The ambit of tax legislature is usually wide and has the ability to encompass heterogeneous tax payers in its ambit. The broader the law, the wider is the coverage. Indirect taxes are regressive in nature. Thus the disparity in the income level of a taxpayer does not make a difference as the applicable indirect taxes on supply of goods or services, remains same for all the tax payers irrespective of the disparity in income levels of consumer. However under the indirect taxation, a tax payer is usually the person who makes the goods/services reach the end consumer directly or indirectly. Thus the taxpayer is more likely to perform function of that of an agent of the government. However, there are categories under which the tax payers can be classified. When acting as an agent of the government, the tax payers are bound to oblige to compliance procedures, as prescribed under the laws. The business size, nature of business differs and thus not all the tax payers are very much comfortable in honoring the compliance procedures. The reason being the detailed books of accounts needs to be maintained and so also the ability to do a near to accurate reporting of transactions. This involves a substantial cost, which not all tax payers are in a position to bear, considering the earning abilities and nature of business.
Since the Pre-gst regime, the government has always ensured that tax payers duly collect and pay the tax, but has varied the scales of compliance depending upon the scale of the tax payer. Varying the scale of compliance does not mean leeway in terms of tax collection but the modus operandi for tax collection and filing of returns is simpler for small tax payers. Earlier this was with the names as “Composition scheme” under the “State sales tax/Value added tax act”. Thus, with the same intent the GST law also provides the provisions of simpler compliance for small tax payers, however not all the small tax payers. The GST law has clearly defined as to who would be considered as a eligible tax payer to opt for payment of tax under the “composition levy”.
As per provisions of Section 10(1) of the CGST Act 2017, 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, whose aggregate turnover in the preceding financial year did not exceed one crore rupees, may opt to pay an amount of tax calculated at such rate as may be prescribed, but not exceeding,
(a) Half per cent of the turnover in State or turnover in Union territory in case of a 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,
(c)half per cent of the turnover of taxable supplies of (goods/services) in State or turnover in Union territory in case of other suppliers, subject to such conditions and restrictions as may be prescribed:
“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.”
Conditions for a registered person opting to pay tax under composition levy.
(a)He is not engaged in making any supply of goods which are not leviable to tax under this Act.
(b) He is not engaged in making any inter-State outward supplies of goods;
(c) He is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and
(d) He is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council: Provided that where more than one registered persons are having the same Permanent Account Number (issued under the Income-tax Act, 1961), the registered person shall not be eligible to opt for the scheme under subsection
(1) unless all such registered persons opt to pay tax under that sub-section. 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).
Restrictions for registered person opting to pay tax under “Composition levy”
- He shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax. If the proper officer has reasons to believe that a taxable person has paid tax under sub-section (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.
- The person exercising the option to pay tax under section 10 shall comply with the following conditions, namely
(a) he is neither a casual taxable person nor a non-resident taxable person;
(b) 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 the option is exercised under subrule (1) of rule 3;
(c) The goods held in stock by him have not been purchased from an unregistered supplier and where purchased, he pays the tax under sub-section (4) of section 9.
(d) He shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both;
(e) He was not engaged in the manufacture of goods as notified under clause (e) of sub-section (2) of section 10, during the preceding financial year;
(f) 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 (g) he shall mention the words ―composition taxable person‖ on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.
Is the composition levy really essential or resourceful for the effective functioning of GST law? Well if it is seen from the perspective of “ease of doing business” for the small tax payers, then certainly one can say that the “composition levy” is essential. The tax payers can enjoy benefits of easy tax computation, quarterly payments and statement filing (which would help in cash flow management), single filing of return (reduce the compliance cost).
However the negative side is there is a blockage in the seem-less flow of Input tax credit. The cost of buyer if buying from a person who is under composition levy would be higher as the tax credit has become a cost. So beyond a specific level in the industry or market scale it would be difficult for a person under composition levy to find customer base who would be ready to buy goods from him. In our view in long run if the compliance procedures becomes really easy the composition levy should be diluted in order to have a effective mechanism of tax structure with absolute seem-less tax credit flows.
- Disclaimer: The views provided above are on the basis of our understanding of the GST Laws, Rules and Regulations. The adjudicating or Judicial Authorities may or may not agree with the views expressed above
CA Aumkar Surendra Prachi Gadgil