Intimation, Validity, Withdrawal and Denial of Composition Scheme

Intimation, Validity, Withdrawal and Denial of Composition Scheme. Check Rules for how to quite from Composition Scheme, Which Form are require for removal from composition scheme. The appointed date for Goods and Services Tax Law (GST Law or GST) role out is 1st of July, 2017. GST Law will affect, directly and indirectly, each and every sector and person. As of today, it appears that compliance burden under GST Law is to increase significantly and more particularly, it will be difficult for the small traders to comply with complex GST Law compliances in time bound manner. Therefore, to relax the burden of compliance for small businesses especially small retailers or traders, a composition scheme has been introduced under GST Law, where the assessees have to pay tax at a minimum rate based on their turnover. This is mostly similar to the provisions in VAT laws of States.

Intimation for Composition Levy (Rule 1 Composition Rules)

Any person willing to opt for composition scheme has to file Intimation duly signed or verified through electronic verification code (EVC), on the Common Portal. Rule 1 of the composition Rules deals with the procedure. Under composition Rules intimation can be classified under following three heads:

*Latest update as per 22nd GST Council Meeting held on 6th Oct 2017

Threshold for composition scheme has been increased to 1 crore (from earlier 75 lakhs)

1. persons registered under the existing law migrating on the appointed day:

  • a. Any person who has been granted registration on a provisional basis and who opts to pay tax under section 10 (Composition Scheme), shall electronically file an intimation in FORM GST CMP-01, prior to the appointed day, but not later than thirty days after the appointed day, or such further period as may be extended by the Commissioner in this behalf.
  • b. where the intimation in FORM GST CMP-01 is filed after the appointed day, the registered person shall not collect any tax from the appointed day but shall issue bill of supply for supplies made after the said day.
  • c. Any provisionally registered person who files an intimation to pay tax under section 10 (Composition Scheme) shall furnish the details of stock, including the inward supply of goods received from unregistered persons, held by him on the day preceding the date from which he opts to pay tax under the said section, electronically, in FORM GST CMP-03, on the Common Portal within 60 days of the date from which the option for composition levy is exercised or within such further period as may be extended by the Commissioner in this behalf.

2. Persons newly registering under the Act

Any person who applies for registration for the first time may give an option to pay tax under section 10 (Composition Scheme) in Part B of FORM GST REG-01 (GST Registration Form), which shall be considered as an intimation to pay tax under composition scheme.

3. A persons registered under the Act

Any registered person who opts to pay tax under section 10 (Composition Scheme) shall electronically file an intimation in FORM GST CMP-02 prior to the commencement of the financial year for which the option to pay tax under the aforesaid section is exercised and shall furnish the statement in FORM GST ITC-3 within sixty days from the commencement of the relevant financial year.

Effective Date for Composition Levy (Rule 2 Composition Rules)

(1) The option to pay tax under section 10 (Composition Scheme) shall be effective from the beginning of the financial year, where the intimation is filed under sub-rule (3) of rule 1 of composition rule and the appointed day where intimation is filed under sub-rule (1) of the rule 1 of composition rule.

(2) The intimation under sub-rule (2) of rule 1 of composition rule shall be considered only after grant of registration to the applicant and his option to pay tax under section 10 (Composition Scheme) shall be effective from the date fixed under sub-rule (2) or (3) of rule.

Tabular presentation for effective date for composition levy for ease of understanding:

RuleCategory of personEffective Date to pay tax under composition scheme
Rule 1(1)Intimation is filed by persons registered under the existing law migrates to composition levyAppointed day
Rule 1(3)Intimation is filed by registered persons and Opt for Composition in futureBeginning of Financial Year
Rule 1(2)Intimation is filed by a person newly registering under GST Lawa. The intimation shall be considered only after registration

b. effective from the Date on which the person becomes liable to registration where the application for registration submitted within 30 days, if not, then date of grant of registration.

The option to pay tax under this scheme shall be effective from the date based upon the timing of filing of intimations based on category of person:

Validity of Composition Levy (Rule 4 Composition Rules)

  • (1) The option exercised by a registered person to pay tax under Composition Scheme shall remain valid so long as he satisfies all the conditions mentioned in the said section and related composition rules.
  • (2) Registered person who opted for Composition Scheme shall be liable to pay tax under section 9(1) of CGST Act from the day he ceases to satisfy any of the conditions mentioned in section 10 or related composition rules 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 seven days of occurrence of such event

Withdrawal From Composition Scheme

The registered person 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 EVC, electronically on the Common Portal.

Denial of Composition Scheme

1. Where the proper officer 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 or these rules, 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 option to pay tax under section 10 should not be denied.

2. Upon receipt of reply to the show cause notice from the registered person in FORM GST CMP-06, the proper officer shall issue an order in FORM GST CMP-07 within thirty days of receipt of such reply, either accepting the reply, or denying the option to pay tax under section 10 from the date of option or from the date of the event concerning such contravention, as the case may be.

Where the proper officer 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 or these rules, 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 option to pay tax under section 10 should not be denied.

Note:

i. Every person who has furnished an intimation of withdrawal or filed an application for withdrawal or 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, 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 30 days, from the date from which the option is withdrawn or from the date of order passed in FORM GST CMP-07, as the case may be.

Returns under Composition Scheme

  • Quarterly return [GSTR-4] is required to be filed by composition supplier till 18th of the month succeeding quarter. Composition supplier shall also be required to file annual return in Form GSTR-9A.
  • Invoice wise details are not necessary, bill of supply will suffice.
  • Composition dealers are not required to give HSN code in their returns and they need not mention HSN Code in Invoice, but description of goods is required to be mentioned in the Invoice.

Conclusion

Composition scheme has its own merits and demerits, depending upon type of business, type of transaction, etc. The biggest confusion is for small dealers, whether to opt for composition scheme or not?

  1. Business to Business (B2B): If a taxable person is carrying out business on B2B model, it is tough call for him to opt for the registration as a composition dealer. If he opts for composition Scheme, such a person cannot avail the input tax credit. Further the buyer of goods form composition dealer cannot get any input tax credit, which may result in cost increase due to cascading effect. This may result in a loss of business for a buyer registered as a normal taxpayer and who buys from a person registered under composition scheme. Eventually, such buyers might avoid purchases from a taxpayer under composition levy.
  2. Business to Consumer (B2C): If a taxable person is carrying out business on B2C model, it may be advantageous for him to opt for composition scheme. If the composition rate is low and the net margins are higher, composition scheme may turn out to be a profitable option for the small B2C trader or manufacturer.

Therefore, it is advisable to the suppliers who are planning to opt for composition scheme that they should always do proper cost benefit analysis before taking the decision to register as composition dealer.

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