CHAPTER 3

CHARGE OF GST
The section numbers referred to in the chapter pertain to the CGST Act, unless
otherwise specified. Examples/illustrations/Questions and Answers given in the
Chapter are based on the position of GST law existing as on 30.04.2021

LEARNING OUTCOMES

After studying this Chapter, you will be able to –

 explain the extent and commencement of CGST Act, IGST
Act, SGST Act & UTGST Act.
 describe the provisions pertaining to levy and collection of
CGST & IGST.
 identify and analyse the services on which tax is payable
under reverse charge mechanism.
 understand and analyse the composition levy- eligibility for
the same and conditions to be fulfilled.

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 3.2 INDIRECT TAXES

CHAPTER OVERVIEW

Extent and commencement of CGST Act/

collection of
GST in India
UTGST Act/ SGST Act/IGST Act
Levy and

Levy and collection of CGST/IGST

Composition levy

1. INTRODUCTION
Power to levy tax is drawn from the Constitution of India. To pave way for the
introduction of Goods and Services Tax (“GST”), 101st Constitutional Amendment
Act, 2016 was passed. By virtue of this Act, enabling provision was made to levy
GST on supply of goods or services or both in India. Central excise duty, State
VAT and certain State specific taxes and service tax were subsumed into a
comprehensive GST [Discussed in detail in Chapter-1: GST in India – An
Introduction].
The very basis for the charge of tax in any taxing statute is the taxable event i.e
the occurrence of the event which triggers levy of tax. As discussed earlier, the
taxable event under GST is SUPPLY. CGST and SGST/UTGST are levied on all
intra-State supplies of goods and/or services while IGST is levied on all inter-
State supplies of goods and/ or services.
The provisions relating to levy and collection of CGST and IGST are contained in
section 9 of the CGST Act, 2017 and section 5 of the IGST Act, 2017, respectively.
Let us now have a fundamental idea of intra-State supply and inter-State supply.

As a general rule, where the location of the supplier and the place of supply of
goods or services are in the same State/Union territory, it is treated as intra-State
supply of goods or services respectively.

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 CHARGE OF GST 3.3

Similarly, where the location of the supplier and the place of supply of goods or
services are in (i) two different States or (ii) two different Union Territories or (iii) a
State and a Union territory, it is treated as inter-State supply of goods or
services respectively.

2. RELEVANT DEFINITIONS

Central tax: means the central goods and services tax levied under section
9 of the CGST Act [Section 2(21)].
Integrated tax: means the integrated goods and services tax levied under
the Integrated Goods and Services Tax Act [Section 2(58)].
State tax: means the tax levied under any State Goods and Services Tax Act
[Section 2(104)].
Goods: means every kind of movable property other than money and
securities but includes actionable claim, growing crops, grass and things
attached to or forming part of the land which are agreed to be severed
before supply or under a contract of supply. [Section 2(52)].
Exempt supply: means supply of any goods or services or both which
attracts nil rate of tax or which may be wholly exempt from tax under
section 11, or under section 6 of the Integrated Goods and Services Tax
Act, and includes non-taxable supply [Section 2(47)].
Aggregate turnover: means the aggregate value of all taxable supplies
(excluding the value of inward supplies on which tax is payable by a person
on reverse charge basis), exempt supplies, exports of goods or services or
both and inter-State supplies of persons having the same Permanent
Account be computed on all India basis but excludes central tax, State tax,
Union territory tax, integrated tax and cess [Section 2(6)].

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 3.4 INDIRECT TAXES

Business: includes –

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager

or any other similar activity, whether or not it is for a pecuniary benefit;

(b) any activity or transaction in connection with or incidental or ancillary to (a)

above;

(c) any activity or transaction in the nature of (a) above, whether or not there is
volume, frequency, continuity or regularity of such transaction;

(d) supply or acquisition of goods including capital assets and services in

connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a subscription or
any other consideration) of the facilities or benefits to its members, as the case
may be;

(f) admission, for a consideration, of persons to any premises; and

(g) services supplied by a person as the holder of an office which has been
accepted by him in the course or furtherance of his trade, profession or
vocation;
(h) activities of a race club including by way of totalisator or a license to book
maker or activities of a licensed book maker in such club;
(i) any activity or transaction undertaken by the Central Government, a State
Government or any local authority in which they are engaged as public
authorities

[Section 2(17)].
Consideration: in relation to the supply of goods or services or both
includes:
 any payment made or to be made, whether in money or otherwise,
in respect of, in response to, or for the inducement of, the supply
of goods or services or both, whether by the recipient or by any
other person but shall not include any subsidy given by the Central
Government or a State Government,
 the monetary value of any act or forbearance, in respect of, in
response to, or for the inducement of, the supply of goods or

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 CHARGE OF GST 3.5

services or both, whether by the recipient or by any other person

but shall not include any subsidy given by the Central Government
or a State Government.
However, a deposit given in respect of the supply of goods or services or
both shall not be considered as payment made for such supply unless
the supplier applies such deposit as consideration for the said supply
[Section 2(31)].
Person: includes [Section 2(84)]-

An individual A HUF A company

An association of persons
or a body of individuals,
A Limited Liability
A firm whether incorporated or
Partnership
not, in India or outside
India

Any corporation established Any body corporate A co-operative society

by/under any Central, State or
incorporated by or registered under any
Provincial Act or Government
company as defined in section under the laws of a law relating to
2(45) of Companies Act, 2013 country outside India cooperative societies

Society as defined
Central
under the Societies
A local authority Government/State
Government
Registration Act,
1860

Every artificial juridical

Trust person, not falling
above

Recipient: of supply of goods and/or services means-

(a) where a consideration is payable for the supply of goods or
services or both, the person who is liable to pay that consideration,

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 3.6 INDIRECT TAXES

(b) where no consideration is payable for the supply of goods, the

person to whom the goods are delivered or made available, or to
whom possession or use of the goods is given or made available,
and
(c) where no consideration is payable for the supply of a service, the
person to whom the service is rendered,
and any reference to a person to whom a supply is made shall be
construed as a reference to the recipient of the supply and shall include
an agent acting as such on behalf of the recipient in relation to the
goods or services or both supplied [Section 2(93)].
Reverse charge: means the liability to pay tax by the recipient of supply of
goods or services or both instead of the supplier of such goods or services
or both under section 9(3)/9(4), or under section 5(3)/5(4) of the IGST Act
[Section 2(98)].
Services: means anything other than goods, money and securities but
includes activities relating to the use of money or its conversion by cash
or by any other mode, from one form, currency or denomination, to
another form, currency or denomination for which a separate
consideration is charged [Section 2(102)].
Explanation.––For the removal of doubts, it is hereby clarified that the
expression “services” includes facilitating or arranging transactions in
securities.
Supplier: in relation to any goods or services or both, shall mean the
person supplying the said goods or services or both and shall include an
agent acting as such on behalf of such supplier in relation to the goods
or services or both supplied [Section 2(105)].
Taxable supply: means a supply of goods and/or services which is
leviable to tax under CGST Act [Section 2(108)].
Non-taxable supply: means a supply of goods or services or both which
is not leviable to tax under CGST Act or under IGST Act [Section 2(78)].
Taxable person: means a person who is registered or liable to be
registered under section 22 or section 24 of the CGST Act [Section 2(107)].

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 CHARGE OF GST 3.7

It is important to note that a person who is liable to be registered but

does not take a registration and remains an unregistered person shall be
construed as a taxable person. Similarly, a person not liable to be
registered, but has taken voluntary registration and got himself
registered is also a taxable person.
Section 22 enumerates the persons liable to be registered under CGST Act and section
24 lists the persons liable to be registered compulsorily under the GST law. The said
sections and the concept of taxable person thereto has been discussed in detail in
Chapter 7 – Registration.

3. EXTENT & COMMENCEMENT OF GST LAW

(i) Central Goods and Services Tax Act, 2017 extends to the whole of India
[Section 1 of the CGST Act].

India: “India” means-

territory of India as referred to in article 1 of the Constitution

its territorial waters, seabed and sub-soil underlying such

waters, continental shelf, exclusive economic zone or any
other maritime zone as referred to in the Territorial Waters,
Continental Shelf, Exclusive Economic Zone and other
Maritime Zones Act, 1976

the air space above its territory and territorial waters

[Section 2(56) of the CGST Act].

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 3.8 INDIRECT TAXES

12 24 200
NM NM NM

Territorial
Waters
(TWI) Contiguous High Sea
Zone

Exclusive Economic Zone

Baseline

Continental Shelf

(ii) State GST law of the respective State/Union Territory with Legislature
[Delhi, Puducherry and Jammu & Kashmir]* extends to whole of that
State/Union Territory.
(1) Maharashtra GST Act, 2017 extends to whole of the State of the
Maharashtra.
*State: includes a Union territory with Legislature [Section 2(103) of the CGST
Act].
(iii) Integrated Goods and Services Tax Act, 2017 extends to the whole of
India [Section 1 of the IGST Act].
(iv) Union Territory Goods and Services Tax Act, 2017 extends to the Union
territories** of the Andaman and Nicobar Islands, Lakshadweep, Dadra and
Nagar Haveli and Daman and Diu, Ladakh 1, Chandigarh and other territory,
i.e. the Union Territories without Legislature [Section 1 of the UTGST Act].

1
Students may note that the erstwhile State of Jammu and Kashmir has been reorganised
into the Union territory of Jammu and Kashmir (with Legislature) and Union territory of
Ladakh vide the Jammu and Kashmir Reorganisation Act, 2019. Further, the erstwhile
Union territories of Dadra and Nagar Haveli and Daman and Diu have been merged into a
new Union territory of Dadra and Nagar Haveli and Daman and Diu vide the Dadra and
Nagar Haveli and Daman and Diu (Merger of Union Territories) Act, 2019.

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 CHARGE OF GST 3.9

**Union territory: means the territory of—

(a) the Andaman and Nicobar Islands;
(b) Lakshadweep;
(c) Dadra and Nagar Haveli and Daman and Diu;
(d) Ladakh
(e) Chandigarh; and
(f) other territory.
Explanation––For the purposes of this Act, each of the territories specified in
sub-clauses (a) to (f) shall be considered to be a separate Union territory
[Section 2(114) of CGST Act].

Our discussion in this Study Material will principally be confined to

the provisions of CGST and IGST laws as the specific State GST laws
are outside the scope of syllabus.

4. L
LEVY & COLLECTION OF CGST & IGST [SECTION 9
OF THE CGST ACT & SECTION 5 OF THE IGST ACT]

STATUTORY PROVISIONS

Section 9 of Levy and collection

the CGST
Act
Sub-section Particulars
(1) Subject to the provisions of sub-section (2), there shall be levied a
tax called the central goods and services tax on all intra-State
supplies of goods or services or both, except on the supply of
alcoholic liquor for human consumption, on the value determined
under section 15 and at such rates, not exceeding twenty per
cent., as may be notified by the Government on the
recommendations of the Council and collected in such manner as
may be prescribed and shall be paid by the taxable person.

