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GST Certification Course
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Chapter 8
Composition Scheme under GST
 Chapter 8
Composition Scheme Under GST
Composition Scheme under GST

The persons opting for Composition Scheme under Section 10 are required to issue a
bill of supply instead of a tax invoice. It allows the taxpayer to pay tax at a fixed rate
without allowing credit of taxes paid on inputs and input services and thus reduces
procedural compliances.

1.1 Composition scheme under Section 10 can be divided into two parts:

Composition Scheme under Section 10(1) Composition Scheme for Services under
& 10(2) for trades, manufacturers and Section 10(2A) initially introduced vide
restaurant service providers. Notification No. 2/2019-CT(R) dated
07.03.2019.

1.2 Eligibility for Composition Levy for goods and restaurant service
providers:

The turnover limit in case of composition levy has been given under Section 10(1),
wherein it has been mentioned that a registered person, whose aggregate turnover in
the preceding financial year did not exceed fifty lakh rupees, may opt to pay, tax at a
specified rate.

Further, proviso to section 10(1) empowers the Government to increase the turnover
limit of Rs. 50 lakhs up to 1.5 crores. In exercise of the said power, the Government
has increased the turnover limit for composition levy for goods to Rs. 1.5 crores vide
Notification No. 14/2019 CT dated 07.03.2019.

Note: The above-mentioned turnover limit has been fixed at Rs. 75 lakhs for special
category states.

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 Illustration 1:

ABC Computer Systems (ABC), registered in Solan, Himachal Pradesh is engaged in

manufacture of computer systems. ABC wants to opt for composition scheme for the
FY 21-22. The aggregate turnover in the preceding FY of ABC computer systems was
Rs. 1.35 crores. Can ABC opt for composition scheme for the FY 21-22.

Answer:

ABC computer systems, being registered in a other than specified special category state
can opt for composition scheme for FY 21-22 as the aggregate turnover of the
preceding financial year is within the turnover limit of Rs. 1.50 crores as prescribed
under the Act.

1.3 Rate of tax in case of Composition levy under Section 10(1) & 10(2) for
traders, manufacturers & restaurant service providers:

Particulars Rate of Tax under

CGST Act
Manufacturers, other than manufacturers of notified goods, ½ % of the turnover
[i.e., ice cream and other edible ice, whether or not containing in the state or union
cocoa; pan masala; tobacco and manufactured tobacco territory. (Effective
substitutes and aerated waters as per Notification No. rate 1%)

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 14/2019-CT dated 07.03.2019 and Fly ash bricks, Bricks of
fossil meals, Building bricks and Earthen or roofing tiles as
per Notification No. 04/2022-CT dated 31st March, 2022 ]
Suppliers making supplies referred to in clause (b) of 2.5% of the turnover
paragraph 6 of Schedule II i.e., Restaurant Service providers in the state or union
territory. (Effective
rate 5%)
Any other supplier eligible for composition levy under section ½% of the turnover
10 of CGST Act. in the state or union
territory. (Effective
rate 1%)

1.4 Provisions in relation to a mixed supplier who is primarily engaged in

supply of goods with marginal supply of services:

Initially, the scheme was introduced to benefit the suppliers of goods and restaurant
service providers only. However, subsequently through the Central Goods and Service
tax Amendment Act’2018 effective from 01.02.2019, a proviso was inserted permitting
the suppliers of goods and restaurant service providers to supply other services also
up to a specified value.

The specified value shall be:

Value not exceeding 10% of the turnover in a state or union territory in the
preceding FY.

OR

Five lakh rupees, whichever is higher.

Note: For the purposes of this proviso, the value of exempt supply of
services provided by way of extending deposits, loans or advances in so far
as the consideration is represented by way of interest or discount shall not
be taken into account for determining the value of turnover in a State or
Union territory.

Illustration 2:

XYZ limited sells electronic equipment’s and is also engaged in proving the services of
repair of such electronic equipment’s. The turnover from such services during the
quarter is Rs. 3 Lakhs. The aggregate turnover during the preceding FY was 85 Lakhs
from sale of goods including repairing and the turnover in state for the preceding FY
was 40 Lakhs. Whether XYZ limited is eligible for composition scheme?

Answer:

Yes, as per proviso the Section 10(1), inserted through CGST Amendment Act’2018,
XYZ limited can supply services up to 10% of the turnover in the state in the preceding

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 FY i.e., 10% of 40 L that is 4 Lakhs or Rs. 5 Lakhs, whichever is higher. The services
provided in the quarter is 3 Lakhs which is well within the limit stated above.
Therefore, XYZ Limited can opt composition scheme.

1.5 Eligibility for Composition Levy for Services:

In order to provide benefit of composition scheme to marginal service providers other

than restaurant service providers having aggregate turnover in the preceding FY up to
Rs. 50 Lakhs, sub-section (2A) was inserted in Section 10.

Small service providers opting to pay tax under Composition scheme as per Section
10(2A) shall pay tax at the reduced rate of 3% under CGST Act (Effective rate 6%).

