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Critical study of provisions of CENTRAL GOODS AND SERVICES TAX ACT, 2017–( in short CGST) Section 10 which is part of CHAPTER III -LEVY AND COLLECTION OF TAX. –8 th article in the series.

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Critical study of provisions of CENTRAL GOODS AND SERVICES TAX ACT, 2017–( in short CGST) Section 10 which is part of CHAPTER III -LEVY AND COLLECTION OF TAX. –8 th article in the series.
DEV KUMAR KOTHARI By: DEV KUMAR KOTHARI
August 4, 2022
All Articles by: DEV KUMAR KOTHARI       View Profile
  • Contents

Composition scheme of GST:

As per general impressions, and experiences of small dealers in old regimes of Sales Tax and VAT,  the composition levy scheme should be  a very simple scheme, free from doubts and confusions and without  much contingencies causing disability or disqualification from scheme. For qualifying to avail composition scheme, few criteria like limit of turnover and area of operations should be sufficient. There should not be many rates of taxes for taxable items.

However, we find that the Composition scheme , at present is very difficult to understand and to operate with it. It is loaded with so many criterion to be qualified and so many contingencies to be disqualified. How we can call it a simple scheme is not at all understandable. Basic provision is Section 10, but we need to refer to so many other provisions to examine eligibility and we need to maintain check and balances strictly to remain qualified. 

Therefore, a supplier who has opted for composition scheme, has also to remain vigilant and careful to closely watch to avoid any transaction or transaction beyond applicable limit or sublimit ,which can make him disqualified from the scheme.

In case of non-eligibility there can be high costs by way of tax and penalty.

 Provisions of Section 10 and complexities:

Within short period section 10 has been amended by three amending enactments from different dates , as we can see  history notes below the section. Although any amendment was not made specifically retrospective, but   There can be  view that amendments during initial period of implementation should be considered retrospective if it is a clarification , to remove difficulties or express legislative intent which could be considered from inception.

In section 10 we find use of following expressions which usually make any provision complex:

Notwithstanding – 2 time. In section 10(1) and S.10(2A) 

Provided that – 3 times.

But subject to- 2 times.  Section 10 (1) and S.10(2A) both are  subject to S. 9 (3), 9 (4)

Subject to such - once

a registered person – 3 times.

as may be prescribed – 3 times.

Composition levy.  

 

10. (1) Notwithstanding anything to the contrary contained in this Act

Section starts with word notwithstanding, that means this is a ‘non-obstainte’ clause. However, we find it is further subject to some other provisions and many conditions etc. that may be prescribed from time to time. So we need to keep a track about changes in other related provisions also.

but subject to the provisions of sub-sections (3) and (4) of section 9,

It is subject to S.9 (3) and 9(4)

a registered person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay,

Option is for  a registered person , whose aggregate turnover in the preceding financial year did not exceed  notified limit at relevant time.

1[in lieu of the tax payable by him under sub-section (1) of section 9,

Composition tax will be in lieu of normal tax us 9.1

an amount of tax calculated at such rate] as may be prescribed, but not exceeding,––

Rates will be prescribed. In  this section, maximum rates  of 1%, 2.5%  and 0.5% for three categories  are prescribed.

(a) one per cent. of the turnover in State or turnover in Union territory in case of a manufacturer,

Maximum 1% in case of manufacturer

(b) two and a half per cent. of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and

Maximum 2.5% in case of persons engaged  in making supplies referred to in clause (b) of paragraph 6 of Schedule II.

This is about supply and / or service  being supply of food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption. Please see Schedule II

(c) half per cent. of the turnover in State or turnover in Union territory in case of other suppliers,

Maximum 0.5%  in case of other suppliers. Here word used is suppliers and not supplies. This is of significance.

subject to such conditions and restrictions as may be prescribed:

Subject to  ...

Provided that the Government may, by notification, increase the said limit of fifty lakh rupees to such higher amount, not exceeding 2[one crore and fifty lakh rupees], as may be recommended by the Council.

On recommendation of  GST Council Government may increase limit subject to maximum 150 lakh rupees.

3[Provided further that a person who opts to pay tax under clause (a) or clause (b) or clause (c) may supply services (other than those referred to in clause (b) of paragraph 6 of Schedule II), of value not exceeding ten per cent. of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher.]

This is about permission for supply for services of some types and subject to limits as mentioned in provision.

5[Explanation.–– For the purposes of second proviso, the value of exempt supply of services provided 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 for determining the value of turnover in a State or Union territory.]

Services by way of loan or deposit  or advance for interest will not be considered in limit for permissible supply of services i.e. Rs.5 lakh or 10% of turnover in state/ UT.

(2) The registered person shall be eligible to opt under sub-section (1), if––

Conditions for eligibility to opt are

4[(a) save as provided in sub-section (1), he is not engaged in the supply of services;]

Should not be engaged in supply of services. (except permitted services within limits)  as discussed in last para for sub-section (1).

(b) he is not engaged in making any supply of goods 14[or services] which are not leviable to tax under this Act;

Should not  engaged in supply of goods or services which are not leviable to tax under this Act;

(c) he is not engaged in making any inter-State outward supplies of goods 14[or services];

 

Should not  engaged in any inter-State outward supply of goods or services.

(d) he is not engaged in making any supply of goods 14[or services] through an electronic commerce operator who is required to collect tax at source under section 52; 6[****]

 

Should not engage in making .... through electronic commerce operator.

(e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the 7[Council; and]

Should not manufacture  notified goods

8[(f) he is neither a casual taxable person nor a non-resident taxable person:]

 

Should not be a casual taxable person or non-resident taxable person.