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 3.10 INDIRECT TAXES

(2) The central tax on the supply of petroleum crude, high speed diesel,
motor spirit (commonly known as petrol), natural gas and aviation
turbine fuel shall be levied with effect from such date as may be
notified by the Government on the recommendations of the Council.
(3) The Government may, on the recommendations of the Council,
by notification, specify categories of supply of goods or
services or both, the tax on which shall be paid on reverse
charge basis by the recipient of such goods or services or both
and all the provisions of this Act shall apply to such recipient
as if he is the person liable for paying the tax in relation to the
supply of such goods or services or both.
(4) The Government may, on the recommendations of the Council,
by notification, specify a class of registered persons who shall,
in respect of supply of specified categories of goods or services
or both received from an unregistered supplier, pay the tax on
reverse charge basis as the recipient of such supply of goods or
services or both, and all the provisions of this Act shall apply
to such recipient as if he is the person liable for paying the tax
in relation to such supply of goods or services or both.
(5) The Government may, on the recommendations of the Council,
by notification, specify categories of services the tax on intra-
State supplies of which shall be paid by the electronic
commerce operator if such services are supplied through it,
and all the provisions of this Act shall apply to such electronic
commerce operator as if he is the supplier liable for paying the
tax in relation to the supply of such services.
Provided that where an electronic commerce operator does not
have a physical presence in the taxable territory, any person
representing such electronic commerce operator for any
purpose in the taxable territory shall be liable to pay tax:
Provided further that where an electronic commerce operator
does not have a physical presence in the taxable territory and
also he does not have a representative in the said territory,
such electronic commerce operator shall appoint a person in
the taxable territory for the purpose of paying tax and such
person shall be liable to pay tax.

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 CHARGE OF GST 3.11

ANALYSIS
Central Goods and Services Tax (CGST) shall be levied on all intra-State supplies
of goods or services or both.
The tax shall be collected in such manner as may be prescribed and shall be paid
by the taxable person. However, intra-State supply of alcoholic liquor for human
consumption is outside the purview of CGST.
Value for levy: Transaction value under section 15 of the CGST Act – Discussed in
detail in Chapter 5 – Time and Value of supply.
Rates of CGST: Rates for CGST are rates as may be notified by the Government
on the recommendations of the GST Council [Discussed subsequently in detail in
this Chapter]. Maximum rate of CGST can be 20%.

💡💡On inter-State supplies of goods and/or services, Integrated Goods and Services
Tax (IGST) is levied on the transaction value under section 15 of the CGST Act 2.
Since alcoholic liquor for human consumption is outside the purview of GST law, IGST
is also not leviable on the same. IGST is the sum total of CGST and SGST/UTGST.
Maximum rate of IGST can be 40%.
However, CGST/IGST on supply of the following items has not yet been levied. It
shall be levied with effect from such date as may be notified by the Government
on the recommendations of the Council:
 petroleum crude
 high speed diesel
 motor spirit (commonly known as petrol)
 natural gas and
 aviation turbine fuel

2
Goods imported into India: For the goods imported into India, the IGST shall be levied and
collected as per the section 3 of the Custom Tariff Act, 1975 i.e. the additional duty shall be
as per the Custom Tariff Act, 1975 and the value shall also be determined as per the said
Act. This aspect will be discussed in detail at the Final Level.

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 3.12 INDIRECT TAXES

Tax payable on supply of goods or services or both under reverse charge

CGST/IGST shall be paid by the recipient of goods or services or both, on reverse
charge basis, in the following cases:
 Supply of such goods or services or both, as notified by the Government on
the recommendations of the GST Council.
 Supply of specified categories of goods or services or both by an
unregistered supplier to specified class of registered persons, as notified by
the Government on recommendation of GST Council.
All the provisions of the CGST/IGST Act shall apply to the recipient in the
aforesaid cases as if he is the person liable for paying the tax in relation to the
supply of such goods or services or both. Let us first understand the concept
of reverse charge mechanism:

Generally, the supplier of goods or services is liable to pay GST. However, under
the reverse charge mechanism, the liability to pay GST is cast on the recipient of
the goods or services.
Reverse charge means the liability to pay tax is on the recipient of supply of
goods or services instead of the supplier of such goods or services in respect of
notified categories of supply [Section 2(98)].
It may be noted that the underlying principle of an indirect tax is that burden of
tax has to be ultimately passed on to the recipient. GST being an indirect tax, this
principle holds good for GST. Under normal circumstances, the statutory liability
to deposit GST and undertake compliances [i.e. to obtain registration under GST,
deposit the tax with the Government, filing returns, etc.] is on the supplier while he may
recover the same from its recipient. However, under reverse charge mechanism,
the statutory liability to deposit GST and undertaking compliance requirements,
[i.e. to obtain registration under GST, deposit the tax with the Government, filing returns,
etc.] shifts from supplier to recipient.

There are two types of reverse charge scenarios provided in law.

(i) First scenario occurs in case of supply of specified categories of goods
or services, covered by section 9(3) of the CGST/ SGST (UTGST) Act.
Similar provisions are contained under section 5(3) of the IGST Act.

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 CHARGE OF GST 3.13

(ii) Second scenario occurs in case of supply of specified categories of

goods or services made by an unregistered supplier to specified class of
registered recipients, covered by section 9(4) of the CGST Act. Similar
provisions are contained under section 5(4) of the IGST Act. Goods
and services notified under this case have been discussed subsequently in
this chapter.
Goods and services notified under reverse charge mechanism under section
9(3) of the CGST Act/ section 5(3) of the IGST Act are as follows:
A. Supplies of goods taxable under reverse charge, i.e. supply of the
goods where tax is payable by the recipient: Goods like cashewnuts
[not shelled/peeled], bidi wrapper leaves, tobacco leaves and raw cotton
(when supplied by an agriculturist to any registered person), supply of
lottery (when supplied by State Government, Union Territory or any local
authority to lottery distributor or selling agent), silk yarn (when supplied
by manufacturer of silk yarn to any registered person), used vehicles,
seized and confiscated goods, old and used goods, waste and scrap
(when supplied by Central Government, State Government, Union
Territory or any local authority to any registered person), etc. are taxable
under reverse charge 3.
B. Supply of services taxable under reverse charge under section 9(3)
of the CGST Act, i.e. the services where tax is payable by the
recipient: Notification No. 13/2017 CT (R) dated 28.06.2017 as amended
has notified the following categories of supply of services wherein whole
of the tax shall be paid on reverse charge basis by the recipient of
services:

S. Category of supply of Supplier of Recipient of

No. service service Service

1. Supply of services by a Goods Transport (a) Any factory

Goods Transport Agency (GTA) registered under

3
Examples of goods on which tax is payable by the recipient under reverse charge have
been given hereunder only for the knowledge of the students. These are not relevant for
examination purposes.

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 3.14 INDIRECT TAXES

Agency (GTA) in respect who has not paid or governed by

of transportation of CGST @ 6% the Factories Act,
goods by road to- [Please refer the 1948; or
(a) any factory analysis given (b) any society
registered under or subsequently.] registered under
governed by the the Societies
Factories Act, 1948; or Registration Act,
(b) any society 1860 or under any
registered under the other law for the
Societies Registration time being in
Act, 1860 or under any force in any part
other law for the time of India; or
being in force in any part (c) any co-
of India; or operative society
(c) any co-operative established by or
society established by or under any law; or
under any law; or (d) any person
(d) any person registered under
registered under the the CGST Act or
CGST Act or the IGST Act the IGST Act or
or the SGST Act or the the SGST Act or
UTGST Act; or the UTGST Act; or

(e) any body (e) any body

corporate established, by corporate
or under any law; or established, by or
under any law; or
(f) any partnership
firm whether registered (f) any
or not under any law partnership firm
including association of whether
persons; or registered or not
under any law
(g) any casual taxable
including
person.
association of
persons; or
(g) any casual
taxable person;

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 CHARGE OF GST 3.15

located in the
taxable territory.
[Hereinafter referred
as Specified
recipients]

However, reverse charge mechanism (RCM) shall not apply to

services provided by a GTA, by way of transport of goods in a
goods carriage by road to-
(a) a Department/ establishment of the Central Government/ State
Government/ Union territory; or
(b) local authority; or
(c) Governmental agencies,
which has taken registration under the CGST Act only for the
purpose of deducting tax under section 51 4 and not for making a
taxable supply of goods or services 5.

2. Services provided by an An individual Any business

individual advocate advocate entity located in
including a senior including a senior the taxable
advocate or firm of advocate or firm territory.
advocates by way of of advocates.
legal services, directly or
indirectly.
“Legal service” means
any service provided in
relation to advice,
consultancy or assistance
in any branch of law, in
any manner and includes

4
Provisions relating to tax deducted at source contained in section 51 shall be discussed at
the Final Level.
5
These services have been simultaneously exempted from payment of GST vide entry 21B of
Notification No. 12/2017 CT(R) dated 28.06.2017. Thus, there will be no tax liability in this
case. [Refer Chapter 4: Exemptions from GST for discussion on this exemption]

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 3.16 INDIRECT TAXES

representational services
before any court, tribunal
or authority.

3. Services supplied by an An arbitral Any business

arbitral tribunal to a tribunal. entity located in
business entity. taxable territory.

4. Services provided by way Any person Any body

of sponsorship to any corporate or
body corporate or partnership firm
partnership firm. located in the
taxable territory.

5. Services supplied by Central Any business

the Central Government, entity located in
Government, State State the taxable
Government, Union Government, territory.
territory or local Union territory or
authority to a business local authority
entity excluding, -
(1) renting of
immovable property,
and
(2) services specified
below-
(i) services by
the Department of
Posts by way of
speed post, express
parcel post, life
insurance, and
agency services
provided to a person
other than Central
Government, State
Government or

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 CHARGE OF GST 3.17

Union territory or
local authority;
(ii) services in
relation to an aircraft
or a vessel, inside or
outside the precincts
of a port or an
airport;
(iii) transport of
goods or
passengers.

5A. Services supplied by Central Any person

Central Government, Government, registered under
State Government, Union State the CGST Act,
territory or local Government, 2017
authority by way of Union territory or
renting of immovable local authority
property to a person
registered under CGST
Act, 2017

5B. Services supplied by any Any person Promoter

person by way of
transfer of
development rights
(TDR) or Floor Space
Index (FSI) (including
additional FSI) for
construction of a project
by a promoter.

5C. Long term lease of land Any person Promoter

(30 years or more) by any
person against
consideration in form of
upfront amount (called

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 3.18 INDIRECT TAXES

as premium, salami, cost,

price, development
charges or by any other
name) and/or periodic
rent for construction of a
project by a promoter 6

6. Services supplied by a A director of a Company or a

director of a company/ company or a body corporate
body corporate body corporate located in the
to the said company/ taxable territory.
body corporate.

7. Services supplied by an An insurance Any person

insurance agent agent carrying on
to any person carrying insurance business,
on insurance business. located in the
taxable territory.

8. Services supplied by a A recovery agent A banking

recovery agent company/financial
to a banking company or institution or a
a financial institution or a non-banking
non- banking financial financial company,
company. located in the
taxable territory.

6
Supply of TDR, FSI, long term lease (premium) of land by a landowner to a developer are
exempt subject to the condition that the constructed flats are sold before issuance of
completion certificate and tax is paid on them.
Exemption of TDR, FSI, long term lease (premium) is withdrawn in case of flats sold after
issue of completion certificate, but such withdrawal shall be limited to 1% of value in case
of affordable houses and 5% of value in case of other than affordable houses.
In such cases, the liability to pay tax on TDR, FSI, long term lease (premium) has been
shifted from land owner to builder under the reverse charge mechanism (RCM) – as
illustrated in table above.

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 CHARGE OF GST 3.19

9. Supply of services by a Music composer, Music company,

music composer, photographer, producer or the
photographer, artist or artist, or the like like, located in the
the like by way of transfer taxable territory.
or permitting the use or
enjoyment of a copyright
covered under section
13(1)(a) of the Copyright
Act, 1957 relating to
original dramatic, musical
or artistic works to a
music company,
producer or the like.

9A. Supply of services by an Author Publisher located

author by way of transfer in the taxable
or permitting the use or territory.
enjoyment of a copyright
covered under section
13(1)(a) of the Copyright
Act, 1957 relating to
original literary works to a
publisher.