Note: It may be noted that where more than one registered person has the
same permanent account number, the registered persons shall not be
eligible to opt for the scheme under sub-section (1) or (2A) unless all such
registered persons opt to pay tax under the respective subsections.

Before moving forward, in order to determine the eligibility under

composition scheme we need to understand the meaning, inclusions &
exclusions of Aggregate Turnover and Turnover in state or Union
Territory:

1.5.1 Aggregate Turnover (Section 2(6) read with explanation 1 to Section

10): To be computed on all India basis for persons having the same
permanent account number:

Inclusions Exclusions
Value of all Outward Supplies i.e., * 1. Value of inward supplies on
which tax is payable under reverse
1. Taxable supplies charge

2. Exempt Supplies 2.
IGST/CGST/SGST/UTGST/Cess
3. Exports**
3. Value of exempt supply of
4. Inter-state supplies** services provided by way of
extending loans or advances in so
far as the consideration is
*Value of supplies shall include the value of represented by way of interest or
supplies from 1st April of the FY up to the date the discount.
person becomes liable for registration.
** The value of exports and inter-State supplies
are relevant only while determining the aggregate
turnover of the preceding FY. These values are
not relevant for determining the aggregate
turnover of the current FY in which the
composition supplier has opted for composition

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 levy as he is not permitted to make inter-State
supplies and exports in the said FY.

It may be noted that the option availed by a registered person to pay tax under sub-
section (1) or (2A) of section 10 shall lapse on the day on which the aggregate turnover
during a FY exceeds the specified limit of 1.5 crores under sub-section (1) and 50 lakhs
under sub-section (2A).

1.5.2 Turnover in a state or UT (Section 2(112) read with explanation 2 to

Section 10):

Inclusions Exclusion
1. Value of inward supplies on which tax is
payable under reverse charge
All Taxable supplies and
2. IGST/CGST/SGST/UTGST/Cess
Exempt supplies made within the
State/UT 3. Value of exempt supply of services
provided by way of extending loans or
advances in so far as the consideration is
represented by way of interest or discount.

4. Value of supplies from 1st April of the Fy

up to the date when such person becomes
liable for registration.

Illustration 3:

Trendz Salon has their salons in Delhi and Haryana, making intra-State supplies.

In order to determine whether the salon is eligible to avail benefit of the composition
scheme for services, turnover of both the salons would be taken into account and if the
same does not exceed 50 lakh, Trendz salon can opt to avail the composition levy
scheme for both the salons.

Illustration 4:

A wedding planner by the name of ‘Wed me good’ has commenced his business in Delhi
from April this year. His turnover for various quarters till December is as follows:

April-June 20 lakhs

July-September 25 lakhs

October-December 40 lakhs

In the given case, since “wed me good’ has started the supply of services in the current
financial year, his aggregate turnover in the preceding FY is Nil. Consequently, in the

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 current FY, he is eligible for composition scheme for services. He becomes eligible for
the registration when his aggregate turnover exceeds 20 lakhs.

While registering under GST, he opts for composition scheme for services.

For determining his turnover of the State for payment of tax under composition
scheme for services, turnover of April-June quarter [20 lakh] shall be excluded as the
value of supplies from the first day of April of a financial year up to the date when such
person becomes liable for registration under this Act are to be excluded for this
purpose.

On next 25 lakh [turnover of July-Sept quarter], he shall pay tax @ 6% [3% CGST and
3% SGST], i.e., CGST 75,000 and SGST 75,000.

By the end of July-Sept quarter, his aggregate turnover reaches 50 lakhs*.

Consequently, his option to avail composition scheme for services shall lapse by the
end of July-Sept quarter and thereafter, he is required to pay tax at the normal rate of
18%. Thus, the tax payable for Oct-Dec quarter is 45 lakhs × 18%, i.e., 8,10,000.

*While computing aggregate turnover for determining “wed me good’s” eligibility to

pay tax under composition scheme, value of supplies from the first day of April of a
financial year up to the date when such person becomes liable for registration under
this Act (i.e., turnover of April-June quarter), are included.

1.6 Now that we have discussed the eligibility of Composition scheme, its
time to discuss who all are NOT eligible to opt for the composition scheme:

Non-Eligibility for Composition Scheme for Goods and Restaurant

service Providers (Section 10(1) & 10(2))

Supplier engaged in making any supply of goods or services which are not leviable to
tax
Supplier engaged in making any inter-State outward supplies of goods or services
Person supplying any goods or services through an electronic commerce operator who
is required to collect tax at source under section 52

Manufacturer of ice cream, pan masala, tobacco and aerated waters

Supplier who is either a casual taxable person or a non- resident taxable person
Supplier of services, save as provided in section 10(1)
following items have been inserted as per Notification No. 04/2022-
CT dated 31st March, 2022
Manufacturer of following items-
Fly ash bricks or fly ash aggregate with 90 per cent. or more fly ash
content; Fly ash blocks

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 Bricks of fossil meals or similar siliceous earths
Building bricks
Earthen or roofing tiles”

