Charge of GST – CA Inter Tax Question Bank

Charge of GST – CA Inter Tax Question Bank is designed strictly as per the latest syllabus and exam pattern.

Charge of GST – CA Inter Tax Question Bank

Question 1.
Answer the following sub division:
List the inclusions and exclusions for computing the “Aggregate Turnover” under CGST Act, 2017. (May 2018, 5 marks)
Answer:
“Aggregate turnover” means the

• aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis),
• exempt supplies(Nil Rate, wholly exempted from UTGST, CGST, IGST, supplies not Taxable under the act i.e. alcoholic liquor for human consumption),
• exports of goods or services or both and

Question 2.
Enumerate the persons who are not eligible to opt for Composition Scheme under section 10(2) of the CGST Act, 2017. (May 2019, 5 marks)
Answer:
A registered person shall not be eligible to opt for composition scheme if:-

1. He is engaged in supply of services other than supplies referred to in clause (b) of Paragraph 6 of Schedule II.
2. He is engaged in supply of goods not leviable to tax
3. He is engaged in inter-State outward supplies of goods
4. He is engaged in supply of goods through an electronic commerce operator
5. He is a manufacturer of notified goods, namely, manufacturer of ice cream, pan masala and tobacco.

Question 3.
Mr. Anurag a famous Author is engaged in supply of services by the way of transfer or permitting the use or enjoyment of a copyright covered under clause (a) of subsection (1) of section 13 of the Copyright Act, 1957 relating to original literary works to a publisher.
Explain in brief the conditions under which an Author can choose to pay tax under forward charge. (Jan 2021, 5 marks)

Question 4.
M/s Sai Trading Company, an eligible registered dealer in goods making intra-state supplies within the state of Andhra Pradesh, has reported an aggregate turnover of ₹ 78 Lakhs in the preceding financial year.
(i) Determine whether Sai Trading Company will be eligible for composition levy, as on 31 -10-2020.
(ii) Will your answer be different, if in the above scenario, M/s Sai Trading
Company is making intra state supply within the state of Jammu and Kashmir? (May 2018, 3 marks)
Answer:
A REGISTERED PERSON, whose AGGREGATE TURNOVER in the preceding financial year did not exceed ₹ 1.50 crores [(A reduced limit of 75 lakhs rupees have been kept for special category states (Assam, Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Tripura, Sikkim and Himachal Pradesh)] MAY opt to pay, in lieu of the tax payable by him, an amount calculated at a concessional rate.

1. In the given case, since the aggregate turnover on intra state supplies within the state of Andhra Pradesh is ₹ 78 Lacs, hence Sai trading co. is eligible for composition levy.
2. The answer is still the same even if the supply is within the state of Jammu and Kashmir, since the limit is ₹ 1.5 crore for J&K also.

Question 5.
Mr. Zafar of Assam, provides the following information for the preceding financial year 2020-21. You are required to find out the aggregate turnover for the purpose of eligibility of composition levy scheme and determine whether he is eligible for composition levy scheme or not, for the F.Y. 2021-22.

Particulars	Amount (₹ in lakhs)
Value of taxable outward supplies (out of above ₹ 10 lakhs was in course of inter-state transactions).	50.00
Value of exempt supplies (which include ₹ 30 lakhs was received as a interest on loans & advances).	70.00
Value of inward supplies on which he is liable to pay tax under reverse charge	5.00
Value of exports	5.00
All the amounts are exclusive of GST.

(Nov 2019, 6 marks)
Answer:
It the aggregate turnover of a supplier in a State/UT other than Special Category States (except Assam, Himachal Pradesh and Jammu and Kashmir) is upto ₹ 1.5 crore in the preceding financial year, said supplier is eligible for composition scheme. In the given case, Since Mr. Zafar is of Assam hence the limit is of ₹ 1.50 crore in the preceding financial year. While computing the threshold limit of ₹ 1.5 crore, inclusions in and exclusions from ‘aggregate turnover’ are as follows:

Inclusions:
Value of all outward supplies

• Taxable supplies
• Exempt supplies
• Exports
• Inter-State supplies
  of persons having the same PAN be computed on all India basis. Exclusions:
• CGST, SGST, IGST, Cess, UTGST
• Value of inward supplies on which tax is payable on RCM basis