However, an author can choose to pay tax under forward

charge if-
(i) he has taken registration under the CGST Act and filed a
declaration, in the prescribed form, that he exercises the
option to pay CGST on the said service under forward charge
in accordance with section 9(1) and to comply with all the
provisions as they apply to a person liable for paying the tax
in relation to the supply of any goods and/or services and
that he shall not withdraw the said option within a period of 1
year from the date of exercising such option;
(ii) he makes a declaration on the invoice issued by him in
prescribed form to the publisher.

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 3.20 INDIRECT TAXES

10. Supply of services by the Members of RBI

members of Overseeing Overseeing
Committee to Reserve Committee
Bank of India (RBI) constituted by the
RBI

11. Services supplied by Individual Direct A banking

individual Direct Selling Selling Agents company or a
Agents (DSAs) other (DSAs) other than NBFC, located in
than a body corporate, a body corporate, the taxable
partnership or limited partnership or LLP territory
liability partnership (LLP) firm
firm to bank or non-
banking financial
company (NBFCs).

12. Services provided by Business A banking

business facilitator to a facilitator company, located
banking company. in taxable
territory

13. Services provided by an An agent of A business

agent of business business correspondent,
correspondent to correspondent located in the
business taxable territory.
correspondent.

14. Security services Any person other A registered

(services provided by than a body person, located in
way of supply of security corporate the taxable
personnel) provided to a territory.
registered person.
However, nothing
contained in this entry
shall apply to:
(i) (a) a Department or
Establishment of

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 CHARGE OF GST 3.21

the Central
Government or
State
Government or
Union territory;
or
(b) local authority;
or
(c) Governmental
agencies; which
has taken
registration
under the CGST
Act, 2017 only
for the purpose
of deducting tax
under section 51
of the said Act
and not for
making a
taxable supply
of goods or
services; or
(ii) a registered person
paying tax under
composition scheme.

15. Services provided by way Any person, other Any body

of renting of any motor than a body corporate located
vehicle designed to carry corporate who in the taxable
passengers where the supplies service to territory.
cost of fuel is included a body corporate
in the consideration & doesn’t issue an
charged from the service invoice charging
recipient, provided to a CGST @6% to
body corporate. service recipient.

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 3.22 INDIRECT TAXES

16. Services of lending of Lender i.e., a Borrower i.e., a

securities under person who person who
Securities Lending deposits securities borrows the
Scheme, 1997 7 registered in his securities under
(“Scheme”) of Securities name/in the name the Scheme
and Exchange Board of of any other through an
India, as amended person duly approved
authorised on his intermediary of
behalf with an SEBI.
approved
intermediary for
the purpose of
lending under
Scheme of SEBI

🔔🔔 All the above services have also been notified for reverse charge
under IGST Act vide Notification No. 10/2017 IT (R) dated 28.06.2017
as amended. In addition to them, following service is also notified by
said notification under reverse charge for IGST purposes:
Any service supplied by any person who is located in a non-taxable territory to any
person other than non-taxable online recipient 8 located in taxable territory. Thus,
in case of import of service, tax is payable by the person importing such service 9.
For purpose of the notification notifying the above services under
reverse charge mechanism, following explanations shall apply-
(a) The person who pays or is liable to pay freight for the transportation
of goods by road in goods carriage, located in the taxable territory

7
Circular No. 116/35/2019 GST dated 11.10.2019 explaining the GST implication on security
lending mechanism under Securities Lending Scheme, 1997 has been covered at the Final level.
8
The concept of non-taxable online recipient has been discussed at the Final level.
9
Following service has also been notified under reverse charge vide Notification No. 10/2017 IT
(R) dated 28.06.2017 for IGST purposes:
Services supplied by a person located in non- taxable territory by way of transportation of goods
by a vessel from a place outside India up to the customs station of clearance in India to an
importer located in the taxable territory. Said service shall be covered at the Final level.

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 CHARGE OF GST 3.23

shall be treated as the person who receives the service for the purpose
of this notification.
(b) Body Corporate: has the same meaning as assigned to it in clause
(11) of section 2 of the Companies Act, 2013.
As per section 2(11) of the Companies Act, 2013, body corporate or
corporation includes a company incorporated outside India, but does
not include—
(i) a co-operative society registered under any law relating to co-
operative societies; and
(ii) any other body corporate (not being a company as defined in
this Act), which the Central Government may, by notification,
specify in this behalf.
(c) the business entity located in the taxable territory who is litigant,
applicant or petitioner, as the case may be, shall be treated as the person
who receives the legal services for the purpose of this notification.
(d) the words and expressions used and not defined in reverse charge
notification but defined in the CGST Act, the IGST Act, and the UTGST
Act shall have the same meanings as assigned to them in those Acts.
(e) Limited Liability Partnership formed and registered under the
provisions of the Limited Liability Partnership Act, 2008 shall also be
considered as a partnership firm or a firm.
(f) Insurance agent means an insurance agent licensed under section 42
of the Insurance Act, 1938 who receives agrees to receive payment by
way of commission or other remuneration in consideration of his
soliciting or procuring insurance business including business relating
to the continuance, renewal or revival of policies of insurance [Section
2(10) of the Insurance Act, 1938].
(g) Renting of immovable property means allowing, permitting or granting
access, entry, occupation, use or any such facility, wholly or partly, in an
immovable property, with or without the transfer of possession or control
of the said immovable property and includes letting, leasing, licensing or
other similar arrangements in respect of immovable property.
(h) the provisions of reverse charge notification, in so far as they apply to
the Central Government, State Government, shall also apply to the
Parliament and State Legislature.

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 3.24 INDIRECT TAXES

GTA services are taxable at the following two rates:

(i) @ 5% (2.5% CGST+2.5% SGST/UTGST or 5% IGST)
provided GTA has not taken the Input Tax Credit (ITC)
on goods or services used in supplying
transportation of goods by road service or
(ii) @ 12% (6% CGST+6% SGST/UTGST or 12% IGST) where GTA opts to
pay GST at said rate on transportation of goods services supplied by
it. In this case, there is no restriction on availing ITC on goods or
services used in supplying said service by GTA.
In the following paras, we have explained as to who is the person liable
to pay tax in case of each of the above two rates:

Person liable to pay tax under GTA service

Where GST is payable @ 5% Where GST is payable @ 12%

Recipient** is one of Recipient** is other than Recipient** is one

the Specified of the Specified
Specified Recipients Recipients
Recipients (Unregistered Individual end consumer)

Reverse charge Forward charge

Exempt
from GST
Person liable to pay GST is Person liable to
such recipient pay GST is GTA

** Recipient of GTA service is the person who pays/is liable to pay freight for
transportation of goods by road in goods carriage, located in the taxable
territory.

Service by way of renting of any motor vehicle designed

to carry passengers where the cost of fuel is included in

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 CHARGE OF GST 3.25

the consideration charged from the service recipient are taxable at the
following two rates:
(i) @ 5% (2.5% CGST+2.5% SGST/UTGST or 5% IGST) provided supplier of
services has taken only the limited ITC (of input services in the same
line of business) or
(ii) @ 12% (6% CGST+6% SGST/UTGST or 12% IGST) where supplier of services
opts to pay GST at said rate. In this case, there is no restriction on
availing ITC on goods or services used in supplying renting of motor
vehicles service by the supplier of service.
In the following paras, we have explained as to who is the person liable
to pay tax in case of each of the above two rates 10:

Person liable to pay tax under renting of motor vehicle service

Where GST is payable @ 5% Where GST is payable @ 12%

Supplier is other than Supplier is Body

Body Corporate Corporate

Recipient is a Recipient is other Forward charge

Body Corporate than Body Corporate

Person liable to pay GST

Reverse charge is Supplier

**
Person liable to pay GST is Recipient
**
It is important to note here that when any service is placed under RCM, the supplier shall
not charge any tax from the service recipient as this is the settled procedure under RCM.
Further, RCM shall be applicable here only when the supplier does not issue an invoice
charging GST @12% (6% CGST+6% SGST/UTGST or 12% IGST) from the service recipient.

10
Entry 15 of Notification No. 13/2017 CT (R) dated 28.06.2017 read with Circular No.
130/49/2019 GST dated 31.12.2019

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 3.26 INDIRECT TAXES

In order to determine the leviability of tax on the remuneration paid to the

directors, we first need to ascertain whether the director is an employee of the
company or not. Following two situations are possible:
(i) Services provided by the independent directors 11/those directors (by
whatever name called) who are not employees of the said company to such
company, in lieu of remuneration as the consideration for the said services,
are clearly outside the scope of Schedule III of the CGST Act 12 and are
therefore taxable. As seen in the table given above illustrating the reverse
charge services (Entry No. 6), such remuneration paid to the directors is
taxable in hands of the company, on reverse charge basis.
(ii) In case where it is ascertained that a director, irrespective of name and
designation, is an employee, next step would be to examine whether all the
activities performed by the director are in the course of employer-employee
relation (i.e. a “contract of service”) or is there any element of “contract for
service”.
The part of director’s remuneration which are declared as Salaries in the books
of a company and subjected to TDS under section 192 of the Income-tax Act (IT
Act), are not taxable being consideration for services by an employee to the
employer in the course of or in relation to his employment in terms of
Schedule III.
Further, the part of employee director’s remuneration which is declared
separately other than salaries in the company’s accounts and subjected to TDS
under section 194J of the IT Act as fees for professional or technical services are
treated as consideration for providing services which are outside the scope of

11
The definition of “independent directors” under section 149(6) of the Companies Act,
2013 read with Rule 12 of Companies (Share Capital and Debentures) Rules, 2014 makes it
amply clear that the independent director should not have been an employee of the
company.
12
As per Para 1 of Schedule III of the CGST Act, services by an employee to the employer in
the course of or in relation to his employment are non-supplies, i.e. they are neither supply
of goods nor supply of services. The provisions of Schedule III of the CGST Act have been
discussed in detail in Chapter 2 – Supply under GST.

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 CHARGE OF GST 3.27

Schedule III and is therefore, taxable. Besides, as already discussed, the recipient
of the said services i.e. the company, is liable to discharge the applicable GST on
it on reverse charge basis 13.

Electronic Commerce Operator (ECO) 14 is any person who

owns/operates/manages an electronic platform for supply of goods or services or
both.
Sometimes, ECO itself supplies the goods or
services displayed on its electronic portal.
However, many a times, the products/services
displayed on the electronic portal are actually
supplied by some other person to the consumer.
When a consumer places an order for a particular
product/ service on this electronic portal, the
actual supplier supplies the selected product/ s
ervice to the consumer. The price/ consideration for the product/ service is
collected by the ECO from the consumer and passed on to the actual supplier
after the deduction of commission by the ECO.
The Government may, on the recommendations of the GST Council, notify specific
categories of services the tax [CGST/SGST/IGST] on supplies of which shall be paid
by the electronic commerce operator (ECO) if such services are supplied
through it. Few services have been so notified. For instance, service by way of
transportation of passengers by a radio-taxi, motorcab, maxicab and motor cycle,
etc.

In order to determine the rate applicable on a particular supply of goods or

services, one needs to first determine the classification of such goods or services.
Classification of goods and services assumes significance since there are different
rates prescribed for supply of different goods and services. Therefore,

13
as clarified vide Circular No. 140/10/2020 GST dated 10.06.2020
14
Detailed provisions relating to Electronic Commerce Operator shall be discussed at Final
level.

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 3.28 INDIRECT TAXES

classification is crucial for determining the rate of tax applicable on a particular

product or service.
Classification of goods
Classification of goods means identification of the chapter, heading, sub-heading
and tariff item in which a particular product will be classified.

