GST – Composition Scheme Rules

We have covered the basic features, merits and demerits of Composition Scheme in our earlier articles. Now let’s discuss the rules issued by the government regarding the same. These rules cover the topics of intimation procedure, effective date, conditions, restrictions, validity, and rate of tax regarding the composition scheme.

Intimation Procedure

If any taxpayer wishes to seek registration under section 10 of the Act, then he is required to give intimation about his intention to apply for registration under the scheme. For this purpose, taxpayers are divided into the following categories:

Taxpayers already registered in the old regime

under any old laws relating to VAT, CST, Service Tax or any other laws relating to any other indirect tax now to be replaced by GST in the new tax structure.

These taxpayers are required to file an intimation in Form GST CMP-01, on the common portal either

  • Before the appointed day, or
  • Within 30 days from the appointed day, however, if the intimation is made after appointed day then the taxpayer shall not collect tax but shall issue bills of supply.

Taxpayers seeking first-time registration under GST

A taxpayer who was not covered under any of the old laws, but wish to seek registration under the GST and also wish to apply for registration under Composition Scheme.

For this purpose, the taxpayer can intimate by providing the information in Part-B of Form GST REG-01 the form for applying for registration under GST.

Taxpayers registered under GST and seeking registration under the scheme

They are required to file

  • An intimation in Form GST CMP-02 on the common portal prior to the commencement of financial year for which this option is exercised.
  • A statement in GST ITC-3, containing details regarding Input Tax Credit in relating to inputs lying in stock within 60 days of the commencement of the relevant financial year.

Effective Date

  • For taxpayers who were registered under old laws- Appointed Date ( 1st July 2017)
  • For taxpayers applying for fresh registration under GST-
  • If a registration application is made within 30 days from the implementation of GST, then a date of such application will be the effective date.
  • If a registration application is made after the expiry of 30 days from the implementation of GST, then the date of grant of registration.
  • If any person who is already registered under GST, and switches to Composition Scheme, then the date of such intimation.

Pre-Conditions of Composition Scheme

  • Casual taxable person and Non-resident taxable person are not allowed to apply under Composition Scheme.
  • If any taxpayer was registered under any old law, is now applying for the scheme, then stock help them on 1st July 2017 shall not include the following:
  1. Interstate purchases
  2. Imports
  3. Received from any branch or agent located in another state.
  4. Not purchased from the unregistered person, and if purchased then paid tax on the same.
  • Pay tax on inward supplies received from unregistered taxpayers.
  • Must mention ‘composition taxable person, not eligible to collect tax on supplies’ on every invoice.
  • Must not have been involved in the manufacture of such goods notified by the government on the recommendation of the Council in the preceding year.
  • Must mention ‘composition taxable person, not eligible to collect tax on supplies’ on every signboard or notice displayed on every prominent and additional place of business.

Validity of Composition Scheme

The validity of composition scheme depends upon various factors and conditions, let’s discuss them one by one:

  1. If conditions are satisfied: If any registered taxable person who has opted for composition scheme and satisfied all the conditions laid thereon, then he is not required to file for fresh registration every year and his registration will remain valid.
  2. If conditions are not satisfied: On the other hand if the conditions mentioned are not satisfied then he will be required to pay tax as a normal taxpayer. All the privileges will be withdrawn and he is required to issue tax invoices to all the registered customers. He will also be required to file intimation of such withdrawal in FORM GST CMP-04 within 7 days.
  3. Voluntary Withdrawal: If any taxpayer decides to withdraw from the scheme on his own, then he will be required to file an application for the same in FORM GST CMP-04.
  4. If the officer has reasons to believe in ineligibility: In case proper officer is of the opinion that,
  • The registered person making an application is not ineligible
  • Any composition scheme holder contravened the provisions of the scheme,

Then he should issue a notice to such registered person in FORM GST CMP-05 within 15 days.

The registered person is required to submit his reply in FORM GST CMP-06. And within 30 days from receiving such reply, the proper officer shall issue his order in FORM GST CMP-07 either accepting the application or denying it.

NOTE:

Whenever any order is passed in FORM GST CMP-07 regarding withdrawal  from composition scheme ( such withdrawal can either be initiated by the taxpayer or by proper officer due to any contravention), then the taxpayer is required to furnish a statement in FORM GST ITC-01 containing details of input stock as well as inputs held in semi-finished and finished goods.

Such intimation is to be filed within 30 days of withdrawal from composition scheme.