Conditions & Restrictions for Composition Levy

Rule 3 of draft GST Composition Rules deals with Conditions and Restrictions for composition levy. Rule 3(1)(b), (c), (d) & (g) thereof requires a person opting for composition scheme to comply with the following conditions:

b) ………………….

c) the goods held in stock by him have not been purchased from an unregistered person and where purchased, he pays the tax under sub-section (4) of Section 9.;

d) he shall pay tax under sub-section (3) or sub-section (4) of Section 9. on inward supply of goods or services or both received from un-registered persons;

g) he shall mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.

Issue

• A person opting for composition levy will primarily be a small trader. He will obviously have stock containing purchases from unregistered dealers. He will also make purchases as well as avail services from unregistered persons. If such person is made liable to pay tax on such inward supply of goods or services, it will become a part of his cost as he will not be eligible to claim input tax credit on the same. Further, he will also be required to pay tax on such purchases and receipt of services at full rate. Such a provision will act as a deterrent for him to go for this scheme.

• Mere non-display of the words “composition taxable person” on every notice or signboard will penalise the assessee.

Suggestion

• It is suggested that the conditions specified in Rule 3(1)(c) & (d) requiring a person opting composition levy to pay tax under reverse charge be removed.
• Further, the requirement of displaying the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business be dispensed with.

Source ICAI Suggestions on GST Rules Submitted to Govt of India