Sections

Chapter

Heading

Sub-heading

Tariff item

Chapter, heading, sub-heading and tariff item are referred in the Schedules of
rate notification for goods under GST are the Chapter, heading, sub-heading and
tariff item of the First Schedule to the Customs Tariff Act, 1975. Indian Customs
Tariff is based on HSN. HSN stands for Harmonized System of Nomenclature. It
is a multipurpose international product nomenclature developed by the World
Customs Organization (WCO) for the purpose of classifying goods across the
World in a systematic manner. It comprises of about 5,000 commodity groups;
each identified by a 6 digit code [code can be extended], arranged in a legal and
logical structure and is supported by well-defined rules to achieve uniform
classification. India has extended the HSN codes upto 8-digits.
Along the lines of HSN, the Indian Customs Tariff has a set of Rules of
Interpretation of the First Schedule and General Explanatory notes. These rules
and the general explanatory notes give clear direction as to how the
nomenclature in the schedule is to be interpreted. These Rules for
Interpretation including section and chapter notes and the General Explanatory

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 CHARGE OF GST 3.29

Notes of the First Schedule 1516 apply to the interpretation of the rate
notification for goods under GST also.
Consequently, under GST, goods are classified on the basis of HSN in accordance
with the Rules for the Interpretation of the Customs Tariff.
Once classification for a product has been determined on this basis, applicable
rate has to be determined as per the rate prescribed in the rate notification issued
under GST.
Classification of services
A new Scheme of Classification of Services has been devised under GST. It is a
modified version of the United Nations Central Product Classification. Under this
scheme, the services of various descriptions have been classified under various
sections, headings and groups. Chapter 99 has been assigned for services. This
chapter has following sections:
Section 5 Construction Services
Section 6 Distributive Trade Services; Accommodation, Food and Beverage
Service; Transport Services; Gas and Electricity Distribution Services
Section 7 Financial and related services; real estate services; and rental and
leasing services
Section 8 Business and Production Services
Section 9 Community, social and personal services and other miscellaneous
services
Each section is divided into various headings which is further divided into Groups. Its
further division is made in the form of ‘Tariff item’/ Service Codes.

15
The provisions relating to Customs Act and Customs Tariff Act will be discussed at Final
Level.
16
Sections: A group of Chapters representing a particular class of goods.
Chapters: Each section is divided into various chapters and sub-chapters. Each chapter
contains goods of one class.
Chapter notes: They are mentioned at the beginning of each chapter. These notes are part
of the statute and hence have the legal authority in determining the classification of goods.
Heading: Each chapter and sub-chapter is further divided into various headings.
Sub-heading: Each heading is further divided into various sub-headings.

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 3.30 INDIRECT TAXES

Chapter

Section

Heading

Group

Tariff item/Service Code

Rate of tax is determined in accordance with the Service Code in which the service
is classified.

Broadly, six rates of CGST have been notified in six

Schedules of rate notification for goods, viz., 0.125%, GST rates
1.5%, 2.5%, 6%, 9% and 14%. SGST/ UTGST at the for goods
equivalent rate is also leviable. With regard to IGST, broadly
six rates have been notified in six Schedules of rate
notification for goods, viz., 0.25%, 3%, 5%, 12%, 18% and 28% 17. Certain
specified goods have been exempted from tax.

Broadly, six rates of CGST have been notified for services,

viz., 0.75%, 2.5%, 3.75%, 6%, 9% and 14% 18. Equivalent
rate of SGST/ UTGST will also be levied. For IGST, six GST rates
rates have been notified for services, viz., 1.5%, 5%, for services
7.5%, 12%, 18% and 28% 1920. For certain specified
services, nil rate of tax has been notified.

17
Students may refer the CBIC website for the complete Schedule of GST Rates for goods for
knowledge purposes.
18
notified vide Notification No. 11/2017 CT (R) dated 28.06.2017
19
notified vide Notification No. 8/2017 IT (R) dated 28.06.2017.
20
Students may refer the CBIC website for the complete Schedule of GST Rates for services
for knowledge purposes.

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 CHARGE OF GST 3.31

Services of gambling, services by way of admission to entertainment events/access to

amusement facilities including casinos, race club, any sporting event such as IPL and
the like, services provided by a race club by way of totalisator or a license to
bookmaker in such club, attract the highest rate of 28% (CGST @ 14% and SGST @
14% or IGST @ 28%).
A number of services are subject to a lower rate of 5% (CGST @ 2.5% and SGST @
2.5% or IGST @ 5%). For instance, GTA service is taxed @ 5% subject to the
condition that credit of input tax charged on goods/services used in supplying said
service has not been taken. Similarly, tax rate for restaurant service is 5% without any
input tax credit.
Services not covered under any specific heading are taxed at the rate of 18%
(CGST @ 9% and SGST @9% or IGST @ 18%).
In the following paras, applicability of GST in real estate sector has been briefly
discussed:
GST rates in real estate sector

The effective rate of GST on real estate sector for the new projects by promoters
are as follows:
(i) 1% without ITC on construction of affordable houses (area 60 sqm in
metros/ 90 sqm in non-metros and value upto ` 45 lakh).
(ii) 5% without ITC is applicable on construction of:
(a) all houses other than affordable houses, and
(b) commercial apartments such as shops, offices etc. in a residential real
estate project (RREP) in which the carpet area of commercial
apartments is not more than 15% of total carpet area of all
apartments.
Conditions:
Above tax rates shall be available subject to following conditions:
(a) ITC shall not be available.

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 3.32 INDIRECT TAXES

(b) 80% of inputs and input services [other than services by way of grant of
development rights, long term lease of land (against upfront payment in the form of
premium, salami, development charges etc.) or FSI (including additional FSI), electricity,
high speed diesel, motor spirit, natural gas] ,
used in supplying the service shall
be purchased from registered persons 21.
However, if value of inputs and input services purchased from registered
supplier is less than 80%, promoter has to pay GST on reverse
charge basis, under section 9(4) of the CGST Act
Supply of services
[discussed earlier], at the rate of 18% on all such
notified under
inward supplies (to the extent short of 80% of
section 9(4)
the inward supplies from registered supplier).
Further, where cement is received from an unregistered person, the
promoter shall pay tax on supply of such cement on reverse charge
basis, under section 9(4) of the CGST Act, at the applicable rate which is
28% (CGST 14% + SGST 14%) at present.
Moreover, GST on capital goods shall be paid by the promoter on
reverse charge basis, under section 9(4) of the CGST Act at the
applicable rates [Notification No. 07/2019 CT (R) dated 29.03.2019/
Notification No. 07/2019 IT (R) dated 29.03.2019].

5. COMPOSITION LEVY [SECTION 10 OF THE CGST ACT]

STATUTORY PROVISIONS
Section 10 Composition levy
Sub-section Particulars
(1) Notwithstanding anything to the contrary contained in this Act but
subject to the provisions of sub-sections (3) and (4) of section 9, a
registered person, 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

21
Discussion in above paras highlighted in green is solely for the purpose of knowledge of
the students and is not meant for examination purposes.

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 CHARGE OF GST 3.33

amount of tax calculated at such rate as may be prescribed, but not

exceeding,––
a one percent. 22 of the turnover in State or turnover in Union
territory in case of a manufacturer
b two and a half per cent. of the turnover in State or turnover
in Union territory in case of persons engaged in making
supplies referred to in clause (b) of paragraph 6 of
Schedule II, and
c half per cent. of the turnover in State or turnover in Union
territory in case of other suppliers
subject to such conditions and restrictions as may be prescribed.
Provided that the Government may, by notification, increase the said
limit of fifty lakh rupees to such higher amount, not exceeding one
crore and fifty lakh rupees 23, as may be recommended by the Council.
Provided further that a person who opts to pay tax under clause (a)
or clause (b) or clause (c) may supply services (other than those
referred to in clause (b) of paragraph 6 of Schedule II), of value not
exceeding ten percent. of turnover in a State or Union territory in the
preceding financial year or five lakh rupees, whichever is higher.
Explanation - For the purposes of second 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.
(2) The registered person shall be eligible to opt under sub-section (1), if–
(a) save as provided in sub-section (1), he is not engaged in
the supply of services

22
Rate of tax prescribed in case of a manufacturer is half percent of the turnover in
State/UT. The same has been discussed in detail in subsequent paras.
23
The turnover limit for composition levy has been increased from ` 50 lakh to ` 1.5
crore vide Notification No. 14/2019 CT dated 07.03.2019.

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 3.34 INDIRECT TAXES

(b) he is not engaged in making any supply of goods or

services which are not leviable to tax under this Act
(c) he is not engaged in making any inter-State outward supplies
of goods or services
(d) he is not 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;
(e) he is not a manufacturer of such goods as may be notified by the
Government on the recommendations of the Council; and
(f) he is neither a casual taxable person nor a non-resident
taxable person.
Provided that where more than one registered persons are having
the same Permanent Account Number (issued under the Income-
tax Act, 1961), the registered person shall not be eligible to opt for
the scheme under sub-section (1) unless all such registered persons
opt to pay tax under that sub-section.
(2A) Notwithstanding anything to the contrary contained in this Act, 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), 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;

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 CHARGE OF GST 3.35

(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.
Provided that where more than one registered person are having
the same Permanent Account Number issued under the Income-tax
Act, 1961, the registered person shall not be eligible to opt for the
scheme under this sub-section unless all such registered persons
opt to pay tax under this sub-section.
(3) The option availed of by a registered person under sub-section (1)
or sub-section (2A), as the case may be, shall lapse with effect from
the day on which his aggregate turnover during a financial year
exceeds the limit specified under sub-section (1) or sub-section
(2A), as the case may be.
(4) A taxable person to whom the provisions of sub-section (1) or, as
the case may be, sub-section (2A) 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.
(5) If the proper officer has reasons to believe that a taxable person
has paid tax under sub-section (1) or sub-section (2A), as the case
may be despite not being eligible, such person shall, in addition to
any tax that may be payable by him under any other provisions of
this Act, be liable to a penalty and the provisions of section 73 or
section 74 shall, mutatis mutandis, apply for determination of tax
and penalty.
Explanation 1 –– For the purposes of computing aggregate turnover
of a person for determining his eligibility to pay tax under this
section, the expression “aggregate turnover” shall include the value
of supplies made by such person from the 1st day of April of a
financial year upto the date when he becomes liable for
registration under this Act, but shall not include 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.

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 3.36 INDIRECT TAXES

Explanation 2 –– For the purposes of determining the tax payable

by a person under this section, the expression “turnover in State or
turnover in Union territory” shall not include the value of following
supplies, namely:––
(i) supplies from the first day of April of a financial year upto the
date when such person becomes liable for registration under
this Act; and
(ii) 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.