Computation of Aggregate turnover of Mr. Zafar for preceding FY 2020-21 as per above inclusions and exclusions

Particulars	Inclusions/ Exclusions	Amount (₹ in Lacs)
1. Value of taxable outward supplies (out of which ₹ 10 lacs was in course of inter-state transactions). After opting for composition levy he cannot make inter-state sales. But for determining whether he is eligible for composition or not, inter-state sales forms part of turnover	Included	50
2. Value of exempt supplies [Value of exempt supplies is includible in aggregate turnover. However, value of supply of exempt services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, though exempt, is not includible in aggregate turnover for determining eligibility for composition scheme].	Included	40
3. Value of inward supplies on which tax is payable on RCM basis	Excluded	–
4. Value of Exports	Included	5
Total		95

Since the aggregate turnover is ₹ 95 crore not exceeding ₹ 1.50 crore hence MV. Zafar is eligible for composition scheme.

Question 6.
Can the composition tax be lower than 1%?
Answer:
No Composition tax cannot be lower than 1 %.

Question 7.
Who is responsible to pay taxes?
Answer:
Generally, the person effecting taxable supplies is liable to pay taxes.
However, following are certain exceptions:

(a) Reverse charge: Supply of goods or services or both, as may be notified by the Government on the recommendations of the Council, the tax on which shall be paid by the recipient under reverse charge; and
(b) E-Commerce: Categories of services as may be notified by the Government on the recommendation of Council the tax on which shall be paid by the electronic commerce operator if such services are supplied through it.

Question 8.
Whether the tax on intra-State supplies is applicable to every supplies?
Answer:
No. Section 9(1) which is the charging provision for levy and collection of tax on intra-State supplies excludes supply of alcoholic liquor for human consumption. Further, in terms of Section 9(2), tax on supply of petroleum crude, high speed diesel, motor spirit, natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council. Accordingly, supply of alcoholic liquor for human consumption is not liable to tax under CGST Act, 2017.

Question 9.
What is the rate of CGST applicable to a taxable person- opting to pay tax under composition scheme?
Answer.
Section 10(1) of the CGST Act, 2017 prescribes, the rate of tax applicable to a taxable person opting to pay tax under composition scheme as under:

1. 0.5% of the turnover in State or turnover in Union territory in case of a manufacturer;
(0.5% CGST + 0.5% SGST = Total 1 %)

2. 2.5%, of the turnover in State or turnover in Union territory in case of persons engaged in making supplies of food and beverages for human consumption; and
(2.5% CGST + 2.5% SGST – Total 5%)

3. 0.5%, of the turnover of taxable supplies of goods and services in the state or turnover in Union territory in case of other suppliers(traders). (0.5% CGST + 0.5% SGST = Total 1 %)

Question 10.
Can every taxable person opt to pay tax under composition scheme?
Answer:
No. The registered taxable person whose aggregate turnover in the preceding financial year does not exceed ₹ 1.50 crore may opt to pay tax subject to satisfaction of the following conditions:

1. He is not engaged in the supply of services other than restaurant services;
2. He is not engaged in making any supply of goods which are not leviable to tax under this Act;
3. He is not engaged in making any inter-State outward supplies of goods;
4. 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
5. He is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council.

Question 11.
Whether a supplier of services is eligible to pay tax under composition scheme?
Answer:
Yes. A registered person under Section 10 is allowed to supply services upto a value not exceeding 10% of the turnover in a State or UT in preceding financial year or 5 lakhs whichever is higher.

Question 12.
A taxable person having same PAN can opt to pay tax under composition scheme by seeking separate registration for branches?
Answer:
No. A registered person shall not be eligible to opt for the composition scheme unless all such registered persons (branches having separate registration under a single PAN) opt to pay tax under composition scheme.

