CBIC amends Tax rates for Composition Scheme Taxpayers under GST: A Detailed Analysis

The Central Board of Indirect Taxes & Customs (CBIC) vide its Notification no.50/2020-CT dated 24th June 2020 has amended Central Goods and Services Tax Rules,2017 (CGST Rules) by inserting a new entry for prescribing a new tax rate for category of suppliers who have opted for Composition Scheme under GST.

CBIC has amended Rule 7 of CGST Rules, 2017 by inserting a levy of a tax rate of 6% (CGST-3% & SGST-3%)  for levy of composition scheme under Section 10(2A) of CGST Act,2017.

What does Rule 7 of CGST Rules,2017 prescribe:

The category of registered persons, eligible for composition levy under section 10 and the provisions of this chapter, specified in column(2) of the Table below shall pay tax under section 10 at the rate specified in column (3) of the table mentioned below:

SI.No.	Category of Registered Persons	Rate of Tax
(1)	(2)	(3)
1.	Manufacturers, other than manufacturers of such goods as may be notified by the government	1% of the taxable turnover in the State or Union Territory.
2.	Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II	5% of the turnover in the state or Union Territory
3.	Any other supplier eligible for composition levy under section 10 and the provisions of this Chapter	1% of the turnover of taxable supplies of (goods & services) in the State or Union Territory.

  

Suppliers covered under Clause (b) Paragraph 6 of Schedule II:

Supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor of human consumption), where such supply or service is of cash, deferred payment or other valuable consideration.

What does Amended Rule 7 of CGST Rules,2017 prescribe:

The category of registered persons, eligible for composition levy under section 10 and the provisions of this chapter, specified in column (2) of the Table below shall pay tax under section 10 at the rate specified in column (3) of the table mentioned below:

SI No.	Category of Registered Persons	Rate of Tax
(1)	(2)	(3)
1.	Manufacturers, other than manufacturers of such goods as may be notified by the government	1% of the taxable turnover in the State or Union Territory.
2.	Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II	5% of the turnover in the state or Union Territory
3.	Any other supplier eligible for composition levy under section 10 and the provisions of this Chapter	1% of the turnover of taxable supplies of (goods & services) in the State or Union Territory.
4.	Registered Persons not eligible under the composition levy under sub-section (1) and (2), but eligible to opt to pay tax under sub-section (2A) of section 10	6% of the turnover of taxable supplies of goods & services in the State or Union Territory.

What is Section 10(2A) of the CGST Act,2017

Section 10(2A) of CGST Act,2017 was inserted by Section 93 of Finance Act,2019, came in force from 1st August 2019 and prescribes that:

Notwithstanding anything to the contrary contained in CGST Act,2017 but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, not eligible to opt to pay tax under sub-section (1) and sub-section (2) of Section 10, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by him under sub-section (1) of section 9, an amount of tax calculated at such rate as may be prescribed, but not exceeding three per cent of the turnover in State or turnover in Union territory, if he is not–

(a) engaged in making any supply of goods or services which are not leviable to tax under this Act;

(b) engaged in making any inter-State outward supplies of goods or services;

(c) engaged in making any supply of goods or services through an electronic commerce operator who is required to collect tax at source under section 52;

(d) a manufacturer of such goods or supplier of such services as may be notified by the Government on the recommendations of the Council; and

(e) a casual taxable person or a non-resident taxable person.

Goods & Services notified by the government whose Suppliers cannot opt for Composition Scheme:

Manufacturers engaged in Supply of Ice cream and other edible ice, whether or not containing cocoa Pan masala, Tobacco and tobacco substitutes.

Analysis:

After Reading existing Rule 7 of CGST Rules, 2017  along with Section 10 of CGST Act,2017, it could be said that Suppliers of Services other than service providers engaged in services of the restaurant were not eligible to opt of Composition Scheme. 

However, with the issuance of Notification no.50/2020-CT along with Section 10(2A), it is now clear that supplier who has opted for composition scheme and engages in supplies of services other than services supplied by a restaurant (not covering the supply of alcoholic liquor for human consumption) shall levy tax at the rate of 6%(CGST-3%, SGST-3%) on his taxable turnover.

Source: www.cbic-gst.gov.in

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