March 13, 2019

Composition Scheme extended to supplier of Services

As per recent amendment in GST Amendment act 2018, Composite dealer under section 10(1) can supplies services in addition to goods. Provided that value of services supplied doesn’t not exceed 10% of turnover in a state or INR 5,00,000, whichever is higher.

However, there are many service providers who could not opt for the benefit of the Composition Scheme for Services Provider under section 10(1) since their turnover is more than 5 lakhs.

Such supplier of services have to get them registration under GST once there aggregate turnover is more than 20 lakhs i.e. and The benefits under composition scheme extended to supplier of services as well in cases where there are supplier of services or goods or both, whose turnover limits is upto 50 lakh in preceding financial year,

Central Board of Indirect Taxes and Customs (“CBIC”) issued Notification No. 2/2019-Central Tax (Rate) dated 7th March, 2019 to give effect to such recommendation.

Provision under Composition Scheme for Services Provider

Key provisions of composition scheme for services provider as per notification are as follows:

1. Applicability

Every supplier of goods or service or both may opt for composition scheme. However, benefit of such scheme is available only for first aggregate turnover up to INR 50 lakhs made from 1st April in any financial year.

2. Applicable GST rate

Supplier would be liable to discharge GST under this scheme at the rate of 3% CGST & 3% SGST.

3. Specific Conditions for opting benefits under composition scheme for services provider

Supplier of services or goods or both shall be entitled to opt for Composition Scheme for Services Provider subject to following conditions:

Aggregate turnover of supplier during preceding F.Y. has not exceeded Rs 50 Lakhs.
Supplier is not eligible to pay tax section 10(1) of the CGST Act, 2017. Section 10(1) provides for benefit of composition scheme for supplier of goods or supplier of food or beverages at restaurant.
Supplier is not engaged in any supply, whether of goods or service, which is not leviable to Goods and service tax. Please note, if supplier is supplying exempted goods or services then he is still eligible for composition scheme.
Supplier is not engaged in making any inter-state supply.
Person is neither a casual taxable person nor a non-resident taxable person.
Supplier is not making supply through e-commerce operator who is liable to collect Tax Collected at Source (“TCS”)
Person is not engaged in making any supply specified under tariff heading 21050000 (Ice cream and other edible ice cream), 21069020 (Pan Masala) and 24 (All goods, i.e., Tobacco and manufactured Tobacco subsititues).

4. How to calculate tax liability under composition scheme for service provider.

To determine eligibility under this notification, supplies made from 1st April till the date person becomes liable to register under GST shall be added While computing “First supplies of goods or services or both”.

E.g. An unregistered person starts intra-state supply of service from 1st April. His liability to register under GST arises when his turnover exceeds threshold limit of INR 20 Lakhs. After obtaining registration, such registered person makes supply worth of INR 45 Lakhs.

Accordingly, person shall be entitled to opt composition scheme upto first supply of Rs. 50 Lakhs. He is required to discharge GST on remaining INR 25 Lakhs at applicable rates under this notification.

5. Other Points to be Considered:

If supplier is having more than one registration then all units will be required to opt this scheme. Accordingly, GST on all supplies should be discharged at 6% upto first aggregate turnover of INR 50 Lakhs.
Supplier will not collect GST from recipient, i.e., he should discharge GST from his own pocket.
Supplier will not be entitled to avail Input Tax Credit (“ITC”)
Supply of goods or service shall be made under cover of “Bill of Supply” issued in pursuance of provisions given u/s 31 of CGST Act, 2017 read with Rule 49 of CGST Rules.
Further, he should mention on words on top of bill of supply that “taxable person paying tax in terms of notification No. 2/2019-Central Tax (Rate) dated 07.03.2019, not eligible to collect tax on supplies”
If supplier is engaged in supply of exempted goods or service also and he opt for composition scheme under this notification then he is required to discharge GST on such exempted supplies also under this scheme.
Supplier will be liable to pay GST under reverse charge mechanism as per Section 9(3) or 9(4) of CGST Act, 2017.
“Aggregate Turnover” means aggregate value of all taxable supplies, inward supply on which GST is payable under reverse charge and exempt supplies by all persons having same PAN. Annual turnover is to be computed on all India Basis.
While computing “Aggregate Turnover” value of exempt services by way of providing deposits, loans or advances where consideration given by way of interest or discount, shall not be taken into account.

Simplified GST compliance as supplier is required to a file a single return (GSTR-4) on quarterly basis instead of multiple return.
GST liability should be discharged on quarterly basis instead of monthly basis.
Least complexity of records as such person is not entitled to claim ITC.

This Notification shall come into effect from 1st April, 2019.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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