Multiple Choice Questions

Question 1.
Appointed day means
(a) Date on which the provisions of this act shall comes into force
(b) Date on which president assent
(c) Date on which both houses passed the act
(d) Date on which sent to finance Ministry
Answer:
(a) Date on which the provisions of this act shall comes into force

Question 2.
Threshold limit for composite tax levy is:
(a) ₹ 60 Lacs
(b) ₹ 50 Lacs
(c) ₹ 40 Lacs
(d) ₹ 150 Lacs
Answer:
(d) ₹ 150 Lacs

Question 3.
Taxable levy in case of manufacture under composite scheme is:
(a) 2%
(b) 1%
(c) 3%
(d) 5%
Answer:
(b) 1%

Question 4.
What are the supplies on which reverse charge mechanism would apply?
(a) Notified categories of goods or services or both
(b) Inward supply of goods or services or both from an unregistered A dealer
(c) Both of the above
(d) None of the above
Answer:
(c) Both of the above

Question 5.
Which of the following will be excluded from the computation of ‘aggregate turnover’?
(a) Value of Taxable supplies
(b) Value of Exempt Supplies
(c) Non-taxable supplies
(d) Value of inward supplies on which tax is paid on reverse charge basis
Answer:
(d) Value of inward supplies on which tax is paid on reverse charge basis

Question 6.
Which of the following services are covered under Reverse Charge Mechanism of CGST Act, 2017?
(i) Legal Consultancy
(ii) Goods Transport Agency
(iii) Manpower Supply
(iv) Rent-a-Cab
(a) (i) & (iii)
(b) (i) & (iv)
(c) (i) & (ii)
(d) All the above
Answer:
(c) (i) & (ii)

Question 7.
In case of sponsorship services provided by Mr. A to M/s AB Ltd.. liability to pay GST is on:
(a) Mr. A
(b) M/s AB Ltd.
(c) Both
(d) None of the above
Answer:
(b) M/s AB Ltd.

Question 8.
In case of renting of land, inside an Industrial estate, by State Government to a registered manufacturing company, GST is:
(a) Exempted
(b) Applicable under Normal Charge
(c) Applicable under Reverse Charge
(d) None of the above
Answer:
(c) Applicable under Reverse Charge

Question 9.
Services by a recovery agent to M/s ZZZ Bank Ltd., are liable for GST in the hands of:
(a) M/s ZZZ Bank Ltd.
(b) Recovery agent
(c) Both the above
(d) None of the above
Answer:
(a) M/s ZZZ Bank Ltd.

Question 10.
In case of lottery procured from State Government by a lottery distributor, GST is payable by:
(a) Lottery distributor
(b) State Government
(c) Both the above
(d) None of the above
Answer:
(a) Lottery distributor

Charge of GST Notes

Levy & Collection of CGST/IGST/SGST/UTGST [Sec. 9 of CGST Act]

1. A tax called the Central Goods and Services Tax (CGST)/Union Territory Goods and Services Tax (UTGST)/’ State Goods and Services Tax (SGST) shall be levied on all intra-State supplies of goods or services or both and shall be collected in such manner as may be prescribed and shall be paid by the taxable person. However, intra-State supply of alcoholic liquor for human consumption is outside the purview of CGST/UTGST/SGST.

Similarly, Integrated Goods and Services Tax (IGST) shall be levied on all inter-State supplies of goods or services or both with the exception of alcoholic liquor. However, IGST on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962.

Value for levy: Transaction value under section 15 of the CGST Act Rates of CGST/IGST/SGST/UTGST: Rates for CGST/UTGST/SGST are rates as may be notified by the Government on the recommendations of the GST Council. IGST will be approximately the sum total of CGST and SGST/UTGST
Maximum rate of CGST will be 20% while for IGST, maximum rate will be 40%.

2. However, CGST/UTGST/SGST/IGST on supply of the following items has not been levied immediately. If shall be levied with effect from such date as may be notified by the Government on the recommendation of the Council.

• Petroleum crude
• High speed diesel
• Motor spirit (commonly known as petrol)
• Natural gas and
• Aviation turbine fuel

3. Reverse charge (Tax payable by recipient of supply of goods or services or both) CGST/UTGST/SGST/IGST shall be paid by the recipient of goods or services or both, on reverse charge basis, if the Supply of goods or services or both, notified by the Government on the recommendations of the GST Council.

4. Reverse charge. (Tax payable by recipient of supply of goods or services or both) CGST/UTGST/SGST/IGST shall be paid by the recipient of goods or services or both, on reverse charge basis, if the Supply of taxable goods or services or both by an unregistered supplier to a registered person.

