Section 10 – Composition Levy

1. The Composition levy provides the registered taxable person an option to pay the GST on the turnover, the limit of which shall not exceed Rs. 75 Lakhs. The law states that the taxable person, of whom the previous financial year turnover did not exceed Rs. 50 Lakhs, in the case of supply of goods, shall opt to pay the tax under the composition levy. The rates of GST under the composition levy shall be as follows:-

a. 2% (1% CGST + 1% SGST) in the case of the manufacturers;

b. 5% (2.5% CGST + 2.5% SGST) in the case of restaurants;

c. 1% (0.5% CGST + 0.5% SGST) in the case of other supplies;

2. The composition levy shall be eligible in the following cases:-

a. RTP is not making any inter-state outward supplies of goods

b. RTP is not making any supplies in the case of the goods which are not liable to be taxed under this Act

c. RTP is not selling the products through the e commerce portal

d. RTP is not a manufacturer

3. In case during the FY, the turnover exceeds the threshold limit, then the RTP shall not be eligible for the composition levy.

4. When the RTP shall opt for the composition levy, then the person shall not be eligible to collect any tax from the customers.

5. If the proper officer has the reason to believe that the RTP despite not being eligible under this scheme paid the tax under this scheme, then in addition to the tax payable under the act, the RTP shall pay the tax payable by him as well as the penalty which shall be determined under section 73 and 74.

Method of availing the composition scheme
1. Existing registration into GST – In this case the taxable person shall have to file the Form GST CMP 01 within 30 days from the appointed date. In this case, the option to pay the tax shall be applicable from the appointed date.

2. Fresh registration – In case the taxable person shall have to take the fresh registration under the GST under the composition levy, the taxable person shall have to file part B of the form GST REG 01. The option to pay the tax under this scheme shall be applicable from the date when the GST will become effective on the taxable person.

3. Avail the scheme in the next financial year – In this case, the taxable person shall have to opt for the composition scheme prior to the commencement of the next financial year. For that the taxable person shall have to file an intimation in the Form GST CMP 02 for exercising the option. And also the taxable person shall have to file the Form GST CMP 03 containing the details of the stock and inward supply received from the unregistered person, held by him on the date prior to exercising the option. The said form shall be filed within 60 days from the date from which the option is exercised.

Conditions and restrictions for composition levy
1. He shall not be a casual taxable person or a non-resident taxable person.

2. On the appointed date, he shall not be in the possession of the stock which is procured through inter-state supplies of goods or goods received through agents or any kind of inter-state supplies or imported goods,in case of the existing taxable person converting into Composition dealer.

3. The goods held in stock have not been purchased from the unregistered taxable person, and if so, the tax on it shall be paid.

4. He shall pay the taxes on the inward supply of goods and services but cannot take the Input tax credit of the same.

5. He is not a manufacturer

6. The word “Composition taxable person, not eligible to collect tax on the supplies” should be mentioned on the top of the invoice / bill.

7. The word “Composition taxable person” should be mentioned on the notices or sign boards at all the business places of the registered taxable person.

8. The composition scheme shall be applicable on all the business verticals of the taxable person.

9. Applicable only on the supply of goods, not applicable on the services

10. He shall not supply the goods through the e commerce operators.

11. He shall not supply the goods that are not taxable under this act, ex. Petroleum, diesel, aviation fuel, etc.

12. He shall not be eligible for any input tax credit.

13. On the receipt of any supply of goods or services from an unregistered taxable person, he shall have to pay the tax under Reverse Charge Mechanism as if he is the provider of supply of goods or services.

Procedure of opting out from the composition scheme
1. The registered taxable person in case of either opting out of the scheme or becoming ineligible of any of the conditions for availing the composition scheme shall file a form GST CMP 04 within 7 days of the occurrence of the event.

2. The proper officer, on receipt of the Form GST CMP 04, shall issue the Form GST CMP 05 asking the taxable person as to why the application under Form GST CMP 04 shall not be denied, the reply of which shall be filed within 15 days from the receipt of the notice.

3. The taxable person shall file the reply in Form GST CMP 06. Upon receipt of the reply, the proper officer shall issue the order in Form GST CMP 07 within 30 days of the receipt of the reply. He shall have the power to either accept the application or deny the application.

The taxable person for whom the order in Form GST CMP 07 has been passed shall file the details of the semi-finished or finished stock held by him on the date on which the option is withdrawn or the order in Form GST CMP 07 has been passed. Apart from cancelling the option to pay the tax u/s. 10, the proper officer shall demand the differential tax and interest after deducting the tax under the composition scheme and penalty under section 73 or 74.