Can an applicant who is supplier of both goods and services claim benefit of Composition levy under Section 10 as well as Notification No 02/2019- Central Tax Rate
Composition Scheme was introduced under the GST regime to provide benefits to small businesses. Thus, an option has been provided where they can opt to pay a fixed percentage of turnover in lieu of tax. Person opting for composition scheme will be relieved from detailed compliances required under GST law. Further, the Government vide Notification No. 02/2019 has provided an option of 6% tax rate on first supplies of goods or services or both upto an aggregate turnover of fifty Iakh rupees made on or after the 1st day of April in any financial year. Question is if an applicant being supplier of both goods and services being 2 distinct business can avail both benefits of composition scheme as well as the scheme provided under the notification by separating the goods under composition scheme and the services under 6% of in accordance with the notification. We will understand this with an very interesting case of of M/s Empathic Trading Centre in an Advance Ruling.
Features of the Composition Scheme are as follows:-
- Businesses with annual turnover up to Rs 1.5 crore in the preceding financial year can opt for composition scheme.
- Service providers with aggregate turnover not exceeding Rs 50 lakh in the preceding financial year can opt for composition scheme.
- Turnover of all businesses with same PAN has to be added up to calculate turnover for the purpose of composition scheme.
- Only manufacturers of goods, dealers, and restaurants (not serving alcohol) can opt for composition scheme.
- GST Rate applicable under the Composition Levy is as under:-
i. For manufacturers & traders – 1% [0.5% CGST & 0.5% SGST]
ii. For restaurants (not serving alcohol) – 5% [2.5% CGST & 2.5% SGST]
iii. For other suppliers – 0.5% [0.25% CGST & 0.25% SGST]
iv. Supplier of Service – 6% [3% CGST & 3% SGST]
Provisions of the Law
It is important to know what exactly the relevant sections and notifications of the Act state, before we move further.
Section 10 of the CGST Act, reads as under:
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 fifty lakh rupees may opt to pay, in lieu of the tax payable by him under sub-section (1) of section 9, an amount of tax calculated at such rate as may be prescribed, but not exceeding,-
a. 1% of the turnover in State in case of a manufacturer,
b. 2.5%, of the turnover in State in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and
c. 0.5%, of the turnover in State in case of other suppliers, subject to such conditions and restrictions as may be prescribed:
Provided that the Government may, by notification, increase the said limit of fifty lakh rupees to such higher amount, not exceeding one crore and fifty lakh rupees, 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 per cent, of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher.
Notification No. 02/2019-Central Tax (Rate)
“prescribes rate of tax of 6% on first supplies of goods or services or both upto an aggregate turnover of fifty Iakh rupees made on or after the 1st day of April in any financial year, by a registered person and is not issued under section 10 of the CGST Act, 2017”.
An applicant who is supplier of goods as well as services can he claim benefit of Composition levy under Section 10 of the CGST Act as well as Notification No. 02/2019-Central Tax (Rate)?
In the Case of M/s Empathic Trading Centre in an Advance Ruling clarity has been given on the above question.
Facts of the Case
- Mr Ghalib Iqbal Sheriff is the proprietor of M/s Empathic Trading Centre, has filed an application for Advance Ruling under Section 97 of CGST Act, 2017.
- The applicant is a proprietary concern registered under GST.
- The applicant states that he is:-
i. Engaged in the business of supplying goods under the trade name “Empathic Trading Centre” &
ii. A Supplier of service of renting of immovable property.
4. He states that there is no connection whatsoever between the two lines of business and they are two separate and distinct business activities.
5. He also states that he is currently under composition scheme, having migrated to the composition scheme with effect from 01.04.2019 by virtue of Notification No 2/2019 as his aggregate turnover is much less than Rs.50,00,000 per annum.
6. Applicant contends that he is liable to pay 1% as composition tax on supply of goods and 6% on the supply of service. The two totalled amounts have been paid.
The applicant has sought advance ruling in respect of the following questions:
- Whether he is eligible to be in the composition scheme as his aggregate turnover is much less than Rs. 50,00,000?
- Issue pertaining to tax rate chargeable is:-
i. Whether two separate tax amounts are to be totalled where the rate of tax applicable is 1% for the turnover of goods (sales) & 6% for the turnover of service (rent)?
ii. Is tax payable at 6% as a whole for the aggregate turnover of goods and service turnover that is to be paid
Observations and Findings
The AAR has observed the following
- The applicant admittedly has two lines of business, one for the supply of goods and other for the supply of services where the annual aggregate turnover of both the activities put together is not more than Rs.50 Lakhs.
- There is no dispute that both the activities of the applicant are taxable and also supplied by the same person.
- It is provided in Section 10 of the CGST Act that a person who opts to pay tax under composition scheme may supply services (other than restaurant service – not serving alcohol), of value not exceeding, higher of:-
i. 10% of turnover in a State or Union territory in the preceding financial year
ii. Rs five lakh.
4. The applicant admittedly is supplying services and hence the eligibility for composition scheme is dependent on the satisfaction of the condition mentioned above.
5. If the turnover of services of the applicant exceeds 10% of turnover in a State or Union territory in the preceding financial year or Rs 5 lakh, whichever is higher, then he shall not be eligible to composition scheme.
6. Even if the applicant obtains separate registration, one for the goods and other for the services, he would not be eligible for composition for both the lines of business.
7. Coming to the Notification No 2/2019, the said notification prescribes the rate of tax for the “first supplies of goods or services or both up to an aggregate turnover of fifty lakh rupees made on or after the 1st day of April in any financial year, by a registered person” and is not issued under section 10 of the CGST Act, 2017. Hence it is not a composition scheme but is an optional scheme.
8. On scrutiny of the above conditions, an applicant shall be eligible to pay tax under the said notification, only if the applicant is not eligible to pay tax under section 10(1) of the CGST Act and the applicant does not satisfy the above condition as he is registered under Section 10 of CGST Act, 2017.
9. Regarding the other condition, the applicant has admitted that his aggregate turnover is less than Rs.50 Lakhs and hence he satisfies this condition and other conditions are not applicable to him.
10. Hence, the applicant is not eligible to pay tax under the registered as Composition Taxpayer.
11. If the applicant opts out of the Composition levy and he obtains separate registrations for the two lines of business, as per second condition, he shall be liable to pay tax at 3% CGST and 3% SGST on the each of the turnovers of the registrations.
12. The tax is on the entire aggregate turnover i.e all the “first supplies of goods or services or both upto an aggregate turnover of Rs.50 Lakhs”.
13. Hence the applicant is liable to pay tax under CGST Act at 3% and at 3% under KGST Act, if he opts to pay tax under the said Notification after opting out of Composition levy on the entire value of supplies made and he cannot apply different schemes for different types of transactions.
- The applicant is eligible to be in the composition scheme under section 10 of the CGST Act, 2017 if the turnover of services of the applicant does not exceed 10% of turnover in a State or Union territory in the preceding financial year or Rs 5lakh, whichever is higher.
- The applicant is not eligible to opt to pay tax under the Notification No 2/2019 as the applicant is registered as a Composition Taxpayer.
- The rate of tax applicable on the entire value is 3% CGST and 3% KGST and he cannot pay tax at 1% on supply of goods and 6% tax on the supply of services.
Therefore the applicant will have to opt out of composition scheme and is liable to pay tax under CGST Act at 3% and at 3% under KGST Act since he is not eligible under composition scheme. Further, he cannot avail benefit of both as the Notification is optional i.e. he can either opt under the notification or under section 10 of composition scheme and not both.