All the provisions of the relevant GST law shall apply to the recipient in the aforesaid cases as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

5. Tax payable by the electronic commerce operator on notified services

1. The Government may notify specific categories of services the tax on intra-State supplies (inter-State supplies in case of IGST) of which shall be paid by the electronic commerce operator (ECO) if such services are supplied through it. Such services shall be notified on the recommendation of the GST Council.

2. All the provisions of the relevant GST law shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services.

The very, basis for the charge of tax in any taxing statute is the taxable event i.e the point on which the levy of tax gets attracted. As discussed earlier, the taxable event under GST is SUPPLY. CGST and SGST/UTGST are levied on all intra-State supplies of goods and/or services while IGST is levied on all inter-State supplies of goods and/ or services.

Intra State Supply
Where the location of the supplier and the place of supply of goods or services are in the same State/Union territory, it is treated as intra-State supply of goods or services respectively.

Inter State Supply
Where the location of the supplier and the place of supply of goods or services are in (i) two different States or (ii) two different Union Territories or (iii) a State and a Union territory, it is treated as inter-State supply of goods or services respectively.

Goods notified under reverse charge u/s 9(3) by notification no. 4/2017 – Central Tax (Rate)

Description of supply of goods	Supplier of goods	Recipient of supply
(3)	(4)	(5)
(i) Cashew nuts, not shelled or peeled	Agriculturist	Any registered person
(ii) Bidi wrapper leaves (tendu)	Agriculturist	Any registered person
(iii) Tobacco leaves	Agriculturist	Any registered person
(iv) Silk yarn	Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn	Any registered person
(v) Supply of lottery.	State Government, Union Territory or any, local authority	Lottery distributor or selling agent. Explanation: For the purposes of this entry, lottery distributor or ‘ selling agent has the same meaning as assigned to it, in clause (c) of Rule 2 of the Lotteries (Regulation) Rules, 2010, made under the provisions of subsection 1 of section 11 of the Lotteries (Regulations) Act, 1998 (17 of 1998).
(vi) Used vehicles, seized and confiscated goods, old and used goods, waste and scrap	Central Government, State Government, Union territory or a local authority	Any registered person
(vii) Raw cotton	Agriculturist	Any registered person
(viii) Priority Sector Lending Certificate	Any registered person	Any registered person

Services notified under reverse charge [Notification No. 13/2017 – Central Tax (Rate)]