ANALYSIS
(1) Overview of the Scheme
The composition levy is an alternative method of levy
of tax designed for small taxpayers whose turnover is Voluntary and
up to a prescribed limit. The objective of composition optional scheme
scheme is to bring simplicity and to reduce the
compliance cost for the small taxpayers.
Initially, the scheme was
designed to benefit the
small traders,
manufacturers and
restaurant service providers. So, the scheme
was fundamentally for the suppliers of
goods and only for restaurant service
providers. However, subsequently, suppliers availing composition scheme were
permitted to supply other services also, though only upto a small specified
value. This scheme is contained in sub-sections (1) and (2) of section 10 of
the CGST Act (hereinafter referred to as composition scheme for goods).
Under this scheme, suppliers of goods have the option to pay tax at the
concessional rate of 1% (CGST + SGST/UTGST) of the turnover and restaurant
service providers have the option to pay tax @ 5% (CGST + SGST/UTGST) of the
turnover. Small taxpayers with an aggregate turnover in the preceding
financial year up to ` 1.5 crore are eligible to pay tax at these rates in the
current financial year upto an aggregate turnover of ` 1.5 crore. However,

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 CHARGE OF GST 3.37

a person engaged exclusively in supply of services other than restaurant

service is not eligible for this composition scheme stipulated under
sub-sections (1) and (2).
In order to provide benefit of composition
scheme to persons engaged in supply of
services other than restaurant service whose
aggregate turnover in the preceding financial
year is up to ` 50 lakh, a scheme to pay tax @
6% (CGST + SGST/UTGST) of the turnover was introduced
subsequently. A mixed supplier who is primarily
engaged in supplying services other than restaurant
service along with marginal supply of goods could also
avail the benefit of this scheme. The
provisions of this scheme are contained
in sub-section (2A) of section 10 24.
Essentially, the composition scheme under sub-section (2A)
(hereinafter referred to as composition scheme for
services) is for small service providers like salon stylist, tailors, etc. This
scheme provides an option to such suppliers to pay tax @ 6% of the turnover
in the current financial year upto an aggregate turnover of ` 50 lakh.
Suppliers opting for composition levy need not
worry about the classification of their goods or Easy compliance as
services or both, the rate of GST applicable on no elaborate
their goods and/ or services, etc. They are not accounts and records
required to raise any tax invoice, but simply need
to issue a Bill of Supply 25 wherein no tax will be
Simple annual
charged from the recipient.
return
Quarterly payment An eligible person opting to pay tax under the
of tax composition scheme shall, instead of paying tax on

24
This scheme was initially introduced with effect from 1 st April, 2019 vide Notification No.
2/2019 CT (R) dated 07.03.2019. With effect from 01.01.2020, the provisions of this scheme
have been incorporated in sub-section (2A) of section 10 vide the Finance (No. 2) Act, 2019.
It is important to note that Notification No. 2/2019 CT (R) dated 07.03.2019 has not yet
been rescinded and is still operational.
25
Discussed in detail in Chapter-8: Tax Invoice, Credit and Debit Notes; E-way Bill

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 3.38 INDIRECT TAXES

every invoice at the specified rate, pay tax at the prescribed percentage of
his turnover every quarter. At the end of a quarter, he would pay the tax,
without availing the benefit of input tax credit. Return is to be filed
annually by a composition supplier. Registration under GST law is
compulsory for opting for the composition scheme.
The provisions relating to composition levy are contained in section 10 of
CGST Act, 2017 and Chapter-II [Composition Levy] of Central Goods and
Services Tax (CGST) Rules, 2017. The said rules have been incorporated in
the discussion in the following paras at the relevant places.
As seen above, section 10 stipulates two types of composition schemes –

Composition scheme Hereinafter referred to as

provided under sections Composition scheme for
scheme under
Composition

section 10

10(1) & 10(2) goods

Composition scheme Hereinafter referred to as
provided under section Composition scheme for
10(2A) services

Provisions relating to these schemes have been discussed in detail in

subsequent paras:
(2) Turnover limit for opting for composition levy [Section 10(1),
10(2A) & 10(3)]
Turnover limit in case of composition levy for goods
Section 10(1) of the CGST Act provides the turnover
limit of ` 50 lakh in the preceding financial year for
becoming eligible for composition levy for goods. Turnover limit is
However, proviso to section 10(1) empowers the ` 1.5 crore
Government to increase the said limit of ` 50 lakh
upto ` 1.5 crore, on the recommendation of the GST
Council. In view of said power of the Government to increase the turnover
limit for composition levy as granted by first proviso to section 10(1), the
turnover limit for composition levy for goods has been increased from ` 50
lakh to ` 1.5 crore vide Notification No. 14/2019 CT dated 07.03.2019.
However, the said notification further stipulates that the turnover limit
for composition levy for goods shall be ` 75 lakh in respect of 8 of the
Special Category States namely:

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 CHARGE OF GST 3.39

Special Category States

Arunachal Pradesh Mizoram

Uttarakhand Nagaland
Manipur Sikkim
Meghalaya Tripura

In case of Special Category States of Assam, Himachal Pradesh and

Jammu and Kashmir, the turnover limit will be ` 1.5 crore only.
Thus, if the aggregate turnover of a supplier in a State/UT other than
Special Category States (except Assam, Himachal Pradesh and Jammu
and Kashmir) is upto ` 1.5 crore in the preceding financial year, said
supplier is eligible for composition scheme for goods. Further, it is
important to note that the aggregate turnover is computed on all India
basis for a person having same Permanent Account Number (PAN) – Refer
the definition of aggregate turnover discussed in subsequent paras.

Arunachal Pradesh

Uttarakhand

Manipur

Meghalaya
composition levy for goods

` 75 lakh
Mizoram
Turnover Limit for

Nagaland

Sikkim

Tripura

` 1.5 crore All other States/UTs

(2) A shoes’ dealer ‘Prithviraj’ has offices in Maharashtra and Goa.

He makes intra-State supply of goods from both these offices.
In order to determine whether ‘Prithviraj’ is eligible to avail benefit

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 3.40 INDIRECT TAXES

of the composition scheme for goods, turnover of both the offices would be
taken into account and if the same does not exceed ` 1.5 crore, ‘Prithviraj’
can opt to avail the composition levy scheme (subject to fulfilment of other
prescribed conditions) for goods for both the offices.
Further, the option of a registered person to avail composition scheme
for goods shall lapse with effect from the day on which his aggregate
turnover during a financial year exceeds the threshold limit of ` 1.5 crore
[` 75 lakh in 8 specified special category States] [Section 10(3)].

Turnover limit in case of composition levy for services

Section 10(2A) provides the turnover limit of ` 50 lakh in the preceding

financial year for becoming eligible for composition levy for services.
(3) A hair stylist ‘Billoo Barber’ has his salon in Delhi and Haryana,
making intra-State supplies.

In order to determine whether ‘Billoo’ 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, ‘Billoo’ can
opt to avail the composition levy scheme (subject to fulfilment of other
prescribed conditions) for both the salons.

Further, the option of a registered person to avail

composition scheme for services shall lapse with
effect from the day on which his aggregate Turnover limit is
turnover during a financial year exceeds the ` 50 lakh
threshold limit of ` 50 lakh [Section 10(3)].
To summarise, a registered person opting for
composition scheme for goods should have an
Summary aggregate turnover upto ` 1.5 crore [` 75 lakh in 8
specified Special Category States] in the preceding FY
and he can avail the benefit of said scheme in the
current FY till the time his aggregate turnover in the current FY does not
exceed ` 1.5 crore/` 75 lakh.
Similarly, a registered person opting for composition scheme for services
should have an aggregate turnover upto ` 50 lakh in the preceding FY

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 CHARGE OF GST 3.41

and he can avail the benefit of said scheme in the current FY till the time
his aggregate turnover in the current FY does not exceed ` 50 lakh.
From the above discussion, it is apparent that the term aggregate turnover
is of utmost importance. So, let us understand this term in detail.
(3) Aggregate turnover under composition levy [Section 2(6) read with
explanation 1 to section 10]
The definition of aggregate turnover as contained in section 2(6) of the
CGST Act is analysed as follows:
The aggregate turnover is the sum of value of all outward supplies falling in
the following four categories:
 Taxable supplies
 Exempt supplies
 Exports of goods or services or both
 Inter-State supplies
It excludes:
 The value of inward supplies on which tax is payable by a person on
reverse charge basis
 Taxes including cess paid under GST law.
It is computed on all India basis for a person having same Permanent
Account Number (PAN).
Further, explanation 1 to section 10 clarifies that for the purposes of
computing aggregate turnover of a registered person for determining
his eligibility to pay tax under this section, aggregate turnover includes
value of supplies from 1st April of a FY up to the date of his becoming
liable for registration and excludes 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.
On combined reading of the aforesaid provisions, the method of
computing the aggregate turnover for the purpose of determining the
eligibility of a registered person for the composition scheme [for both
goods and services] can be depicted in a diagram as follows:

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 3.42 INDIRECT TAXES

While computing the threshold limit of ` 1.5 crore/ ` 75 lakh / ` 50 lakh,

inclusions in and exclusions from ‘aggregate turnover’ are as follows:

Includes Excludes
Value of all outward --CGST/ SGST/ UTGST/ IGST/ Cess
supplies
--Value of inward supplies on which tax
--Taxable supplies
--Exempt supplies is payable under reverse charge.
--Exports* --Value of exempt supply of services
--Inter-State supplies* provided by way of extending deposits,
of persons having the same PAN
loans or advances in so far as the
be computed on all India basis.
consideration is represented by way of
These also include interest or discount

Value of supplies made by registered person

from 1st April of a FY up to the date when he
becomes liable for registration under this Act

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

(4) Rates of tax under the composition levy scheme [Section 10(1) and
section 10(2A) read with rule 7]

Rule 7 of the CGST Rules, 2017 prescribes the rates at which tax is payable
by a registered person opting for composition levy – composition levy for
goods and composition levy for services.
Rates of tax in case of composition levy for goods
A registered person opting for composition levy for goods shall pay tax
calculated at the prescribed rates [mentioned in table below] during the
current FY, in lieu of the tax payable by him under regular scheme:

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 CHARGE OF GST 3.43

S. No. Category of registered persons Rate of tax

1 Manufacturers, other than ½ % 26 of the turnover
manufacturers of notified goods, i.e. ice in the State/Union
cream, pan masala, tobacco and territory
aerated waters.
2 Suppliers making supplies referred to in 2½ % 27 of the
clause (b) of paragraph 6 of Schedule II turnover in the
[referred to as “Restaurant service” in State/Union territory
discussion under this chapter]
3 Any other supplier eligible for ½ % 28 of turnover of
composition levy under section 10 of taxable supplies of
CGST Act and Chapter-II goods & services in the
[Composition Levy] of CGST Rules. State/Union territory
Note - Students may note that while ‘aggregate turnover’ of preceding FY is
relevant for the purpose of determining eligibility to avail composition scheme, the
tax has to be paid in accordance with the applicable rates on the ‘turnover’ (or
‘turnover of taxable supplies’, as the case may be) in a particular tax period.

ILLUSTRATION 1
Taxpayer ‘Tolaram’ is a manufacturer who has opted for composition levy for
goods, having one unit – A1 in UP and another unit – A2 in MP. Total turnover
of two units in last FY was ` 115 lakh (` 85 lakh + ` 30 lakh). Turnover of units
A1 and A2 in the first quarter of current financial year is ` 5 lakh and ` 10 lakh
respectively. Compute the amount payable under composition levy under section
10(1) & 10(2) of the CGST Act, 2017 by ‘Tolaram’.
ANSWER

Unit Location Turnover in Turnover in 1st Total tax

previous FY quarter of this FY (@1%)

A1 U.P. ` 85 lakh ` 5 lakh ` 5,000

26
Effective rate 1% (CGST+ SGST/UTGST)
27
Effective rate 5% (CGST+ SGST/UTGST)
28
Effective rate 1% (CGST+ SGST/UTGST)

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 3.44 INDIRECT TAXES

A2 M.P. ` 30 lakh ` 10 lakh ` 10,000

Total ` 115 lakh ` 15 lakh ` 15,000

ILLUSTRATION 2
Taxpayer ‘Bholaram’ is a trader (who has opted for composition levy for goods) of
both taxable and exempted goods (goods exempted by way of a notification).
It has one retail showroom – A1 in Punjab and another retail showroom – A2 in
Rajasthan, both selling taxable as well as exempted goods. Total turnover
(including taxable and exempted goods) of the two showrooms in last FY was `
115 lakh (` 85 lakh + ` 30 lakh).
Turnover of showrooms A1 and A2 in the first quarter of current financial year is
` 35 lakh [A1 - ` 15 lakh (` 5 lakh from sale of taxable goods and ` 10 lakh from
sale of exempted goods) and A2 - ` 20 lakh (` 10 lakh from sale of taxable goods
and ` 10 lakh from sale of exempted goods)]. Compute the amount payable
under composition levy under section 10(1) & 10(2) of the CGST Act, 2017 by
‘Bholaram’.
ANSWER

Retail Location Turnover in Taxable turnover* Total tax

showroom previous FY in 1st quarter of (@1%)
this FY
A1 Punjab ` 85 lakh ` 5 lakh ` 5,000
A2 Rajasthan ` 30 lakh ` 10 lakh ` 10,000

Total ` 115 lakh ` 15 lakh ` 15,000

Note: A supplier, other than manufacturer and restaurant service provider, eligible for
composition levy under section 10(1) & 10(2) has to pay tax @ 1% (CGST+ SGST) of
the turnover of only taxable supplies of goods and services in the State.

