COMPULSORY WITHDRAWAL OF COMPOSITION LEVY

[Mr. M. GOVINDARAJAN]

Composition levy

The composition levy is an alternative method of levy of tax designed for small taxpayers whose turnover is up to ₹ 1.5 crores.  This scheme reduces the compliance cost for the small taxpayers.  This scheme is optional and the eligible person opting to pay tax under this scheme can pay tax at a prescribed percentage of his turnover every quarter, instead of paying tax at normal rate.  This scheme is subject to conditions and the taxpayer cannot avail input tax credit.  Section 10 of the Central Goods and Services Tax Act also prescribes the list of tax payers who cannot opt composition levy scheme. 

A person opting for composition levy will have to pay tax on quarterly basis before 18th of the month succeeding the quarter during which the supplies were made.in Form CMP-08. The said persons shall furnish a return for every financial year or, as the case may be, part thereof in Form GSTR-4 of the Central Goods and Services Tax Rules, 2017, on or before the 30th day of April following the end of such financial year.

Lapse of option

The option availed of by a registered person under section 10(1) or section 10(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 section 10(1) or section 10(2A), as the case may be.

Withdrawal

A taxpayer can opt out of composition levy in any of the two ways-

• Voluntarily opt out of composition levy by filing Form GST CMP-04 on the GST Portal or
• Compulsorily removed out of composition levy by the Tax Official at any time during the financial year.

The person shall be liable to pay tax from the day he ceases to satisfy any of the conditions mentioned in section 10 or the provisions of the Act 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 of the occurrence of such event.

The tax payer 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 or verified through electronic verification code, electronically on the common portal.

Compulsory withdrawal

In case, the taxpayer does not opt out of the composition levy within 7 days of disqualifying event, proceedings for compulsory withdrawal from composition levy can be initiated by the proper officer.  The following are the conditions for the compulsory withdrawal of composition scheme-

• Taxpayer has a valid and active GSTIN.
• Composition Taxpayer has successfully submitted ‘Application to Opt for Composition levy’ for the subsequent financial year or applicant is flagged as composition taxpayer as on the current date.

Show cause notice

Where the tax official 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 he may issue a notice to such person in Form GST CMP-05 to show cause within fifteen days of the receipt of such notice as to why the option to pay tax under section 10 shall not be denied.   Compulsory withdrawal from composition levy cannot be initiated without issuing show cause notice by the Tax Official. Taxpayer will always be given an opportunity of being heard before withdrawal from the Composition levy.

On issue of show cause notice to taxpayer for compulsory withdrawal from the composition levy, taxpayer needs to file a reply within 15 days from date of issue of such notice.   The taxpayer can reply show cause notice of the proper officer by navigating to Services > Registration > Application for Filing Clarifications option to reply to the notice issued by Tax Official for compulsory withdrawal from composition levy.

Order

On receipt of the reply to the show cause notice issued from the registered person in Form GST CMP-06, the tax official shall issue an order in Form GST CMP-07 within a period of 30 days of the receipt of such reply, either accepting the reply, or denying the option to pay tax under section 10 from the date of the option or from the date of the event concerning such contravention, as the case may be.

The Tax official will have 30 calendar days’ time from the date of receipt of clarification from taxpayer on show cause notice or 15 days if no reply is received from taxpayer on show cause notice  issued, whichever is earlier, to take any of following action on the work item:

• drop the proceedings;
• withdraw composition levy of the taxpayer.

In case, taxpayer doesn’t submit clarifications within 15 days from date of issue of show cause notice, the Tax Official can only ‘Withdraw Composition’.

Once a Tax Official drops the proceedings for compulsory withdrawal of a taxpayer from composition levy-

• GST Portal will generate an order for dropping of proceedings.
• Taxpayer will be intimated about dropping of proceedings via e- mail and SMS.
• Information about dropping the proceedings will be passed on to the concerned State/Centre Tax Authorities of such GSTINs.

Once a Tax Official compulsory withdrawal a taxpayer from composition levy-

• GST Portal will generate an order for compulsory withdrawal from composition levy.
• Taxpayer as well as all GSTINs mapped to the same PAN will be intimated about compulsory withdrawal via e- mail and SMS.
• GST Portal will remove the ‘Composition’ flag, against all the GSTINs mapped to the same PAN.
• Information about compulsory withdrawal will be passed on to the concerned State/Centre Tax Authorities of such GSTINs.

Stock statement

A person in respect of whom an order of withdrawal of option has been passed in Form GST CMP-07  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 finished goods held in stock by him on the date on which the option is withdrawn or denied, within a period of 30 days from the date from which the option is withdrawn or from the date of the order passed in Form GST CMP-07, as the case may be.

Deemed intimation

Any intimation or application for withdrawal or denial of the option to pay tax under section 10  in respect of any place of business in any State or Union territory shall be deemed to be intimation in respect of all other places of business registered on the same Permanent Account Number.

New registration

If any new registration application is filed mapped to the same PAN and is pending for processing with the Tax officer, which is not approved or rejected, the decision of the approval/ rejection of proceeding for Compulsory withdrawal from Composition levy will also apply to the new GSTIN as applicable.   After issue of ‘Order for Compulsory Withdrawal from Composition levy’, any new Registration (GSTIN) granted over the same PAN (having effective date of Registration earlier than withdrawal date), will be treated as ‘Composition’ till the date of withdrawal of composition and deemed to be flagged as ‘Normal’ from the date of withdrawal of composition. 

Illustration -  If the effective date of Registration is 02.01.2019 and withdrawal from composition date is 11.01.2019. In such case, the GSTIN will be treated as Composition till 11.02.2019 and Normal from 12.01.2019.

Statuses in the process of withdrawal

The following are the various statuses for compulsory withdrawal of a taxpayer from composition levy-

• Pending for Clarification: On issuance of show cause notice and pending reply by taxpayer;
• Pending for Order: On receipt of reply to show cause notice and pending order by Tax Official
• Order Issued: On passing of Order for withdrawal by Tax Official
• Proceeding Dropped: On passing of Order by Tax Official for dropping of show cause notice.