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Analysis of Composition Scheme Under New Model GST Law



Section 9 of the law prescribes that any person whose annual aggregate turnover in the preceding financial year has not exceeded Rs. 50 lakhs can opt for composition scheme under GST. Under this scheme, on approval of proper officer, taxpayer has to pay taxes at the prescribed rates which shall not be less than 1%. 

Persons who are engaged in 1) manufacturing of specified goods or supply of services or 2) supply of exempted goods 3) Inter-state outward supply 4) Supply through e-commerce operator shall not be eligible to claim the benefit of Composition scheme.    

First proviso to section 9(1) provides that the manufacturers are ineligible to claim benefit of composition scheme. As per Section 2(66) of the CGST/SGST Act, “Manufacturer” shall have the meaning assigned to it by the Central Excise Act 1944. Central Excise Act 1944 defines “manufacture” to includes any process, -
(i)  incidental or ancillary to the completion of a manufactured product;
(ii)  which is specified in relation to any goods in the Section or Chapter Notes of the first Schedule to the Central Excise Tariff Act, 1985 (5of 1986) as amounting to manufacture; or
(iii) Which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labeling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer,
and the word “manufacturer” shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his account ;

It is to be construed from the above definition and explanation that only the manufacturer and not the supplier shall be ineligible for claiming the benefit. It has to be specifically categorized that whether a particular activity by the assessee is manufacture or not. If it is an activity other than manufacture, Assessee can opt to pay GST under the composition scheme of the act.

Section 9(2) of the Act prescribes that assessee shall automatically be covered under the normal provisions of the law once his aggregate turnover exceeds      Rs. 50 lakhs. Aggregate Turnover as defined by section 2(6) of the Act includes all the taxable supplies, exempt supplies and the export of goods and/or services of a person having same PAN, to be computed on all India Basis and excludes taxes, if any, charges under the CGST Act, SGST Act and IGST Act.   

Further as per section 9(3) of the Act, composition assessee shall not charge any tax from the consumer and hence such tax to be paid by such assessee shall become his cost. Simultaneously section 16 of the Act prescribes that neither such composition taxpayer shall be eligible to claim Input Tax Credit on his purchases nor shall be able to pass on such credit to his customers.   


by:
Keshav R Garg
(B.Com, FCA, CS, ISA (ICAI))
Faculty for GST: Indirect Tax Committee of ICAI
Author: Bharat's GST Ready Reckoner
            A Handbook on GST
Adviser for GST: Industries Association of Chandigarh 
Member: Indirect Tax Committee of CII, PHDCCI, MyGst.MyTax Foundation
Address: 3328, Sector 27 D, Chandigarh, India - 160 019
Phones: +91-172-461-3328, +91-98880-90008
Mails: mygst.mytax@gmail.com, keshavgarg@kdai.in   

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