composition scheme analysis on decisions taken in gst council meeting

By CA Parampreet Khurana

The GST Council in its the 22nd meeting held on 6 October 2017 has brought in necessary changes in its composition scheme. The Government has extended certain benefits in the composition scheme making it more attractive for person supplying goods to opt for composition levy. The decisions of the GST Council will be given effect to through gazette notifications which shall have force of law.

Benefits under Composition Scheme

A. Change in Ceiling Limit of Aggregate Turnover for opting to pay Goods and Services Tax under Composition Levy

Section 10 of Central Goods and Services Tax Act, 2017 (CGST Act), states that a person may opt to pay tax at such prescribed rate if his aggregated turnover in the preceding financial year does not exceed fifty lakh rupees. Further, as per First Proviso to Section 10, the Central Government has been granted the powers to notify such higher amount, not exceeding one crore rupees as the ceiling limit for person to opt for composition scheme.

Further, the Central government vides Notification No. 8/2017 – Central Tax dated 27th June, 2017 notified that an eligible registered person, whose aggregate turnover in the preceding financial year did not exceed seventy five lakh rupees  may opt to pay, tax under the composition levy.

In the 22nd GST Council meeting held on 6th October, 2017, the Central Government has revised the maximum limit for purpose of composition levy. The limits and statement made by the Central Government in its press release are reproduced in the table below:

Enhancement of Annual Aggregate Turnover limit

S.N

Old

New

Applicability

Remarks

1

Annual Aggregate turnover of up to Rs. 75 lakh

Annual Aggregate turnover of up to Rs. 1 Crore

Applicable for all States excluding Special Category States

 

 

1.      Facility of availing composition under the increased threshold shall be available to both migrated and new taxpayers up to 31.03.2018.

 

2.      The option once exercised shall become operational from the first day of the month immediately succeeding the month in which the option to avail the composition scheme is exercised. (i.e. Option for Composition Scheme exercised in September shall become operational w.ef. 1st October)

 

3.      New entrants to this scheme shall file the return in GSTR-4 only for that portion of the quarter from when the scheme becomes operational and shall file returns as a normal taxpayer for the preceding tax period 

 

2

Annual Aggregate turnover of up to Rs. 50 lakh

Annual Aggregate turnover of up to Rs. 75 lakh

Applicable for Special Category States excluding J&K & Uttarakhand

 

 

3

Annual Aggregate turnover of up to Rs. 75 lakh

Annual Aggregate turnover of up to Rs. 1 Crore

J&K & Uttarakhand

 

Section 2(6) of the CGST Act defines 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.

However, CGST Act does not define “Annual Aggregate Turnover”. This may lead to confusion since a person may construe annual aggregate turnover as turnover based on his previous year figures. Since, GST has been introduced w.e.f July, the annual aggregate turnover for purpose of qualifying for composition levy is understood to be computed based on the values of the previous year. This may lead to confusion to the taxpayer because annual aggregate turnover of the previous year may include goods/services which were exempt under in the previous law but now are taxable in GST regime. It would cause difficulty to the taxpayer in computing his annual aggregate turnover. It is expected that the Government will clarify this confusion at time of issue of the notification.

B. Benefit of Supply of Exemption Services by composite dealers

The scheme has been extended to persons who are otherwise eligible for availing the composition scheme and are providing any exempt service (such as extending deposits to banks for which interest is being received).

The Government vide its press release has indicated that if any person who is supplying goods and also providing any exempt service, they would still be eligible to opt for composition scheme. Section 10(2)(a) of the CGST Act had restricted any person who is engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II from opting for the composition levy. The law did not differentiate between person supplying taxable services or exempt services.

This may lead to a situation where the Government has to amend the law since Section 10 of the Act does not grant any power to the Government to exclude any service for the purpose of composition levy.

Further, the press release has created an embargo that whether the value of exempt services should also be excluded for the purpose of calculating annual aggregate turnover or supply of exempt services is only an exception for purpose of opting for the composition levy.

The Government needs to fix these issues at time of issuing notification to amend the law otherwise it may lead to confusion amongst the person wishing to opt for composition levy.

[ The view expressed in the article are that of author and neither TaxGrid nor the author shall be liable for any error  and consequences because of it thereof]