Description of Service	Supplier of Service	Recipients of Service [Liable to pay tax]
1. Supply of Services by a goods transport agency (GTA) *who has not paid central tax (CGST) at the rate of 6 in respect of transportation of goods by road to: (a) Any factory registered under or governed by the Factories Act, 1948 (63 of 1948); or (b) any society registered under the Societies Registration Act, 1860 (21 of I860) or under any other law for the time being in force in any part of India; or (c) any co- operative society established by or under any law; or (d) any person regis­tered under CGST/ 1G ST/ SG ST/ UTGST Act; or (e) anybody corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; or (g) any Casual taxable person;	Goods Transport Agency (GTA)	(i) Any factory registered under or governed by the Factories Act, 1948             (63 of 1948); or (ii) any society registered under the Societies Registration Act, 1860(21 of 1860) or under any other law for the time being in force in any part of India; or (iii) any co-operative society established by or under any law; or (iv) any person registered under CGST/IGST/SGST/UTGST Act; or (v) any body corporate estab­lished, by or under any law; or (vi) any partnership firm whether registered or not under any law including association of persons; or (vii) any Casual taxable person; located in the taxable territory.
2. Services provided by an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly. Explanation: “legal service” means any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority * As per Corrigendum issued on 25-Sept-2017	An individual advocate including a senior advocate or firm of advocates	Any Business entity located in the taxable territory.
3. Services supplied by an arbitral tribunal	An arbitral Tribunal	Any Business entity located ip the taxable territory.
4. Services provided by way of sponsorship	Any person	Anybody corporate or partnership firm located in the taxable territory.
5. Services supplied by Central Government, State Government, Union territory or local authority to a business entity excluding: (1) Renting of immov­able property, and, (2) services specified below— (i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Govern­ment or Union territory or local authority; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers.	Central Govern­ment, State Government, Union territory or local authority	Any Business entity located in the taxable territory.
6. Services supplied by a director of a company or a body corporate to the said company or the body corporate;	A director of a company or a body corporate	A company or Body corporate located in the taxable territory.
7. Services supplied by an insurance agent to any person carrying on insurance business	An insurance agent	Any person carrying on insurance business, located in the taxable territory.
8. Services supplied by a recovery agent to a banking company or a financial institution or a non-banking financial company	A recovery agent	A banking company or a financial institution or a non-banking financial company, located in the taxable territory.
9. Supply of services by music composer, photo­grapher, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered under clause (a) of sub­section (1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works to a music company, producer or the like.	Music composer, photographer, artist, or the like.	Music company, Producer or the like, located in the taxable territory.
9A. Supply of services by an author by way of transfer or permitting the use or enjoyment of a copyright covered under section 13(1)(a) of the Copyright Act, 1957 relating to original literary works to a publisher.	Author	Publisher located in the taxable territory.
However, an author can choose to pay tax under forward charge if- (i) he has taken registration under the CGST Act and filed a declaration, in the prescribed form, that he exercises the option to pay CGST on the said service under forward charge in accordance with section 9(1) of the CGST Act and to comply with all the provisions as they apply to a person liable for paying the tax in relation to the supply of any goods and/or services and that he shall not withdraw the said-option within a period of 1 year from the date of exercising such option; (ii) he makes a declaration on the invoice issued by him in prescribed form to the publisher.
10. Supply of services by the members of Overseeing Committee to Reserve Bank of India	Members of Overseeing Committee constituted by the Reserve Bank of India	Reserve Bank of India
11. Services supplied by individual Direct Selling Agents (DSAs) other than a body corporate, partnership or limited liability partnership firm to bank or non-banking financial company (NBFCs)	Individual Direct Selling Agents (DSAs) other than a body corporate, part­nership or limited liability partner­ship firm	A banking company or a non-banking financial company, located in the taxable territory
12. Services provided by business facilitator (BF) to a banking company	Business facilitator (BF)	A banking company, located in the taxable territory
13. Services provided by an agent of business correspondent (BC) to business correspondent (BC)	An agent of business correspondent (BC)	A business corres­pondent, located in the taxable territory
14. Security services (services provided by way of supply of security personnel) provided to a registered person: Provided that nothing contained in this entry shall apply to,: (i)(a) a Department or Establishment of the Central Government or State Government or Union territory; or (b) local authority; or (c) Governmental agencies; which has taken registration under the Central Goods and Services Tax Act, 2017 for the purpose of deducting tax under section 51 of the said Act arid not for making a taxable supply of goods or services; or (ii) a registered person paying tax under section 10 of the said Act.	Any person other than a body corporate	A registered person, located in the taxable territory
15. Services provided by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient, provided to a body corporate.	Any person, other than a body corporate who supplies service to a body corporate & doesn’t issue an invoice charging CGST @6% to service recipient.	Any body corporate located in the taxable territory.
16. Services of lending of securities under Securities Lending Scheme, 1997 (“Scheme”) of Securities and Exchange Board of India, as amended	Lender i.e., a person who deposits securities registered in his name/in the name of any other person duly authorised on his behalf with an approved intermediary for the purpose of lending under Scheme of SEBI	Borrower i.e., a person who borrows the securities under the Scheme through an approved intermediary of SEBI.

In addition to the above list given under Central Tax- Rate, following additional category of supply of services is listed under Notification No. 10/2017- Integrated Tax (Rate) on which GST shall be paid by the recipient on reverse charge basis:

Category of Supply Of Services	Supplier of Service	Recipient of Service
(2)	(3)	(4)
1. Any service supplied by any person who is located in a non- taxable territory to any person other than non-taxable online recipient	Any person located in a non-taxable Territory	Any person located in the taxable territory other than non-taxable online recipient.
2. Services supplied by a person located in non- taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India	A person located in non-taxable Territory	Importer, as defined in clause (26) of section 2 of the Customs Act, 1962(52 of 1952), located in the taxable territory.

GST Rates prescribed for various services
Broadly, four rates of CGST have been notified for services, viz., 2.5%, 6%, 9% and 14%. Equivalent rate of SGST/ UTGST will also be levied. For, IGST, four rates have been notified for services, viz., 5%, 12%, 18% and 28%. For certain specified services, nil rate of tax has been notified.

