CHAPTER XI

Composition Levy Scheme in GST

1. Composition Levy Scheme under GST law

Composition levy scheme is a very simple, hassle free
compliance scheme for small taxpayers. It is a voluntary and
optional scheme.

Benefits of composition scheme

• Easy compliance as no elaborate accounts and records to be maintained
• Simple Quarterly Return
• Quarterly payment of tax

Provisions related to composition levy have been provided under section 10
of the Central GST Act, 2017 and Chapter 2 of the CGST Rules,
2017. Under this scheme, a registered taxable person, whose
aggregate turnover does not exceed Rs. One crores (Rs. 75 lakh for special
category States except J & K and Uttrakh and) in the financial year 2016-17
may opt for this scheme.

A taxpayer registered under composition levy scheme has to pay an amount
equal to certain fixed percentage of his annual turnover as tax to the
government. This tax has to be paid on quarterly basis. Such taxpayer does
not have to maintain elaborate accounts and records and instead of two
monthly statements and a return (which a normal taxpayer has to file under
GST), he has to file a simple quarterly return in
FORM GSTR-04. The time Limit for GSTR-4 for the quarter July to
September, 2017 has been extended to 24 th December, 2017 vide
Notification No. 59/2017-CGST.

However, upon opting for this scheme, he cannot issue taxable invoice under
GST law and can neither collect GST from his customers nor can claim Input
Tax credit on his purchases.

2. Method to calculate Aggregate Turnover

Aggregate turnover is computed on all India basis for a person having same
Permanent Account Number (PAN).It is sum of value of all outward supplies
falling in the following four categories:

• Taxable supplies
• Exempt supplies
• Exports of goods or services or both
• Inter-state supplies.

but excludes

• the value of inward supplies on which tax is payable by a person on
  reverse charge basis &
• taxes including cess paid under GST law.
• CBEC vide Order No. 01/2017-Central Tax dated13 th October,
  2017 has clarified that a person supplying 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 ineligible for the composition
  scheme. In computing his aggregate turnover in order to determine his
  eligibility for composition scheme, value of supply of the exempt
  services including services by way of extending deposits, loans or
  advances shall not be taken into account.

3. Registration and intimation under the scheme

Registration under GST law is compulsory for opting for the Composition
scheme. A person who is registered under existing laws and has obtained a
provisional registration under GST has to file an electronic intimation in
the FORM GST CMP-01 on the common portal www.gstn.gov.org. He can file
this intimation either before the appointed day (i.e. day on which GST came
into force 01/07/2017) or within 30 days (or as extended by the
commissioner) of the appointed day (01/07/2017), (which was later extended
up to 16/08/2017). If he intimates after the appointed day, he shall not
collect GST and issue bill of supply from the appointed day. Further such
person has to furnish a statement containing details of stock including the
inward supply of goods received from unregistered persons, held by him on
the day preceding the date from which he opts for the scheme, in FORM GST
CMP-03, within 60 days (or as extended by the commissioner) of the date
from which the option for composition levy is exercised. As per Order No.
11/2017-GST dated 21.12.2017, the period for intimation of
details of stock in FORM GST CMP-03 is extended till 31 st January, 2018

A person who is not registered under existing law but applies for fresh
registration under Rule 8 of the CGST Rules, 2017 may opt for the scheme by
providing necessary information under part B of FORM GST
REG-01.

Any registered person who wants to opt for composition levy has to file an
electronic intimation in the FORM GST CMP-02 prior to the commencement of
financial year for which the option to pay tax under composition levy is
exercised and also has to a furnish a statement in FORM GST ITC-03 in
accordance with the sub rule (4) of Rule 44 of CGST Rules,
2017, within 90 days from the commencement of the
relevant financial year.

A person having a single PAN and registered in more than one State under
GST can opt for the scheme, provided he meets all the conditions of the
scheme, only if all such registered persons opt for the Composition scheme.
A registered person cannot choose to opt for the Composition scheme in one
state and not in other states. Further, an intimation for withdrawal from
the scheme; or denial of the scheme with respect to any one registered
person under the same PAN will be applicable for all such registered
persons.

4. Effective Date for composition levy

Effective date for the taxpayers who are already registered under the
existing laws and obtained provisional registration under GST law and
intimates about opting for the schemeeither before the appointed day
(01/07/2017) or within30 days (or as extended) of the appointed day, shall
be the appointed date.

Effective date for registered taxpayer who intimates about opting for the
scheme under FORM GST CMP-02, shall be the beginning of the financial year

Effective date for a person who applies for fresh registration under Rule
8 of the CGST Rules, 2017 by providing necessary information
under part B of FORM GST REG-01, shall be the effective date of
registration as per sub rule2 or 3 of Rule 10 of CGST Rules,
2017.

5. Persons who are not eligible for the scheme.

Barring few exceptions, all registered taxable persons whose aggregate
turnover has not exceeded Rs. One crore(Rs. 75 lakhs for special category
states except J & K and Uttrakh and) in the financial year 2016-17 are
eligible to opt for this scheme. List of taxable persons who are not
eligible for the scheme is as below:

• A casual taxable person i.e. a person who occasionally undertakes
  supplies in a State or Union Territory where he has no fixed place of
  business.

• A non-resident Taxable person i.e. a person who occasionally undertakes
  supplies but has no fixed placeiii.of business or residence in India.

• A supplier of services except a person engaged in supply of restaurant
  service.

• A person engaged in providing inter-state supply of goods.