Provided that where more than one registered persons are having the same Permanent Account Number (issued under the Income-tax Act, 1961) (43 of 1961) , 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.

If  under same PAN  there are more than one registered persons, then all of them should opt for composition scheme.

In simple words all registered persons under one PAN are owned by same owner /PAN holder so all has to opt for composition scheme.

9[(2A) Notwithstanding anything to the contrary contained in this Act, but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, not eligible to opt to pay tax under sub-section (1) and sub-section (2), whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by him under sub-section (1) of section 9, an amount of tax calculated at such rate as may be prescribed, but not exceeding three per cent. of the turnover in State or turnover in Union territory, if he is not––

 

A registered person who is not eligible under subsections (1) and (2) may opt under this subsection.

Prescribed rates of tax  will apply.

Maximum tax rate can be 3%

(a) engaged in making any supply of goods or services which are not leviable to tax under this Act;

 

Should not  engaged in supply of goods or services which are not leviable to tax under this Act;

(b) engaged in making any inter-State outward supplies of goods or services;

 

Should not  engaged in any inter-State outward supply of goods or services.

(c) engaged in making any supply of goods or services through an electronic commerce operator who is required to collect tax at source under section 52;

 

Should not engage in making .... through electronic commerce operator.

(d) a manufacturer of such goods or supplier of such services as may be notified by the Government on the recommendations of the Council; and

 

Should not manufacture  notified goods and should not render notified services.

(e) a casual taxable person or a non-resident taxable person:

 

Should not be a casual taxable person or non-resident taxable person.

Provided that where more than one registered person are having the same Permanent Account Number issued under the Income-tax Act, 1961 (43 of 1961.), the registered person shall not be eligible to opt for the scheme under this sub-section unless all such registered persons opt to pay tax under this sub-section.]

 

If  under same PAN  there are more than one registered persons, then all of them should opt for composition scheme.

In simple words all registered persons under one PAN are owned by same owner /PAN holder so all has to opt for composition scheme.

(3) The option availed of by a registered person under sub-section (1) 10[or subsection (2A), as the case may be,shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under sub-section (1) 10[or subsection (2A), as the case may be,].

Lapsing of option – mandatory conditions is provided that the option shall lapse with effect from the day when   aggregate turnover during a financial year exceeds the limit that is Rs.50 lakh in each provision.

(4) A taxable person to whom the provisions of sub-section (1) 11[or, as the case may be, sub-section (2A)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.

Bar on tax collection and ITC.

(5) If the proper officer has reasons to believe that a taxable person has paid tax under sub-section (1) 12[or sub-section (2A), as the case may be,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.

If found not eligible or not remaining eligible, for scheme but continuing to avail scheme  by paying tax u.s.s (1) or (2A) shall be liable to normal tax and penalty .

13[Explanation 1.–– For the purposes of computing aggregate turnover of a person for determining his eligibility to pay tax under this section, the expression “aggregate turnover” shall include the value of supplies made by such person from the 1st day of April of a financial year upto the date when he becomes liable for registration under this Act, but shall not include the value of exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.

For eligibility aggregate turnover from all supplies (goods  or  services or both )  from 1st day of April and up to the day when he becomes liable for registration shall be included, except service by way of loan, advance or deposit for interest.

 

Explanation 2.–– For the purposes of determining the tax payable by a person under this section, the expression “turnover in State or turnover in Union territory” shall not include the value of following supplies, namely:––

 

(i) supplies from the first day of April of a financial year upto the date when such person becomes liable for registration under this Act; and

Turnover for tax payable

all supplies (goods  or  services or both )  from 1st day of April and up to the day when he becomes liable for registration shall be excluded.

(ii) exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.]

Exempt supply of services by way of deposits, loans and advances fro which consideration is by way of interest.

  ******

Notes

1. Substituted vide Central Goods and Services Tax (Amendment) Act, 2018 w.e.f. 01-02-2019 before it was read as "in lieu of the tax payable by him, an amount calculated at such rate"

2. Substituted vide Central Goods and Services Tax (Amendment) Act, 2018 w.e.f. 01-02-2019 before it was read as "one crore rupees"

3. Inserted vide Central Goods and Services Tax (Amendment) Act, 2018 w.e.f. 01-02-2019

4. Substituted vide Central Goods and Services Tax (Amendment) Act, 2018 w.e.f. 01-02-2019 before it was read as

"(a) he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II;"

5. Inserted vide FINANCE (NO. 2) ACT, 2019 w.e.f. 01-01-2020

6. Omitted vide FINANCE (NO. 2) ACT, 2019 w.e.f. 01-01-2020 before it was read as "and"

7. Substituted vide FINANCE (NO. 2) ACT, 2019 w.e.f. 01-01-2020 before it was read as "Council:"

8. Inserted vide FINANCE (NO. 2) ACT, 2019 w.e.f. 01-01-2020

9. Inserted vide FINANCE (NO. 2) ACT, 2019 w.e.f. 01-01-2020

10. Inserted vide FINANCE (NO. 2) ACT, 2019 w.e.f. 01-01-2020

11. Inserted vide FINANCE (NO. 2) ACT, 2019 w.e.f. 01-01-2020

12. Inserted vide FINANCE (NO. 2) ACT, 2019 w.e.f. 01-01-2020

13. Inserted vide FINANCE (NO. 2) ACT, 2019 w.e.f. 01-01-2020

14. Inserted vide Finance Act, 2020 dated 27-03-2020 w.e.f. 01-01-2021

 

By: DEV KUMAR KOTHARI - August 4, 2022

 

 

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