GST rates in real estate sector:
The effective rate of GST on real estate sector for the new projects by promoters are as follows:

(i) 1 % without ITC on construction of affordable houses (area 60 sqm in metros/90 sqm in non-metros and value upto ₹ 45 lakh).
(ii) 5% without ITC is applicable on construction of:

(a) all houses other than affordable houses, and
(b) commercial apartments such as shops, offices etc. in a residential real estate project (RREP) in which the carpet area of commercial apartments is not more than 15% of total carpet area of all apartments.

Conditions:
Above tax rates shall be available subject to following conditions:
(a) ITC shall not be available
(b) 30% of inputs and input services [other than services by way of grant of development rights, long term lease of land (against upfront payment in the form of. premium, salami, development charges etc.) or FSI (including additional FSI), electricity, high speed diesel, motor spirit, natural gas], used in supplying the service shall be purchased from registered persons.

However, if value of inputs and input services purchased from registered supplier is less than 80%, promoter has to pay GST on reverse charge basis, under section 9(4) of the CGST Act, [discussed earlier], at the rate of 18% on all such inward supplies (to the extent short of 80% of the inward supplies from registered supplier).
Further, where cement is received from an unregistered person, the promoter shall pay tax on supply of such cement on reverse charge basis, under section 9(4) of the CGST Act, at the applicable rate which is 28% (CGST 14% + SGST 14%) at present.

Moreover, GST on capital goods shall be paid by the promoter on reverse charge basis, under section 9(4) of the CGST Act, at the applicable rates [Notification No. 07/2019 CT (R) dated 29.03.2019/ Notification No. 07/2019 IT(R) dated 29.03.2019].

Option To Pay Tax At Concessional Rate under Notification no. 2/2019 CT (R) Dated 07.03.2019:
Overview of the Scheme:
As we have already seen that primarily, the composition scheme is available in respect of goods and only one service namely, restaurant service. Further, marginal supply of other services is permitted along with the supply of goods and/or restaurant service. However, a person engaged exclusively in supply of services other than restaurant service is not eligible for the composition scheme.

In order to provide benefit to such suppliers, a scheme to pay tax at the concessional rate has been formulated primarily for small service providers like salon stylist, tailors etc. who are not otherwise eligible for composition scheme, this scheme is contained in Notification No. 2/2019 CT (R) dated 07.03.2019 as amended.

This notification provides an option to a registered person whose aggregate turnover in the preceding financial year is upto ₹ 50 lakh and who is not eligible to pay tax under composition scheme, to pay tax @ 3% [Effective rate 6% (CGST+SGST/UTGST)] on first supplies of goods and/or services upto an aggregate turnover of ₹ 50 lakh made on/after 1st April in any financial year, subject to specified conditions.

Who are the persons not eligible for composition scheme, but eligible for Notification No. 2/2019 CT(R)?
A registered person whose aggregate turnover in the preceding financial year does not exceed ₹ 50 lakh and who is exclusively engaged in supplying services other than restaurant services.

Conditions to be fulfilled:
The conditions for availing the concessional rate of tax under Notification No. 2/2019 CT(R) are primarily same as the conditions for availing the composition scheme with few exceptions, the same have been elaborated as under:

1. Supplies are made by a registered person who is:

• not engaged in making any supply which is not leviable to tax under the said Act. Under composition scheme, restriction is only on supply of goods not leviable to tax.
• not engaged in making any inter-state outward supply- neither of goods nor of services, this condition is a divergence from the composition scheme where the restriction is only on making inter-state outward supply of goods and not on inter-state outward supply of services.
• neither a casual taxable person nor a non-resident taxable person.
• not engaged in making any supply through an electronic commerce operator who is required to collect tax at source under Section 52.
• not engaged in making supplies of- notified goods, namely, ice cream and other edible ice, whether or not containing cocoa [2105 00 00], Pan masala [2106 90 20] and all goods of chapter 24, i.e. Tobacco and manufactured tobacco substitutes, under composition scheme, condition is that the supplier should not be engaged in manufacture of notified goods.