Rates of tax in case of composition levy for services

A registered person opting for composition levy for services shall pay tax @
3% [Effective rate 6% (CGST+ SGST/UTGST)] of the turnover of supplies of
goods and services in the State or Union territory.

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 CHARGE OF GST 3.45

ILLUSTRATION 3
Taxpayer ‘Padmavati’ is a salon stylist, who has opted for composition levy for
services, having one branch – B1 in Vasant Kunj, Delhi and another branch –
B2 in Gurgaon, Haryana. Total turnover of two branches in last FY was ` 45
lakh (` 25 lakh + ` 20 lakh). Turnover of branches B1 and B2 in the first
quarter of current financial year is ` 5 lakh and ` 10 lakh respectively.
Compute the amount payable under composition levy under section 10(2A) of
the CGST Act, 2017 by ‘Padmavati’.
ANSWER

Branch Location Turnover in Turnover in 1st Total tax

previous FY quarter of this FY (@6%)

B1 Delhi ` 25 lakh ` 5 lakh ` 30,000

B2 Haryana ` 20 lakh ` 10 lakh ` 60,000

Total ` 45 lakh ` 15 lakh ` 90,000

As seen above, since the tax under composition scheme has to computed as
a specified % of the turnover in State or turnover in Union territory, it is
pertinent to understand what is turnover in State or turnover in Union
territory.
(5) Turnover in State or turnover in Union territory under composition
levy [Section 2(112) read with explanation 2 to section 10]
As per section 2(112) of the CGST Act, 2017,
turnover in State/ turnover in Union territory means
the aggregate value of all taxable supplies
(excluding the value of inward supplies on
which tax is payable by a person on reverse charge basis) and exempt
supplies made within a State or Union territory by a taxable person, exports
of goods or services or both and inter-State supplies of goods or services or
both made from the State or Union territory by the said taxable person but
excludes central tax, State tax, Union territory tax, integrated tax and cess.
Further, explanation 2 to section 10 clarifies that for the purposes of
determining the tax payable by a person under this section, the

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 3.46 INDIRECT TAXES

expression turnover in State or turnover in Union territory shall not include

the value of following supplies, namely:
(i) supplies from 1st April of a FY up to the date when such person
becomes liable for registration under this Act; and
(ii) 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.
On combined reading of the aforesaid provisions, the method of computing
the turnover in a State/UT for paying tax under the composition
scheme can be depicted in a diagram on the next page:

While computing the Turnover in a State/UT to pay tax under

composition levy, inclusions and exclusions are as follows:

Excludes

Includes --CGST/ SGST/ UTGST/ IGST/ Cess

--Value of inward supplies on which
--All taxable supplies and exempt tax is payable under reverse charge.

supplies made within the State/UT --Value of supplies from the first day
of April of a FY up to the date when
(While computing turnover in a such person becomes liable for
State/UT of a supplier, other than registration under this Act
manufacturer and restaurant service
provider, eligible for composition --Value of exempt supply of services
levy for goods [eg-trader], the provided by way of extending
exempt supplies will not be taken deposits, loans or advances in so far
into consideration) as the consideration is represented
by way of interest or discount

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 CHARGE OF GST 3.47

(4) A photographer ‘Champak’ has commenced providing

photography services in Delhi from April this year. His turnover
for various quarters till December is as follows:
April-June ` 20 lakh
July-Sept ` 30 lakh
Oct-Dec ` 20 lakh
In the given case, since Champak has started the supply of services in the
current financial year, his aggregate turnover in the preceding FY is Nil.
Consequently, in the current FY, he is eligible for composition scheme for
services. He becomes eligible for the registration when his aggregate
turnover exceeds ` 20 lakh.
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 ` 30 lakh [turnover of July-Sept quarter], he shall pay tax @ 6%
[3% CGST and 3% SGST], i.e. CGST ` 90,000 and SGST ` 90,000.
By the end of July-Sept quarter, his aggregate turnover reaches ` 50 lakh*.
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 ` 20 lakh × 18%, i.e. ` 3,60,000.
*while computing aggregate turnover for determining Champak’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.

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 3.48 INDIRECT TAXES

(6) Who are NOT eligible to opt for composition scheme? [Section 10(2)
and (2A)]

Registered person who is not eligible for Registered person who is not eligible for
composition scheme for goods composition scheme for services

Supplier engaged in making any Supplier engaged in making any

supply of goods or services supply of goods or services
which are not leviable to tax which are not leviable to tax

Supplier engaged in making any Supplier engaged in making any

inter-State outward supplies of inter-State outward supplies of
goods or services goods or services

Person supplying any goods or Person supplying any goods or

services through an electronic services through an electronic
commerce operator who is commerce operator who is
required to collect tax at source required to collect tax at source
under section 52* under section 52*

Manufacturer of ice cream, Manufacturer of notified goods

panmasala, tobacco and aerated [ice cream, panmasala, tobacco
waters and aerated waters] or supplier
of notified services

Supplier who is either a casual

taxable person or a non-resident Supplier who is either a casual
taxable person taxable person or a non-resident
taxable person.
Supplier of services, save as
provided in section 10(1) [Refer
discussion below diagram]

*Section 52 relating to tax collected at source has been discussed in detail at the Final
level.

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 CHARGE OF GST 3.49

There is no restriction on
composition supplier to receive
inter-State inward supplies of
goods or services.

A person engaged in marginal supply of services other than restaurant

service also eligible for composition levy for goods [Second proviso to
section 10(1) read with section 10(2)(a)]
Fundamentally, the composition scheme for goods can be availed in
respect of goods and only one service namely, restaurant service.
However, there are cases where a manufacturer/ trader is also engaged
in supply of services other than restaurant service though the
percentage of such supply of services is very small as compared to the
supplies of goods. There may also be cases where a restaurant service
provider is also engaged in supplying a small percentage of other
services.
With a view to enable such taxpayers to avail of the benefit of
composition scheme for goods, second proviso to section 10(1) permits
marginal supply of services [other than restaurant services] for a
specified value along with the supply of goods and/or restaurant service,
as the case may be. This specified value is value not exceeding:
(a) 10% of the turnover in a State/Union territory in the preceding
financial year
or

(b) ` 5 lakh,
whichever is higher.
Thus, it can be inferred that where the turnover of a registered person
opting for composition scheme for goods is upto ` 50 lakh in the
preceding financial year, he can supply services [other than restaurant

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 3.50 INDIRECT TAXES

services] upto a maximum value of ` 5 lakh in the current financial year.

Further, where the turnover of a registered person opting for
composition scheme is more than ` 50 lakh and upto ` 1.5 crore in the
preceding financial year, he can supply services [other than restaurant
services] in the current financial year upto a maximum value of 10% of
the turnover in a State/Union territory in the preceding financial year.
(5) Ramsewak is engaged in supply of goods. His turnover in
preceding FY is ` 60 lakh. Since his aggregate turnover in the
preceding FY does not exceed ` 1.5 crore, he is eligible for
composition scheme for goods in current FY. Further, in current FY, he can
supply services [other than restaurant services] upto a value of not
exceeding:
(a) 10% of ` 60 lakh, i.e. ` 6 lakh
or
(b) ` 5 lakh,
whichever is higher.
Thus, he can supply services upto a value of ` 6 lakh in current FY. If the
value of services supplied exceeds ` 6 lakh, he becomes ineligible for the
composition scheme for goods and has to opt out of the same.
Interest income to be excluded for determining the value of
turnover in a State or Union territory under second proviso to
section 10(1) [Explanation to second proviso to section 10(1)]
Generally, businesses tend to save and invest money in the form of
deposits, loans or advances. However, this way they get engaged in
supply of service by way of extending deposits, loans or advances 29 – a
service other than restaurant service. And where the income from such
services cause the value of services 30 supplied to exceed the value

29
It is, however, pertinent to note that services by way of extending deposits, loans or
advances in so far as the consideration is represented by way of interest or discount are
exempt from GST – Discussed in detail in Chapter 4 – Exemptions from GST.
30
other than restaurant services

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 CHARGE OF GST 3.51

referred in second proviso to section 10(1) 31 [10% of the turnover in the

preceding FY in a State/Union territory or ` 5 lakh, whichever is higher],
said business would have become ineligible for the composition scheme
for goods and one has to opt out of the composition scheme. This can
cause a lot of hardship to small businesses.
In view of the above, an explanation is inserted after second proviso to
section 10(1) to clarify that for the purposes of second proviso to section
10(1), the value of supply of exempt services 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.
Under second proviso to section 10(1), a registered person opting for
composition scheme may supply services [other than restaurant services] of
value not exceeding 10% of the turnover in the preceding financial year in a
State/Union territory or ` 5 lakh, whichever is higher. Thus, while
computing value of services [other than restaurant services] as referred
in this proviso, interest on loans/deposit/advances will not be taken
into account.
The provisions relating to composition levy discussed hereafter are
applicable to both composition levy for goods as well as composition levy
for services.
(7) Conditions and restrictions for composition levy [Rule 5]
Person opting for composition levy has to comply with the following
conditions:
 he was not engaged in the manufacture of goods as notified under
section 10(2)(e), during the preceding FY. The following goods have
been hereby notified vide Notification No. 14/2019 CT dated
07.03.2019 as amended:

31
as discussed in preceding paras

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 3.52 INDIRECT TAXES

Tariff item, subheading,

Description
heading or Chapter*

2105 00 00 Ice cream and other

edible ice, whether or not
containing cocoa

2106 90 20 Pan masala Pan Masala

24 All goods, i.e. Tobacco and

manufactured tobacco
substitutes

2202 1010 Aerated Waters

* as specified in the First Schedule to the Customs Tariff Act, 1975

 he shall pay tax under section 9(3)/9(4) 32 (reverse charge) on inward
supply of goods or services or both.
 he is neither a casual taxable person nor a non-resident taxable
person
 he shall mention the words “composition taxable person, not eligible
to collect tax on supplies” at the top of the bill of supply issued by him;
and
 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.

32
wherever applicable

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 CHARGE OF GST 3.53

Further, where the goods held in stock by him are liable to be taxed under
reverse charge under section 9(4) 33, the tax thereon has been paid under
reverse charge under section 9(4).
(8) Intimation of opting for composition levy [Rules 3 & 4]

(i) Intimation by person applying for registration:

Any person who is not registered and applies for
registration may give an option to pay tax under
composition levy in Part B of the registration form, viz., Form
GST REG-01. The same shall be considered as an intimation to
pay tax under composition levy. Such intimation shall be
considered only after the grant of registration to the applicant.
The option to pay tax under composition levy shall be effective
from the date from which registration is effective.
(ii) Intimation by a registered person: A registered person who opts to
pay tax under composition levy scheme shall electronically file an
intimation in prescribed form on the GST Common Portal
[[Link]]. The intimation shall be filed prior to the
commencement of the FY for which said option is exercised.
He shall also furnish the statement in prescribed form in
accordance with the provisions of rule 44(4) of CGST Rules, 2017
[Discussed in detail in Chapter 6 – Input Tax Credit] within 60 days
from the commencement of the relevant FY.

