [CA - IPCC – May 2018]
M/s Sai Trading Company, an eligible registered dealer in goods making intra-state supplies within the
state of Andhra Pradesh, has reported an aggregate turnover of ` 78 Lakhs in the preceding financial
year.
a) Determine whether Sai Trading Company will be eligible for composition levy, as on 31-10-2017.
b) Will your answer be different, if in the above scenario, M/s Sai Trading Company is making intra
state supply within the state of Jammu and Kashmir?
Question 11 M/s. Ginny and John Company is a partnership firm of interior decorators and also running a
readymade garment showroom. Turnover of the showroom was Rs. 80 lakh and Receipts of the interior
decorators service was Rs. 22 Lakh in the preceding financial year. With reference to the provisions of
the CGST Act, 2017, examine whether the firm can opt for the composition scheme?
Will your answer change, if the turnover of the showroom was Rs. 70 lakh and Receipts of the interior
decorators service was Rs. 22 Lakh in the preceding financial year?
Also discuss whether it is possible for M/s. Ginny and John Company to opt for composition scheme
only for Showroom ?
ID-T
Page | 209
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