Non-Eligibility for Composition Scheme for Services (Section 10(2A))

Supplier engaged in making any supply of goods or services which are not leviable to
tax
Supplier engaged in making any inter-State outward supplies of goods or services
Person supplying any goods or services through an electronic commerce operator who
is required to collect tax at source under section 52
Manufacturer of notified goods [ice cream, pan masala, tobacco and aerated waters]
or supplier of notified services
Supplier who is either a casual taxable person or a non- resident taxable person

1.7 Other provisions in relation to Composition Scheme (Section 10 (3),

(4) & (5))

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 1.8 Gist of Rules in relation to Section 10:

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 1.8 Gist of Rule 6:

Circular No. 77/51/2018-GST dated 31st December’2018

Clarification with respect to effective date in relation to withdrawal of

composition option or denial of composition option by tax authorities:

Scenario Effective Date

Where the taxpayer has Effective date shall be the date indicated by him in his
sought withdrawal intimation/application filed in FORM GST CMP-04 but such
from the composition date may not be prior to the commencement of the financial
scheme year in which such intimation/application for withdrawal is
being filed.
Where the taxpayer has Effective date of such denial shall be from a date, including
been denied the option any retrospective date as may be determined by tax
by the tax authorities authorities, but shall not be prior to the date of contravention
of the provisions of the CGST Act or the CGST Rules.

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 Payment of Tax and Furnishing of Return by the Composition Suppliers:

Quarterly Payment of tax – Rule 62(1) read with Notification No.

20/2019-CT dated 23.04.2019
Every registered person paying tax under section 10 or paying tax by availing the
benefits of Notification No. 02/2019-CT (R) dated 6.03.2019 shall furnish a statement
every quarter or part thereof containing the details of payment of self-assessed tax in
Form GST CMP-08 till 18th day of the month succeeding such quarter.

Annual Filing of GST Return from 23.04.2019 – Rule 62(1) read with
Notification No. 20/2019-CT dated 23.04.2019
Every registered person paying tax under section 10 or paying tax by availing the
benefits of Notification No. 02/2019-CT (R) dated 6.03.2019 shall furnish a return for
every financial year or part thereof in Form GSTR-04 till 30th day of April following
the end of such financial year.

Relevant Case Laws on Composition Scheme under Goods and Service Tax
Act (Section 10)

Certain case laws can also be referred to better understand the practical application of
the composition scheme. Such case laws have been provided below in brief
highlighting the facts with the conclusions to remove any ambiguity/doubts that may
arise in the minds of the readers:

1. Assessee cannot be deprived for filing the return for new registration
if there is delay in processing the cancellation application of old
registration by Authority

Loafers Corner Café vs Union of India- The Hon’ble High Court of Kerala
vide its order dated October 20 2020 in W.P. (C ) No. 5127 of 2020 (M)
held as under:-

Facts:

 The assessee applied for cancellation of its original registration and further
applied for a new registration opting Composition Scheme.
 The original registration was under the normal scheme for payment of tax, then
the assessee had filed an application for a fresh GST registration on 19-6-2018
so that it could opt for the composition scheme.
 Competent Authority took time to process said applications and resultantly
returns filed by assessee for period October, 2018 to March, 2020 under
Composition Scheme could not be uploaded into system.

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 The petitioner, a partnership firm, approached the Court aggrieved by the delay
in cancelling an earlier registration, and granting him a new registration under
the GST Act by the Competent Authorities.

Held:

 It was held that the delayed processing of the application submitted by the
assessee cannot be a reason to deprive the assessee of the statutory benefit that
he had claimed through the application filed by him under the Composition
Scheme.
 The competent authority was further directed to make the necessary changes in
the portal so as to enable the assessee to file the returns for the period
aforementioned without charging the assessee any late fee or other charges on
account of the delay by the competent authority.
2. No denial of the option opt by the Assessee for composition when
form of intimation is itself not available.

Vaishno Associates vs. Commissioner of Central Excise & Service Tax,

Jaipur- The Hon’ble CESTAT, Delhi vide its order dated 6th March 2018
in Appeal No. – ST/57730/2013 – DB held has under:-

Facts:

 The activity carried out by the assessee is in the nature of Erection,

Commissioning or Installation and for the disputed period, e., 2008-09 to
2009-10.
 The assessee claimed that it was entitled to make payment of service tax under
the Works Contract Composition Scheme notified under Notification No.
32/2007-ST, dated 22-5-2007.
 The assessee was denied the option to pay tax under composition scheme by the
Adjudicating Authority for the sole reason that the appellant has failed to file
any intimation opting for the payment of Service Tax under the Composition
Scheme.

Held:

 It was concluded that there is no justification for denying the benefit of payment
of Service Tax under the Works Contract Composition Scheme.
 It was held that the Revenue’s main objection is absence of option exercised by
the assessee before they started paying duty under the works contract.
However, the assessee had applied for registration under works contract, and
the same amount would amount to exercise of option in the absence of any
format laid in the said rule for exercising said option.

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