Analysis of section 9: GST under Composition scheme

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Composition means to receive less than for what a person or authority entitled for. Composition provisions under taxing laws are made to give relief to the small traders from the tactical booking keeping and return formalities of the law so that to ensure that no person is given undue hardship. Provision related to composition scheme is provided under section 9 of the model GST law which is reproduced hereunder:

Notwithstanding anything to the contrary contained in the Act but subject to subsection (3) of section 8, on the recommendation of the Council, the proper officer of the Central or a State Government may, subject to such conditions and restrictions as may be prescribed, permit a registered taxable person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not less than 2-1/2% in case of a manufacturer and 1% in any other case, of the turnover in a State during the year.

Thus, Small taxpayers with an aggregate turnover in a financial year up to [Rs. 50 lakhs] shall be eligible for composition levy. This scheme of optional for the assessee if this suits to him.

Under the scheme, a taxpayer shall pay tax as a percentage of his turnover during the year without the benefit of ITC. The floor rate of tax for CGST and SGST shall not be less than [1%]. A tax payer opting for composition levy shall not collect any tax from his customers. Tax payers making inter- state supplies or paying tax on reverse charge basis shall not be eligible for composition scheme.

Cases where permission will not be granted to a taxable person-

  1. who is engaged in the supply of services; or
  2. who makes any supply of goods which are not leviable to tax under this Act; or
  3. who makes any inter-State outward supplies of goods; or
  4. who makes any supply of goods through an electronic commerce operator who is required to collect tax at source under section 56; or
  5. who is a manufacturer of such goods as may be notified on the recommendation of the Council:

PROVIDED FURTHER that no such permission shall be granted to a taxable person unless all the registered taxable persons, having the same PAN as held by the said taxable person, also opt to pay tax under the provisions of this sub-section.

(2) The permission granted to a registered taxable person under sub-section (1) shall stand withdrawn from the day on which his aggregate turnover during a financial year exceeds fifty lakh rupees.

(3) A taxable person to whom the provisions of sub-section (1) apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.

(4) If the proper officer has reasons to believe that a taxable person was not eligible to pay tax under sub-section (1), such person shall, in addition to any tax that may be payable by him under other