33
This condition applies in case where a builder/promoter opting for composition scheme
has the stock of the goods on which he is required to pay GST on reverse charge basis under
section 9(4) in one or more of the following cases:
(i) Builder/promoter must purchase at least 80% of inputs and input services used in
supplying the service, from registered persons. In case of shortfall, he’s required to pay
tax under reverse charge on all such inward supplies (to the extent short of 80% of the
inward supplies from registered supplier).
(ii) Where cement is received from an unregistered person, promoter/builder has to pay
tax on supply of such cement under reverse charge and
(iii) GST on capital goods is payable by the promoter on reverse charge basis.

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 3.54 INDIRECT TAXES

Any intimation in respect of any place of business in a State/UT shall

be deemed to be an intimation in respect of all other places of
business registered on the same PAN.
The option to pay tax under composition levy shall be effective
from the beginning of the FY.
A person applying for registration can opt for composition at the time
of applying for registration [this time being any time of
the financial year] and composition levy shall be
Summary
effective from the date from which registration is
effective. A registered person can opt for composition
scheme from the beginning of any FY and composition levy shall be
effective from the beginning of said FY.

composition levy
can opt for shall be effective
composition levy from

•at any time •the date from

during the year which
while applying registration is
for registration effective
Person applying
for registration

composition levy
can opt for shall be effective
composition levy from

•from the •the

beginning of beginning of
any FY said FY
Registered
person

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 CHARGE OF GST 3.55

(9) Validity of composition levy [Section 10(3) read with rule 6 34]

I. Withdrawal from the composition scheme by a taxpayer who

ceases to satisfy any of the prescribed conditions
 The option exercised by a registered person to pay amount under
composition levy shall remain valid so long as he satisfies all the
conditions mentioned in the relevant section and rules. For
instance, the option to pay tax under composition scheme lapses
from the day on which aggregate turnover of a registered person
exceeds the specified limit (` 1.5 crore/ ` 75 lakh/ ` 50 lakh) during
the FY.
 Such person is required to pay tax under regular scheme under
section 9(1) from the day he ceases to satisfy any of the
conditions prescribed for composition levy. He shall issue tax
invoice for every taxable supply made thereafter. Further, he is
required to file an intimation for withdrawal from the scheme in
prescribed form within 7 days of the occurrence of such event.
 The effective date from which withdrawal from the
composition scheme shall take effect shall be the date
indicated by him in his intimation, but such date may not be
prior to the commencement of the financial year in which such
intimation is being filed.
II. Withdrawal from the composition scheme by a taxpayer who
intends to withdraw from the said scheme
 The registered person who intends to withdraw from the
composition scheme shall, before the date of such withdrawal,
file an application in prescribed form.
 The effective date from which withdrawal from the
composition scheme shall take effect shall be the date
indicated by him in his application, but such date may not be
prior to the commencement of the financial year in which such
application for withdrawal is being filed.

34
read with Circular No. 77/51/2018 GST dated 31.12.2018

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 3.56 INDIRECT TAXES

III. Denial of option to pay tax under the composition scheme by tax
authorities
 Where the proper officer has reasons to believe that the
registered person was not eligible to pay tax under composition
scheme or has contravened the provisions of the CGST Act or
provisions of this Chapter, he may issue a show cause notice
(SCN) to such person. Upon receipt of reply to SCN, he shall
pass an order either accepting the reply, or denying the option
to pay tax under composition scheme from the date of the
option or from the date of the event concerning such
contravention, as the case may be.
 In case of denial of option to pay tax under composition levy
by the tax authorities, the effective date of such denial shall be
from a date, including any retrospective date, as may be
determined by tax authorities. However, such effective date shall
not be prior to the date of contravention of the provisions of the
CGST Act/ CGST Rules.
In each of the above cases, such person may furnish a statement in
prescribed form containing details of the stock of inputs and inputs
contained in semi-finished or finished goods held in stock by him on the
date on which the option is withdrawn/denied, within a period of 30 days
from the date from which the option is withdrawn/ or from the date of the
order denying composition scheme.
(6) A person availing composition scheme during a financial year
crosses the turnover of ` 1.5 crore on 9th of December. The option
availed shall lapse from the day on which his aggregate turnover
during the financial year exceeds ` 1.5 crore, i.e. on 9th December, in this case.
(10) Composition scheme to be adopted uniformly by all the registered
persons having the same PAN [Proviso to section 10(2) and proviso
to section 10(2A)]

All registered persons having the same Permanent Account Number (PAN)
have to opt for composition scheme. If one such registered person opts for
normal scheme, others become ineligible for composition scheme.

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 CHARGE OF GST 3.57

(7) A dealer ‘Kishorilal & Sons’ has two offices in Delhi and is
eligible for composition levy for goods. If ‘Kishorilal & Sons’
opts for the composition scheme for goods, both the offices
would pay taxes under composition scheme and abide by all the conditions
as may be prescribed for the said composition scheme.

(11) Composition scheme supplier cannot collect tax [Section 10(4)]

Taxable person opting for the composition scheme shall not collect tax from
the recipient on supplies made by him. It implies that a composition scheme
supplier cannot issue a tax invoice.
(12) Composition scheme supplier cannot enter into credit chain [Section 10(4)]

Taxable person opting for the composition scheme is not entitled to any
credit of input tax.
(13) Imposition of penalty in case of irregular availment of the
composition scheme [Section 10(5)]

If a taxable person has paid tax under the composition scheme though he
was not eligible for the scheme, the person would be liable to penalty and
the provisions of section 73 or 74 of the CGST Act shall be applicable for
determination of tax and penalty.

6. LET US RECAPITULATE
1. Extent & Commencement of CGST Act/ SGST Act/ UTGST Act/ IGST Act

Applicability CGST SGST UTGST IGST

Intra-State supply Inter-State

supply

States of India

Union Territories with

Legislature

Union Territories
without Legislature

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 3.58 INDIRECT TAXES

2. Levy and collection of CGST/IGST

Particulars CGST IGST

Levied on Intra-State supplies of Inter-State supplies of

goods or services or goods or services or
both both

Collected and paid by Taxable person

Supply outside Alcoholic liquor for human consumption

purview of GST

Value for levy Transaction value under section 15 of the CGST Act

Rates Rates as notified by IGST rate= CGST rate +

Government. SGST rate
Maximum rate of CGST Maximum rate of IGST
can be 20%. can be 40%.

Supplies on which tax  petroleum crude

would be levied w.e.f.  high speed diesel
a notified date  motor spirit (commonly known as petrol)
 natural gas and
 aviation turbine fuel

Tax payable under  Supply of goods or services or both, notified

reverse charge by the Government.
 Supply of specified categories of goods or
services or both by an unregistered supplier
to specified class of registered persons.

Tax payable by the The Government may notify specific categories of

electronic commerce services the tax on supplies of which shall be paid
operator by electronic commerce operator (ECO) as if such
services are supplied through it.

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 CHARGE OF GST 3.59

3. Composition levy [Section 10]

Composition levy Advantages
•An option for specified •Low rates of tax
categories of small •Hassel free simple procedures for such taxpayers
taxpayers to pay GST at a
•Simple calculation of tax based on turnover
very low rate on the
basis of turnover. •A very simple annual return

Composition levy provided

•Referred in this chapter as composition levy for
under section 10(1) and
goods
10(2)

Composition levy provided •Referred in this chapter as composition levy for

under section 10(2A) services

Procedure for opting for the scheme

Category of persons How to exercise Effective date of

option composition levy

New registration under Intimation in the From the effective

GST registration form date of registration

Registered person opting Intimation in Beginning of the

for composition levy prescribed form financial year

Turnover limit for composition levy

Turnover limit in preceding FY to opt for composition levy for goods

For Special Category States • ` 75 lakh

except Assam, Himachal Pradesh
and J&K

• ` 1.5 crore
For remaining States

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 3.60 INDIRECT TAXES

Turnover limit in preceding FY to opt for composition levy for services

Turnover for composition • ` 50 lakh in preceding financial year

levy for services

Rates of tax

Composition Category of Rate

scheme registered persons

Manufacturer 1% (½% CGST + ½% SGST/UTGST)

of turnover

For goods Restaurant service 5% (2½% CGST + 2½%

SGST/UTGST) of turnover

Others 1% (½% CGST + ½% SGST/UTGST)

of turnover of taxable supplies

For services 6% (3% CGST + 3% SGST/UTGST)

Conditions and restrictions for composition levy

Person opting for composition:

is neither a casual taxable person nor a non-resident taxable person

shall pay tax under section 9(3)/9(4) on inward supply

is not engaged in the manufacture of notified goods, namely, icecream, panmasala,

tobacco and aerated waters

shall mention the words “composition taxable person, not eligible to collect tax
on supplies” at the top of the bill of supply issued by him

shall mention the words “composition taxable person” at a prominent place at his
place of business

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 CHARGE OF GST 3.61

Who are NOT eligible to opt for composition scheme?

Registered person who is not Registered person who is not

eligible for composition scheme eligible for composition scheme for
for goods services

Supplier engaged in making any Supplier engaged in making any

supply of goods or services which supply of goods or services which are
are not leviable to tax not leviable to tax

Supplier engaged in making any Supplier engaged in making any inter-

inter-State outward supplies of State outward supplies of goods or
goods or services services

Person supplying any goods or Person supplying any goods or

services through an electronic services through an electronic
commerce operator who is commerce operator who is required to
required to collect tax at source collect tax at source under section 52*
under section 52*

Manufacturer of ice cream, Manufacturer of notified goods [ice

panmasala, tobacco and aerated cream, panmasala, tobacco and
waters aerated waters] or supplier of notified
services

Supplier who is either a casual Supplier who is either a casual taxable

taxable person or a non-resident person or a non-resident taxable
taxable person person.

Supplier of services, save as

provided in section 10(1)**

**A registered person opting for composition scheme for goods is allowed to supply services
[other than restaurant services] alongwith supply of goods or supply of restaurant services of
value not exceeding 10% of the turnover in the preceding financial year in a State/Union
territory or ` 5 lakh, whichever is higher. Here, while computing turnover in a State/UT,
interest on loans/deposit/advances will not be taken into account.

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 3.62 INDIRECT TAXES

Other points

Bill of supply shall be issued instead of tax invoice.

Tax shall not be not collected from recipient of supply

Input tax credit shall not be availed

Composition Scheme if availed shall include all registered persons having same
PAN

Penalty shall be imposed in case of irregular availment of the composition scheme

7. TEST YOUR KNOWLEDGE

1. State the person liable to pay GST in the following independent cases
provided recipient is located in the taxable territory:
(a) Services provided by an arbitral tribunal to any business entity.
(b) Sponsorship services provided by a company to an individual.
(c) Renting of immovable property service provided by the Central
Government to a registered business entity.
2. Vivek Goyal, an independent director of A2Z Pvt. Ltd., has received sitting fee
amounting to ` 1 lakh from A2Z Pvt. Ltd for attending the Board meetings.
Who is the person liable to pay tax in this case?
3. Raghu Associates provided sponsorship services to WE-WIN Cricket Academy,
an LLP. Determine the person liable to pay tax in this case.
4. 'Safe Trans', a Goods Transport Agency, transported goods of Kapil & Co., a
partnership firm, which is not registered under GST. Determine the person
liable to pay tax in this case.

