Whether he is eligible to be in the composition scheme as his aggregate turnover is much less than Rs. 50, 00,000?

PJ/Case Law/2020-2021/3568

M/s Empathic Trading Centre KAR ADRG 28/2020 dated 23/04/2020
Brief Facts:- The Applicant is engaged in the business of supplying goods and is also a supplier of service of renting of immovable property and both the activities of the applicant are taxable. He is currently registered under composition scheme as his turnover is less than Rs.50 Lakhs.
Issue: -1. Whether he is eligible to be in the composition scheme as his aggregate turnover is much less than Rs. 50, 00,000?
2. Whether the rate of composition tax applicable is 1% for the turnover of goods (sales) and 6% for the turnover of service (rent). The two separate taxes amounts to be totalled and paid or is it 6% as a whole for the aggregate turnover of goods and service turnover that is to be paid?
Applicant Contention: -The contention of the Applicant is that since the turnover is less than Rs.50 lakhs, he is eligible for composition scheme as the scheme is applicable to both sale of goods and service. The applicant further submits that the supply of goods and the supply of service are unrelated and totally unconnected and hence he is liable to pay 1% as composition tax on supply of goods and 6% on the supply of service.
Reasoning of the Judgement: -The Authority states that there is no dispute that both the activities of the applicant are taxable and also supplied by the same person. The authority further discusses the eligibility of composition scheme under section 10. The applicant admittedly is supplying services and hence the eligibility for composition scheme is dependent on the satisfaction of the condition stipulated in the second proviso to sub-section (1) of section 10. If the turnover of services of the applicant exceeds ten per cent of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher, then he shall not be eligible to composition scheme.
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. Hence the applicant is not eligible for composition under section 10 of the CGST Act if the turnover of services of the applicant exceeds Rs.5 Lakhs or ten percent of turnover is the state, whichever is higher.
Coming to the notification no.2/ 2019 - Central Tax (Rate) dated 07.03.2019, the said notification prescribes the rate of tax for the "first supplies of goods or services or both upto 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.
The conditions for the scheme are as under:"1. Supplies are made by a registered person, -
(i) whose aggregate turnover in the preceding financial year was fifty lakh rupees or below;
(ii) who is not eligible to pay tax under sub-section (1) of section 10 of the said Act
The authority for advance ruling has held that the 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 since the applicant does not satisfy the above condition as he is registered under Section 10 of CGST Act, 2017 , he could not opt for the prescribed notification 2/2019 CTR although he satisfies the other condition of the turnover limit is less than Rs.50 Lakhs and hence he satisfies this condition and other conditions are not applicable to him. Hence the applicant is not eligible to pay tax under the registered as Composition Taxpayer.
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. 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". 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.
Held:-
1.The authority for advance ruling held that 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 ten per cent of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher.
2. The applicant is not eligible to opt to pay tax under the Notification No.2/2019- Central Tax (Rate) dated 07.03.2019 and under the Notification (02/2019) No. FD 48 CSL 2017 dated 07.03.2019 of the Government of Karnataka as the applicant is registered as a Composition Taxpayer.
3. 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.
Comment: - 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.
Prepared by- Kartik Singhvi

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PJ/Case Law/2020-2021/3568

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