MEANING OF TURNOVER FOR APPLYING TAX RATE UNDER COMPOSITION SCHEME:

As we all know that the composition scheme is being introduced by the government to make compliance easy for small scale manufacturers, traders and restaurant service providers. The composition scheme given under section 10 of the CGST Act, 2017 is nothing but option to pay tax at reduced rate without the facility of cenvat credit. This special scheme is admissible to a registered person whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees. We know that the definition of aggregate turnover under section 2 (6) of the CGST Act, 2017 is very wide in scope including all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, export of goods or services, inter-state supplies of persons having same PAN to be computed on all India basis but excludes Central tax , State tax, Union Territory Tax , Integrated Tax and Cess. Moreover, exempt supply under section 2(47) of the CGST Act, 2017 includes non-taxable supply also. Hence, any kind of supply will be considered for the purpose of aggregate turnover. However, the question arises that whether an assessee opting for composition scheme and making both taxable and exempt supplies is liable to pay GST on the turnover pertaining to exempt supplies also? The section 10 of CGST Act says that a registered person opting for composition scheme may pay an amount calculated at one per cent of the turnover in State or turnover in Union Territory in case of a manufacturer in lieu of the tax payable by him. Likewise, restaurant service provider is liable to pay two and a half per cent of the turnover in State or Union Territory while other suppliers are liable to pay half per cent of the turnover in State or Union Territory. Now, the question that arises is that whether the turnover for applying one per cent/two and a half per cent/half per cent also includes exempt or non-taxable supplies within its ambit?

The answer to this question is contained in definition of ‘turnover in State’ or ‘turnover in Union Territory’ given under section 2(112) of the CGST Act, 2017 which reads as follows:-
(112) “turnover in State” or “turnover in Union territory” 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) and exempt supplies made within a State or Union territory by a taxable person, exports of goods or services or both and inter-State supplies of goods or services or both made from the State or Union territory by the said taxable person but excludes central tax, State tax, Union territory tax, integrated tax and cess;

From perusal of the above provision, it is clear that composition taxpayers are required to pay one per cent of the total turnover including exempt and non taxable supplies. Now, one question that arises in the mind is whether the definition given in section 2(112) of the CGST Act, 2017 applies for the purpose of composition scheme as this definition also includes inter-state supplies which is clearly excluded in the composition scheme. Moreover, as per section 10(2)(b), a registered person opting for composition scheme is should also not be engaged in making any supply of goods which are not leviable to tax under this Act (called as non-taxable supplies) which is again included in the definition of ‘turnover in State’. Hence, the clear cut restrictions under composition scheme are also part of the definition of ‘turnover in State’ as discussed above. Therefore, this brings anomaly in applying the definition of ‘turnover in State’ to for the purpose of composition scheme. We hope to see a clarification on this issue in the GST regime.

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MEANING OF TURNOVER FOR APPLYING TAX RATE UNDER COMPOSITION SCHEME:

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