CBEC has released revised Draft GST Law on 26th November 2016. The law is slated to be presented before Loksabha in the coming days. It’s not the final blueprint and is bound to change on the basis of suggestions received from various quarters. In this series of updates, we would be putting forth various issues in the Revised Draft GST Law which needs consideration. The entire objective is to bring before the readers certain issues in the present revised GST Law which may be raised at appropriate platforms.
Composition Scheme in the revised Draft GST Law brings back the old disputes in the GST Regime regarding who is a manufacturer or a service provider or how goods are to be classified. There is a need to avoid such classification disputes in GST.
It has to be borne in mind that it’s the small dealers who are opting for composition scheme and so much apprehension about the loss of revenue; misuse of composition scheme or break in the supply chain by the government is at first misplaced and secondly it has made the composition scheme a complex and regressive affair.
The Scheme should be simple and easy rather than looking like wherein government is trying to achieve in every possible manner that how the scheme is made out of reach for every common person. The present composition scheme looks like so.
4.1 Section 9 of the Revised Draft GST Law provides that
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 two and a half percent in case of a manufacturer and one percent in any other case, of the turnover in a State during the year:
Thus the conditions provided in the provision are
- The aggregate turnover should be less than 50 Lakh in the preceding financial year.
- The amount to be paid in lieu of tax shall be not less than 2.5% in case of manufacturer and 1% in any other case of the turnover in a State.
4.2 In addition to the above conditions following persons cannot opt for composition scheme:
(a) who is engaged in the supply of services; or
(b) who makes any supply of goods which are not leviable to tax under this Act; or
(c) who makes any inter-State outward supplies of goods; or
(d) who makes any supply of goods through an electronic commerce operator who is required to collect tax at source under section 56; or
(e) who is a manufacturer of such goods as may be notified on the recommendation of the Council:
Thus, if we observe from the above list of persons ineligible to opt for composition scheme, then there are two categories which needs special mention i.e. service provider and manufacturers of such goods as may be notified on the recommendation of the council.
4.3 The classification of the service provider and manufacturer as ineligible persons to opt for composition scheme, takes us back to good old ages dispute regarding who is a manufacturer and who is a service provider.
4.4 In case of manufacturer, there would be two kinds of disputes i.e. whether the particular activity of a person falls under manufacturing or not and secondly whether he is manufacturer of the goods notified by the council as ineligible for opting for composition scheme.
4.5 For a thought, the lawmakers are indulging in classification disputes of activity being manufacture and classification of goods with respect to small dealers having turnover upto 50 Lakhs. Is the intention of the government is to benefit them or burden them.
4.6 The apprehension of the government about loss of revenue, misuse of computation scheme, break in supply chain is entirely misplaced as the conditions like aggregate turnover of Rs 50 Lakh including exempted turnover, persons making inter-state supplies being excluded, all registered taxable persons in all the States under same PAN to opt for composition scheme etc; prescribed in the composition scheme already make certain elusive persons eligible for the composition scheme. If at all the government wants to play extra safe, they may further reduce the limit but to go with so much classification and complexity is entirely uncalled for.
4.7 Therefore, wherein a person has to satisfy so many conditions for him being able to opt for composition scheme, then further classification as manufacturer and service provider are unwarranted.
Comment: The scheme should be simple and easy to comprehend for a person and classification such as manufacturer or manufacturers of particular goods being ineligible or service providers should be avoided.