• A person engaged in supply of non-taxable goods i.e.goods which are not
  taxable under GST law

• A person engaged in supply of goods through an Electronic Commerce
  Operator (ECO) who is re- quired to collect Tax at source under section
  52 of the CGST Act.

• 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 registration
  under the Composition Scheme has been taken.

• the goods held in stock by him have not been purchased from an
  unregistered supplier and where purchased, he pays the tax under the
  reverse charge mechanism.

• A person engaged in manufacturing of goods no- tified undersec 10 (2)
  (e) of the CGST Act either in the year 2016-17 or later.
  Following goods have been notified for which composition scheme is not
  available.

Sl. No.	Classification (Tariff item/ Chapter	Description
1	2105 00 00	Ice cream and other edible ice, whether or not containing cocoa
2	Pan masala	2106 90 20
3	24	Tobacco and manufactured tobacco substitutes

6. Rate of Tax under the scheme

There are three rates prescribed for three different categories of
suppliers.

• An eligible Manufacturer has to pay 1% (0.5% CGST and 0.5% SGST/UTGST) of
  turnover in a state or Union Territory, as the case may be.

• An eligible person engaged in making supplies mentioned in clause (b) of
  para 6 of Schedule II of the CGST Act (supplier of restaurant Service)
  has to pay 5% (2.5% CGST and 2.5% SGST/ UTGST) of turnover in a state or
  Union Territory,as the case may be.

• An eligible person engaged in any other supply has to pay 1% (0.5% CGST
  and 0.5% SGST/ UTGST) of turnover of taxable supplies of good sin a state
  or Union Territory, as the case may be.

7. Bill of Supply

A taxable person opting for the scheme has to issue bill of supply as he is
not eligible to issue taxable invoice under GST. He has to mention the
words “composition taxable person, not eligible to collect tax on supplies”
at the top of every bill of supply issued by him.

8. Conditions & Restrictions under the scheme

A person opting for the scheme has to adhere to the following conditions

• Issue bill of supply in the prescribed manner

• Pay all taxes on purchases including taxes to be paid on reverse charge basis

• Don’t claim input tax credit of purchases

• Mention the words “composition taxable person” on every notice board or
  signboard displayed at the prominent place at his every place of
  business. business.

• Where ever a person, registered under any of the existing laws, and who
  has been given provisional registration, gives an intimation for the
  composition scheme, he shall not be allowed the composition scheme in
  case the goods held in stock by him on the appointed day have 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.

• Withdraw from the scheme if not eligible

9. Validity of the composition levy scheme

A person opting for the composition levy scheme can continue to pay tax
under the said scheme as long as he satisfies the eligibility criteria and
conditions related to the scheme and do not require to file a fresh
application every year. But, such a person shall be liable to pay tax under
sub- section (1) of section 9 of the CGST Act, 2017 from the day he ceases
to satisfy any of the conditions and shall issue tax invoice for every
taxable supply made thereafter and he shall also file an intimation for
withdrawal from the scheme.

10. Conditions which may render a person in-eligible for the scheme

A person is in-eligible for the scheme, if

• he wrongly opts for the scheme.

• his turnover exceeds Rs. One crore (In the case of9 North East and
  special category states, namely Arunachal Pradesh, Assam, Manipur,
  Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Himachal Pradesh, the
  limit of turnover is Rs. 75Lakhs in the preceding financial year)

• he contravenes eligibility criteria or any of the conditions of the
  scheme

11. Withdrawal from the composition levy scheme and procedure thereafter.

A registered person who intends to withdraw from the scheme has to file an
intimation for withdrawal from the scheme in the FORM GST CMP-04, before
the date of such withdrawal. A registered person who ceases to satisfy any
provision of the scheme has to file an intimation for withdrawal from the
scheme in the FORM GST CMP- 04, within 7 days of occurrence of such event.
After opting out of the scheme, he has to pay tax as normal tax payer and
issue tax invoice for every taxable supply made thereafter

Subsequently he has to forward a statement in FORM GST ITC-01 containing
details of the stock of the inputs and inputs contained in semi-finished or
finished goods held in stock by him on the date on which the option is
withdrawn. The said statement has to be submitted on the common portal
within 30 days from the date of withdrawal.He shall be entitled to take
credit of input tax in respect of inputs held in stock, inputs contained in
semi-finished or finished goods held in stock and on capital goods on the
day immediately preceding the date from which he becomes liable to pay tax
as normal taxpayer under section9 of the CGST Act,
2017.

12. Action for wrongly opting the scheme or for

contravention of any provision of the scheme In the scenario, when the
proper officer has reason to believe that the registered person has wrongly
opted for the scheme or he has contravened the provisions of the scheme,
then he will seek a reply by issuing a show cause notice to such person in
the FORM GST CMP-05. This notice is to be replied within 15 days of receipt
of the same. Thereafter within 30 days of receipt of reply, officer has to
issue an order in FORM GST CMP-07, either accepting the reply or denying
the option to pay tax under the scheme.

Subsequently the registered person who has been denied the option to pay
tax under the scheme has to forward a statement in FORM GST ITC-01
containing details of the stock of the inputs and inputs contained in
semi-finished or finished goods held in stock by him on the date on which
the option is denied. The said statement has to be submitted on the common
portal within 30 days from the date of denial order passed in the FORM GST
CMP-07.

The delinquent taxpayer will be liable to pay the due tax and penalty.
However, no adverse action will be taken without following the principles
of natural justice.