2. The registered person shall-not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.

3. The registered person shall issue a bill of supply** instead of tax invoice. Such bill of supply will have the following words at its top – ‘taxable person paying tax in terms of Notification No. 2/2019 CT (R) dated 07.03.2019, not eligible to collect tax on supplies’.

**Order No. 3/2019 CT dated 08.03.2019 has clarified that provisions of Section 31 (3)(c) of the CGST Act, 2017 [containing provisions relating to Bill of Supply] shall also apply to a person paying tax under this notification 25.

Other significant points:
1. Where more than one registered persons are having the same PAN, tax on supplies by all such registered persons is paid at concessional rate under this notification.

2. The registered person opting to pay tax at concessional rate under this notification shall be liable to pay:

• (CGST @ 3% + SGST/UTGST @ 3%) on all outward supplies- first supplies of goods or services or both upto an aggregate turnover of ₹ 50 lakh made on or after 1^st April in any F.Y. – regardless of any exemption from tax available to such supplies or any notification issued under Section 9(1).
• Tax on inward supplies on which he is liable to pay tax under Section 9(3)/9(4) (reverse charge) at the applicable rates.

3. In computing aggregate turnover in order to determine eligibility of a registered person to pay tax at concessional rate under this notification, value of supply of exempt services 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.

4. Where any registered person who has availed of ITC opts to pay tax under this notification, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger.

Said amount shall be equivalent to the ITC in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods as if the supply made under this notification attracts the provisions of Section 18(4) of the CGST Act, and the rules made there under.

After payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse. Section 18(4) and related rules have been discussed in detail in chapter 6 – Input Tax Credit.

5. The CGST Rules, 2017, as applicable to a person paying tax under composition scheme shall, mutatis mutandis, apply to a person paying tax under this notification.

First supplies of goods or services or both shall for the purposes of determining eligibility of a person to pay tax under-this notification, include the supplies from 1^st April of a F.Y. to the date from which he becomes liable for registration under the said Act but for the purpose of determination of tax payable under this notification, shall not include the supplies form the first day of April of a financial year to the date from which he becomes liable for registration under the Act.

Composition Levy [Sec. 10]
Applicability [Sec. 10(1)]
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 ₹ 50 lakh [increased to 150 lacs as increased vide notification no. 14/2019 – Central Tax (₹ 75 lakh in specified State)], may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not exceeding,:

(a) one percent of the turnover in State or turnover in Union territory in case of a manufacturer,

(b) two and a half percent 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, i.e. restaurant or any other article for human consumption treated as service.

(c) half percent, of the turnover in State or turnover in Union territory in case of other suppliers, e.g Traders subject to such conditions and restrictions as may be prescribed:
Provided that the Government may, by notification, increase the said limit of 50 lakh rupees to such higher amount not exceeding 150 lacs, as may be recommended by the Council.

“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 percent of turnover in a State or Union territory in the preceding financial year or live lakh rupees, whichever is higher.;

Due to the amendment, the manufacturer and traders can opt for composition scheme even if they supply services, provided that the value of such service should not exceed 5 lakh or 10% of turnover in the preceding F.Y., whichever is high.

This amendment is directed to solve the problem of small businesses who were earlier unable to opt for composition in lieu of very small income of service nature (like commercial rent, commission etc).

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.

Rate of Tax [Rule 7]

Rate of Tax [Rule 7]
Category	% of Turnover in state or UT
	Rate under CGST	Rate under SGST(Not Mentioned in Rule 7)	Total Rate(Not Mentioned in Rule 7)
Manufactures	0.5%	0.5%	1% of turnover in State/UT
Restaurants	2.5%	2.5%	5% of turnover in State/UT
Traders	0.5%	0.5%	1% of Turnover in State/UT

Provided that the aggregate turnover in the preceding financial year shall be seventy five lakh rupees in the case of an eligible registered person, registered under Section 25 of the said Act, in any following Slates, namely:

1. Arunachal Pradesh,
2. Uttarakhand
3. Manipur,
4. Meghalaya,
5. Mizoram.
6. Nagaland,
7. Sikkim,
8. Tripura:

Provided further that the registered person shall not be eligible to opt for composition levy under sub-section (1) of Section 10 of the said Act if such person is a manufacturer of the goods, the description of which is specified in column (3) of the Table below and falling under the tariff item, sub-heading, heading or Chapter, as the case may be, as specified in the corresponding entry in column (2) of the said Table:

Tariff item sub-heading, heading or Chapter	Description
1. 2105 00 00	Ice cream and other edible ice, whether or not containing cocoa.
2. 2106 90 20	Pan Masala
3. 24	All goods, i.e. Tobacco and manufactured tobacco substitutes

Explanation:

(1) In this Table, ‘tariff item”, sub-heading, ‘heading” and chapter” shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).