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 CHARGE OF GST 3.63

5. Legal Fees is received by Sushrut, an advocate, from M/s. Tatva Trading

Company having turnover of ` 50 lakh in preceding financial year Who is the
person liable to pay tax in this case?
6. State the person liable to pay GST in the following independent cases
provided recipient is located in the taxable territory:
(a) Services supplied by an insurance agent to an insurance company.
(b) Services supplied by a recovery agent to a car dealer.
(c) Security services (services provided by way of supply of security
personnel) provided to a registered person.
7. Sultan & Sons, a partnership firm, in Nagpur, Maharashtra is a wholesaler of
a taxable product ‘P’ and product ‘Q’ exempt by way of a notification, in the
State of Maharashtra. Its aggregate turnover in the preceding financial year
is ` 130 lakh. The firm wishes to opt for composition scheme under sub-
sections (1) & (2) of section 10. However, its accountant is of the view that a
person engaged in making supply of exempt goods is not eligible for the said
scheme. Discuss.
Note: Assume that Sultan & Sons is not engaged in manufacture of goods as
notified under section 10(2)(e).
8. A person availing composition scheme, under sub-sections (1) & (2) of section
10, in Haryana during a financial year crosses the turnover of ` 1.5 crore in
the month of December. Will he be allowed to pay tax under composition
scheme for the remainder of the year, i.e. till 31st March? Please advise.
9. Determine whether the suppliers in the following cases are eligible for
composition levy, under section 10(1) & 10(2), provided their turnover in
preceding year does not exceed ` 1.5 crore:
(i) Mohan Enterprises is engaged in trading of pan masala in Rajasthan
and is registered in the same State.
(ii) Sugam Manufacturers has registered offices in Punjab and Haryana
and supplies goods in neighbouring States.
10. Subramanian Enterprises has two registered places of business in Delhi. Its
aggregate turnover for the preceding year for both the places of business was
` 120 lakh. It wishes to pay tax under composition levy, under section 10(1)
& 10(2), for one of the places of business in the current year while under

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 3.64 INDIRECT TAXES

normal levy for other. You are required to advice Subramanian Enterprises
whether he can do so?
11. Mr. Ajay has a registered repair centre where electronic goods are
repaired/serviced. His repair centre is located in State of Rajasthan and he is
not engaged in making any inter-State supply of services. His aggregate
turnover in the preceding financial year (FY) is ` 45 lakh.
With reference to the provisions of the CGST Act, 2017, examine whether Mr.
Ajay can opt for the composition scheme under section 10(1) &10(2) in the
current financial year? Or whether he is eligible to avail benefit of
composition scheme under section 10(2A)? Considering the option of
payment of tax available to Mr. Ajay, compute the amount of tax payable by
him assuming that his aggregate turnover in the current financial year is
` 35 lakh.
Will your answer be different if Mr. Ajay procures few items required for
providing repair services from neighbouring State of Madhya Pradesh?
12. M/s United Electronics, a registered dealer, is supplying all types of electronic
appliances in the State of Karnataka. Their aggregate turnover in the
preceding financial year by way of supply of appliances was ` 120 lakh.
The firm also expects to provide repair and maintenance service of such
appliances from the current financial year.
With reference to the provisions of the CGST Act, 2017, examine:
(i) Whether the firm can opt for the composition scheme, under section
10(1) and 10(2), for the current financial year, as the turnover may
include supply of both goods and services?
(ii) If yes, up to what amount, the services can be supplied?

8. ANSWERS/HINTS
1. (a) Since GST on services provided or agreed to be provided by an
arbitral tribunal to any business entity located in the taxable territory
is payable under reverse charge, in the given case, GST is payable by
the recipient - business entity.
(b) GST on sponsorship services provided by any person to any body
corporate or partnership firm located in the taxable territory is
payable under reverse charge. Since in the given case, services

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 CHARGE OF GST 3.65

have been provided to an individual, reverse charge provisions will

not be attracted. GST is payable under forward charge by the
supplier – company.
(c) GST on services supplied by Central Government, State
Government, Union territory or local authority by way of renting of
immovable property to a person registered under CGST Act, 2017
is payable under reverse charge. Therefore, in the given case, GST
is payable under reverse charge by the recipient – registered
business entity.
2. GST on supply of services by director of a company to the said company
located in the taxable territory is payable on reverse charge basis.
Therefore, in the given case, person liable to pay GST is the recipient of
services, i.e., A2Z Pvt. Ltd.
3. In case of services provided by any person by way of sponsorship to any
body corporate or partnership firm, GST is liable to be paid under reverse
charge by such body corporate or partnership firm located in the taxable
territory. Further, for the reverse charge purposes, Limited Liability
Partnership formed and registered under the provisions of the Limited
Liability Partnership Act, 2008 is also be considered as a partnership firm.
Therefore, in the given case, WE-WIN Cricket Academy is liable to pay GST
under reverse charge.
4. In case of services provided by Goods Transport Agency (GTA) in respect of
transportation of goods by road to, inter alia, any partnership firm whether
registered or not under any law; GST is liable to be paid by such partnership
firm. Therefore, in the given case, Kapil & Co. is liable to pay GST under
reverse charge.
5. GST on legal services supplied by an advocate [Mr. Sushrut] to any business
entity [M/s. Tatva Trading Company] located in the taxable territory is
payable on reverse charge basis.
Therefore, in the given case, person liable to pay GST is the recipient of
services, i.e., M/s. Tatva Trading Company.
6. (a) GST on services supplied by an insurance agent to any person
carrying on insurance business located in the taxable territory is
payable under reverse charge. Therefore, in the given case, GST is

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 3.66 INDIRECT TAXES

payable under reverse charge by the recipient – Insurance

Company.
(b) GST on services supplied by a recovery agent to a banking
company or a financial institution or a non- banking financial
company located in the taxable territory is payable under reverse
charge. However, since, in the given case, services are being
supplied by a recovery agent to a car dealer, GST is payable under
forward charge by the service provider - recovery agent.
(c) GST on security services (services provided by way of supply of
security personnel) provided to a registered person, located in the
taxable territory is payable under reverse charge. Therefore, in the
given case, GST is payable under reverse charge by the recipient –
registered person receiving the services.
7. The view taken by the accountant of Sultan & Sons is not valid in law. A
registered person with an aggregate turnover in a preceding financial year
up to ` 1.5 crore is eligible for composition levy, under section 10(1) &
10(2), in Delhi. Further, such person must not be engaged in making any
supply of goods or services which are not leviable to tax under this Act and
must not be engaged in making any inter-State outward supplies of goods
or services, for being eligible to pay tax under said scheme.
In the given case, the aggregate turnover of Sultan & Sons does not exceed
` 1.5 crore. Further, it is engaged in making only intra-State supply of
goods and Product P supplied by it is taxable and Product Q supplied by it
is leviable to tax, though exempted by way of notification. Therefore, it is
eligible for composition levy under section 10(1) & 10(2) in the current year.
8. No. The option to pay tax under composition scheme lapses from the day
on which the aggregate turnover of the person availing composition
scheme for goods during the financial year exceeds the specified limit (` 1.5
crore). Once he crosses the threshold, he is required to file an intimation for
withdrawal from the scheme in prescribed form within 7 days of the
occurrence of such event.
Every person who has furnished such an intimation, may electronically
furnish at the common portal, a statement in prescribed form containing
details of the stock of inputs and inputs contained in semi-finished or
finished goods held in stock by him on the date on which the option is

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 CHARGE OF GST 3.67

withdrawn, within a period of 30 days from the date from which the option
is withdrawn.
9. (i) A supplier engaged in the manufacture of goods as notified under
section 10(2)(e), during the preceding FY is not eligible for
composition scheme under section 10(1) and 10(2). Ice cream and
other edible ice, whether or not containing cocoa, Pan masala,
Tobacco and manufactured tobacco substitutes and aerated waters
are notified under this category. However, in the given case, since
Mohan Enterprises is engaged in trading of pan masala and not
manufacture and his turnover does not exceed ` 1.5 crore, he is
eligible for composition scheme subject to fulfilment of specified
conditions.
(ii) Since supplier of inter-State outward supplies of goods or services
is not eligible for composition levy, Sugam Manufacturers is not
eligible for composition levy.
10. A registered person with an aggregate turnover in a preceding financial year
up to ` 1.5 crore is eligible for composition levy, under section 10(1) &
10(2), in Delhi. Since the aggregate turnover of Subramanian Enterprises
does not exceed ` 1.5 crore, it is eligible for composition levy in the current
year. However, all registered persons having the same Permanent Account
Number (PAN) have to opt for composition scheme. If one such registered
person opts for normal scheme, others become ineligible for composition
scheme. Thus, Subramanian Enterprises either have to opt for composition
levy for both the places of business or under normal levy for both the places
of business.
11. Section 10(1) provides that a registered person, whose aggregate turnover
in the preceding financial year did not exceed ` 1.5 crore (` 75 lakh in
Special Category States except Assam, Himachal Pradesh and Jammu and
Kashmir), may opt to pay, in lieu of the tax payable by him, an amount
calculated at the specified rates. However, as per proviso to section 10(1),
person who opts to pay tax under composition scheme may supply services
other than restaurant services, of value not exceeding 10% of the turnover
in a State or Union territory in the preceding financial year or ` 5 lakh,
whichever is higher.

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 3.68 INDIRECT TAXES

In the given case, since Mr. Ajay is an exclusive supplier of services other
than restaurant services [viz. repair services], he is not eligible for
composition scheme under section 10(1) & 10(2).
However, section 10(2A) provides an option to a registered person
(subject to certain conditions) whose aggregate turnover in the
preceding financial year is upto ` 50 lakh and who is not eligible to pay
tax under composition scheme under section 10(1) & 10(2), to pay tax @
3% [Effective rate 6% (CGST+ SGST/UTGST)] of the turnover of supplies
of goods and services in the State or Union territory.
Thus, in view of the above-mentioned provisions, Mr. Ajay is eligible to
avail the composition scheme under section 10(2A) as his aggregate
turnover in the preceding FY does not exceed ` 50 lakh and he is not
eligible to opt for the composition scheme under section 10(1) & 10(2).
Thus, the amount of tax payable by him as per the composition scheme
under section 10(2A) is ` 2,10,000 [6% of ` 35 lakh].
A registered person cannot opt for composition scheme under section
10(2A), if, inter alia, he is engaged in making any inter-State outward
supplies. However, there is no restriction on inter-State procurement of
goods. Hence, answer will remain the same even if Mr. Ajay procures few
items from neighboring State of Madhya Pradesh.
12. (i) The registered persons, whose aggregate turnover in the preceding
financial year did not exceed ` 1.5 crore, may opt to pay tax under
composition levy, under section 10(1) and 10(2).
The scheme can be availed by an intra-State supplier of goods and
supplier of restaurant service.
However, the composition scheme permits supply of marginal
services (other than restaurant services) for a specified value along
with the supply of goods and restaurant service, as the case may
be.
Thus, M/s United Electronics can opt for composition scheme for
the current financial year as its aggregate turnover is less than ` 1.5
crore in the preceding financial year and it is not engaged in inter-
State outward supplies.

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 CHARGE OF GST 3.69

(ii) The registered person opting for composition scheme, under

section 10(1) and 10(2), can also supply services (other than
restaurant services) for a value up to 10% of the turnover in the
preceding year or ` 5 lakh, whichever is higher, in the current
financial year.
Thus, M/s United Electronics can supply repair and maintenance
services up to a value of ` 12 lakh [10% of ` 120 lakh or ` 5 lakh,
whichever is higher] in the current financial year.

© The Institute of Chartered Accountants of India