Module 6: RCM and Composition
Scheme
51. Explain Composite and Mixed Supply
Legal Definitions:
- Composite Supply [Section 2(30), CGST Act]: Naturally bundled supplies made together
where one is the principal.
- Mixed Supply [Section 2(74), CGST Act]: Two or more individual supplies made for a single
price, not naturally bundled.
Composite Supply:
- Tax rate as per principal supply.
- Example: Sale of mobile phone with charger – tax as per mobile phone.
Mixed Supply:
- Highest tax rate among items applies.
- Example: Gift box with chocolates (5%) and perfume (18%) – tax at 18%.
Section 8 defines tax liability in such supplies.
52. Discuss Composition Levy
Objective: Reduce compliance for small taxpayers.
Eligibility:
- Turnover up to ₹1.5 crore (₹75 lakh for NE states).
- No inter-state supply, no e-commerce sales, not dealing in pan masala/tobacco/ice-cream.
Rates:
- Manufacturers: 1%
- Traders: 1%
- Restaurants: 5%
- Service Providers: 6% (from 2019)
No tax collection, no ITC, file CMP-08 (quarterly), GSTR-4 (annually).
53. Narrate Exemption of Goods and Services
Exemptions under Section 11 of CGST Act and notifications like 2/2017 and 12/2017.
Types:
- Absolute: No conditions (e.g., unbranded fruits).
- Conditional: With conditions (e.g., educational services).
Also includes nil-rated and non-GST supplies.
54. Explain Reverse Charge Mechanism (RCM)
Concept: Recipient pays GST instead of supplier.
Section 9(3): Notified categories (e.g., GTA, legal services).
Section 9(4): Supplies from unregistered to registered persons (limited).
Import of services is also under RCM.
Steps: Self-invoice, pay via cash ledger, report in GSTR-3B, claim ITC if eligible.
55. Identify the Applicability of RCM
Checklist:
- Supplier notified?
- Recipient registered?
- Supply taxable?
- Import involved?
- From unregistered supplier?
If yes: RCM applicable.
Create self-invoice and report accordingly.
59–62. Registration under Composition Scheme
Forms:
- CMP-01: To opt in.
- CMP-02: Intimation.
- ITC-03: Reverse ITC.
Returns:
- CMP-08: Quarterly payment.
- GSTR-4: Annual.
- GSTR-9A: Annual return.
Issue Bill of Supply (not tax invoice). Must mention: 'Composition taxable person, not
eligible to collect tax on supplies'.
Worksheets
1. 1. A trader supplies a package of soap (18%) and shampoo (28%) together for ₹1000.
Identify whether it is composite or mixed supply and calculate GST.
2. 2. ABC Ltd, a registered company, hires an advocate for ₹10,000. Who is liable to pay
GST? Under which section?
3. 3. XYZ Ltd. wants to opt for the Composition Scheme. Its turnover last year was ₹90
lakh. Is it eligible? Which forms must be filed?
4. 4. A restaurant with ₹1.2 crore turnover wants to opt for composition. What is the rate
of tax applicable? Can it claim ITC?
Answers to Worksheets
It is a mixed supply. Highest rate = 28%. GST = ₹1000 × 28% = ₹280.
The company (ABC Ltd) is liable to pay GST under RCM. Applicable section: 9(3) of CGST
Act.
Yes, XYZ Ltd is eligible. It must file GST CMP-01 or CMP-02 and ITC-03.
Applicable rate is 5% (2.5% CGST + 2.5% SGST). No, ITC cannot be claimed under the
Composition Scheme.
Multiple Choice Questions (MCQs)
5. 1. Which of the following is NOT eligible for Composition Scheme?
A. Trader
B. Manufacturer of ice cream
C. Restaurant
D. Retailer
6. 2. What is the maximum turnover limit for opting Composition Scheme in normal
states?
A. ₹20 lakh
B. ₹75 lakh
C. ₹1.5 crore
D. ₹2 crore
7. 3. Under RCM, GST is payable by:
A. Supplier
B. Government
C. Recipient
D. None of the above
8. 4. Which form is used for paying tax under Composition Scheme quarterly?
A. GSTR-3B
B. GSTR-4
C. CMP-08
D. ITC-03
Answers to MCQs
B. Manufacturer of ice cream
C. ₹1.5 crore
C. Recipient
C. CMP-08
Case Studies
9. 1. Case 1: A taxpayer supplies hotel accommodation with breakfast included. Is it a
composite or mixed supply? What rate applies?
10. 2. Case 2: A business imports software services from the US worth ₹5 lakh. Explain who
pays GST and how.
11. 3. Case 3: A trader opts for Composition Scheme but issues a tax invoice. What are the
consequences?
Answers to Case Studies
Composite supply. Tax as per hotel accommodation rate (e.g., 12%).
GST is payable under RCM by the recipient (importer). IGST is applicable and payable
through self-invoicing.
It is a violation. The trader is ineligible for Composition Scheme and will be liable to pay
normal tax along with penalties.
Diagrams and Flowcharts (Text-Based)
Composite vs Mixed Supply Flow:
Two or More Supplies
|
------------------------
| |
Composite Supply Mixed Supply
| |
Principal supply Highest tax rate
applies applies