(2) The rules for the interpretation of the First Schedule to the said Customs Tariff Act, 1975 (51 of 1975), including the section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this notification.

Analysis Optional scheme
A person may reject the scheme and may opt for normal procedure but only from beginning of the year.
These rates are under one Act, and same rate is applicable in the other Act also. So, effectively, the composition rates (combined rate under CGST and SGST/UTGST)are 1%, 2% and 5% for normal supplier, manufacturer and restaurant service respectively.

The benefit of composition scheme can be availed up to the aggregate turnover of ₹ 150 Lakhs/ ₹ 75 lakhs in specified States in preceding financial year.

Eligibility to opt composition Levy [Sec. 10(2)]
The registered person shall be eligible to opt under subsection (1), if:—

(a) Save as provided in sub- section (1) he is not engaged in the supply of services

(b) he is not engaged in making any supply of goods or services which are not leviable to tax under this Act; i.e Exempt supply etc. he is not engaged in making any inter-State outward supplies of goods or services; Inter-State purchase is allowed in composition scheme, he is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at sourçe under section 52; and he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council and:

(c) he is neither a casual taxable person nor a non-resident taxable person.

Provided that where more than one registered persons are having the same PAN, 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 subsection.

Example:
A Ltd. has 4 units located in Delhi, Haryana, Punjab and Gujarat. Each unit has to obtain separate registration in each State though all the units have same PAN. Condition is that all 4 units have to opt for composition levy or all have to pay under normal scheme.

Example:
Mrs. Shreya a taxable person has the following establishments registered separately.

• Supply of Garments (Registered in Gurgaon)
• Supply of Computers (Registered in Gurgaon)
• Franchisee of Domino’s (Registered in Punjab)

In this case, the composition scheme is applicable for all Mrs. Shreya is not eligible to opt composition scheme for supply of garments business only.

Analysis:

1. If any dealer is procuring goods from outside the State, he is eligible for composition scheme.
2. Inter-State sale is not allowed in composition scheme.

Person providing exempted service is eligible for composition scheme

(i) A person supplies goods and/or services referred to in clause (b) of paragraph 6 of Schedule II of the said Act (restaurant service) and also supplies any exempt services including services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, the said person shall not be ineligible for the composition scheme subject to the fulfilment of all other conditions specified therein.

Further, while computing aggregate turnover of such person in order to determiné his eligibility for composition scheme, value of supply of any exempt services including services by way of extending deposits, loans or advances in so tar as the consideration is represented by way of interest or discount, shall not be taken into account [Order No. 01/2017 CT dated 13.10.2017].

Switch to normal scheme if aggregate turnover exceeds 150 lacs or 75 lacs as the case may be
The option availed of by a registered person under subsection (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).
Not to collect any tax from the recipient nor take ITC [Sec. 10(4)]

A taxable person to whom the provisions of sub-section (1) apply shall not collect any lax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.
Penal provision to violation of the conditions [Sec. 10(5)]

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.

Other provision related to Composition Levy
Eligible for input tax credit when cease to pay tax under this scheme [Section 18(1)(c)]
Where any registered person ceases to pay tax under this scheme, he shall be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi finished or finished goods held in stock and on Capital goods on the day immediately preceding the date from which he becomes liable to pay tax under regular scheme.

Issue bill of supply instead of tax invoice [Section 31(3)]
A person under this scheme shall issue bill of supply instead of Tax invoice

Quarterly Return for Composite Scheme [Sec. 39(2)]
A registered person paying tax under the provisions of section 10 shall, for each quarter or part thereof, furnish, in such form and manner as may be prescribed, a return, electronically, of turnover in the State or Union territory, inward supplies of goods or services or both, tax payable and tax paid within eighteen days after the end of such quarter.