GST UPDATE ON COMPOSITION SCHEME FOR SERVICE PROVIDERS

In the 32^nd GST Council Meeting held on 10.01.2019, proposal was made for introducing composition scheme for suppliers of services and supplier of services and goods both and this has been finally implemented vide Notification No. 2/2019-Central Tax (Rate) dated 07.03.2019. However, the notification does not have reference of section 10 of the CGST Act, 2017 pertaining to composition levy. The notification no. 2/2019 has been issued as Central Tax (Rate) Notification having reference of section 9(1) pertaining to levy and collection, section 11(1) specifying power to grant exemption from tax and section 16(1) of the CGST Act, 2017 stating eligibility and conditions for taking input tax credit. The main portion of the notification specifying the powers under which the notification has been issued itself indicates that the notification no. 2/2019-Central Tax (Rate) is not composition scheme and rather it is kind of exemption notification.
The composition levy under section 10 of the CGST Act, 2017 is different from the levy of GST under section 9 of the CGST Act, 2017 (normal scheme). As per the notification, the first supplies of goods or services or both upto an aggregate turnover of fifty lakh rupees made on or after 1^st April, in any financial year by a registered person shall attract central tax at the rate of three per cent on all outward supplies subject to fulfilment of the condition that supplies made in the preceding financial year was fifty lakhs rupees or below. Furthermore, there is an explanation to the notification which reads as follows:-
Explanation.-For the purposes of this notification, the expression “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 the first day of April of a financial year 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 from the first day of April of a financial year to the date from which he becomes liable for registration under the Act.

Now, since this scheme is applicable with effect from 01.04.2019, there is doubt amongst the already registered assessees having turnover less than Rs. 50 Lakhs in preceding financial year to avail the benefit of this notification no. 2/2019 along with the benefit of Rs. 20 Lakhs given under section 22(1) of the CGST Act, 2017. This is for the reason that the limit of Rs. 20 Lakhs given under section 22(1) of the CGST Act, 2017 is not exemption threshold but the limit for getting registration under GST Law. Now, if an assessee wants to avail dual benefit, whether it is possible to surrender the registration so that the benefit of notification no. 2/2019 along with benefit of Rs. 20 Lakhs given under section 22(1) of the CGST Act, 2017 is availed? It is submitted that even if the benefit of Rs. 20 lakhs is availed by surrendering the existing registration, then too, the benefit of Rs. 20 Lakhs will be available only if there is no liability under reverse charge mechanism as if there is any such liability, assessee will be mandatorily required to get registration under section 24 of the CGST Act, 2017.The above provision can be explained with the help of an example as follows:-

M/s ABC Pvt. Ltd. is engaged in providing consultancy services. The aggregate turnover in the financial year 2018-19 was Rs. 35 Lakhs. M/s ABC Pvt. Ltd. has surrendered its existing registration on 31.03.2019. The value of supplies made during the month of April, 2019 was Rs. 2 Lakhs. M/s ABC Pvt. Ltd. received services from advocate in the month of May, 2019 and paid the advocate an amount of Rs. 50,000/- on 17.05.2019. Consequently, M/s ABC Pvt. Ltd. became liable to get registration in the month of May, 2017 and is required to take registration within period of 30 days from 17.05.2019. Now, suppose, the value of supplies made upto 17.05.2019 is Rs. 75,000/-.

According to the explanation, the value of supplies made from 01.04.2019 will be included for computing the eligibility limit of applicability of composition levy to the extent of Rs. 50 Lakhs but no tax will be payable under composition scheme for the supplies made from 01.04.2019 to 17.05.2019. M/s ABC will be liable to pay GST at the rate of 6% only on supplies made w.e.f. 18.05.2019.

It is submitted that the limit of Rs. 20 Lakhs given under section 22 (1) of the CGST Act, 2017 is only with respect to registration under the GST Law and is not any threshold limit of exemption. Consequently, the assessee is not liable to pay GST only upto the time when he is not liable to get registration as per section 22(1) of the CGST Act, 2017. It is pertinent to mention that section 24 of the CGST Act, 2017 specifies the categories wherein compulsory registration is to be taken by the assessee in certain cases wherein one of the case is liability to pay GST under reverse charge. As the para 7 of the notification clearly states that the assessee opting for composition levy will be liable to pay GST at applicable rates under reverse charge mechanism, the assessee will be liable to pay GST at the rate of 6% as soon as the assessee becomes liable to take registration even under section 24 of the CGST Act, 2017. It is pertinent to mention that the section 24 of the CGST Act, 2017 only overrides the section 22(1) and does not override section 23. However, since the assessee engaged in exempted supply of goods or services cannot opt for composition scheme, the assessee is not rescued by the rigours of section 24 pertaining to mandatory registration.

Now, another question that needs to be answered is the compliance to be done by the assessees under notification no. 2/2019. It is worth noting that one Removal of Difficulty Order No. 3/2019-Central Tax dated 08.03.2019 has been issued in order to clarify that person option for the notification no. 2/2019 shall issue bill of supply under section 31(3)(c) of the CGST Act, 2017. However, there is no mention regarding the returns to be filed by such assessee. Presently, the assessees opting for composition scheme under section 10 of the CGST Act, 2017 are required to file quarterly return under GSTR-4 and even the form of annual return for such assessees is GSTR-9A. However, since the present composition scheme for service providers is not covered under section 10 of the CGST Act, 2017, a suitable clarification as regards the applicability of returns is expected from the government. Moreover, there are separate Rules for composition dealers regarding restriction of inter-state goods/imported goods held in stock on the date of exercising option of composition scheme. There is also procedure for withdrawal from the scheme and procedure for giving stock details on the date of opting out from the scheme in order to avail the input tax credit. It is worth noting that all the Rules specifically have reference of section 10 of the CGST Act, 2017 but since the present composition scheme for supplier of services or goods or services both does not mention section 10, it is sure that the said Composition Rules are not applicable for assessee opting for composition under notification 2/2019. Well, it appears that a lot is required to be done by government else it will lead to chaos and confusion as regards the new composition scheme launched by them.This is solely for the educational purpose.
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GST UPDATE ON COMPOSITION SCHEME FOR SERVICE PROVIDERS

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