COMPOSITION SCHEME

Overview of the Scheme:

The composition levy is an alternative method of levy of tax designed for small
taxpayers whose turnover is up to a prescribed limit. The objective of composition
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.
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:

10% of the turnover in a State/Union territory in the preceding financial year

or

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 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.
Example :-
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 advances25 – a service other than restaurant service.
And where the income from such services cause the value of services26 supplied to
exceed the valuereferred in second proviso to section 10(1)27 [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 section10(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.

 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.

 Turnover Limit for composition levy for Goods &

Services:-
GOODS Special Category 75 lakh
States
All Other States / 1.50 crore
UTs
SERVICES 50 lakh
Example :-

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 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.

Example :-

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.

Aggregate turnover under composition levy:-

The aggregate turnover is the sum of value of all outward supplies falling in the
following four categories:

i) Taxable Supplies
ii) Exempt Supplies
iii) Exports of goods or services or both
iv) 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 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 the 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.

 RATES OF TAX
Composition Scheme Category of registered Rate
persons
For Goods Manufacturer 1% (½% CGST + ½%
SGST/UTGST) of
turnover
Restaurant services 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)

 Who are NOT eligible to opt for

composition scheme? [Section 10(2)
an(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 supply Supplier engaged in making any supply
of goods which are not leviable to tax of goods or services which are not
leviable to tax

Supplier engaged in making any inter- Supplier engaged in making any inter-
State outward supplies of goods State outward supplies of goods or
services
Person supplying any goods through an Person supplying any goods or services
electronic commerce operator who is through an electronic commerce operator
required to collect tax at source under who is required to collect tax at source
section 52* under section 52*

Manufacturer of ice cream, panmasala, Manufacturer of notified goods [ice

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

Supplier who is either a casual taxable Supplier who is either a casual taxable
person or a non- resident taxable person person or a non- resident taxable person

 Conditions and Restrictions for Composition

levy
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:

o Ice cream and other edible ice, whether or not containing

cocoa
o Pan masala
o All goods, i.e. Tobacco and manufactured tobacco substitutes
o Aerated Waters

 he shall pay tax under section 9(3)/9(4)28 (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; an

 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.

 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 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 scheme supplier cannot collect tax: 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.

 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.

 Composition Scheme if availed shall include all registered persons

having same PAN

 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
 IMPORTANT QUESTION FOR PRACTICE

1. 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 of the CGST Act. 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).

2. A person availing composition scheme, under sub-sections (1) & (2) of section
10 of the CGST Act, 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.

3. Determine whether the suppliers in the following cases are eligible for
composition levy, under section 10(1) & 10(2) of the CGST Act, 2017, 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.

4. 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) of the CGST Act, 2017, for one of the places of business in the
current year while under normal levy for other. You are required to advice
Subramanian Enterprises whether he can do so?

5. 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) of theCGST Act, 2017 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?

6. 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) of the CGST Act, 2017, 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?

ANSWER
1. 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 which are not leviable to tax under this Act and must not be engaged
in making any inter-State outward supplies of goods, 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.
2. 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 withdrawn, within a
period of 30 days from the date from which the optionis withdrawn.

3. (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 is not eligible

for composition levy, Sugam Manufacturers is not eligible for
composition levy.

4. 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.

5. 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.

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 paytax 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.
6. (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 maybe.

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.
 (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 ` 20 lakh or ` 5 lakh, whichever is
higher] in the current financial year.

ADVANCE QUESTION FOR PRACTICE

1. M/s Heeralal and Sons, registered in Karnataka, has opted to avail the
benefit of composition scheme under sub-sections (1) and (2) of section 10
from 1st April. It has furnished the following details for the quarter ended
on 30th June.

S. No. Items `

(i) Taxable turnover of goods within the State 15,00,000

(ii) Exempted turnover of goods (exempted by way of
notification) within the State 17,00,000
Total Turnover 32,00,000

Using the above information, calculate tax to be paid by the firm for
quarterended on 30th June in following independent situations:

(i) M/s Heeralal and Sons is a manufacturer

(ii) M/s Heeralal and Sons is a trader
2. MN Ltd. has two registered places of business in the State of Haryana. Its
aggregate turnover during the previous financial year was ` 62 lakh. It
wishes to opt for composition levy under sub-sections (1) and (2) of
section 10 for one of the place of business in the current year and wants to
continue with registration under regular scheme and pay taxes at the
normal rate for the other place of business. Can MN Ltd. do so? Explain
with reason.

3. Mr. Prem is running a restaurant in New Delhi. In the preceding financial

year, it has an aggregate turnover of ` 120 lakh from the restaurant
services. In the current financial year, apart from restaurant service, he also
wants to provide food delivery services to other small restaurants. He
 estimated the turnover of such services is upto ` 5 lakh.
Mr. Prem wishes to opt for composition scheme under sub-sections (1) and
(2) of section 10 in the current financial year. You are required to advise him
for same.

4. Shubhlaxmi Foods is engaged in supplying restaurant service in

Maharashtra. In the preceding financial year, it had a turnover of ` 140 lakh
from the restaurant service. Further, it had earned the bank interest of ` 20
lakh from the fixed deposits. You are required to advise Shubhlaxmi Foods
whether it is eligible for the composition scheme under sub-sections (1)
and (2) of section10 in the current financial year.
Further, assuming that in the current financial year, its turnover is ` 130 lakh
from the supply of restaurant services and ` 10 lakh from the supply of farm
labour in Maharashtra. It has also earned the bank interest of ` 30 lakh from
the fixed deposits. Compute the tax payable by Shubhlaxmi Foods in the
current FY.

5. Varun & Arun Associates started a partnership firm of architects in Bhopal

(Madhya Pradesh) on 1st April. The firm provides architecture services in
Madhya Pradesh only. It provided the following details of its turnover
duringthe current financial year:
April - June ` 20 lakh

July - Sept ` 30 lakh

Oct - Dec ` 20 lakh

The firm has obtained the registration under section 22 with effect
from 1st July and opts to pay tax under composition scheme. Determine the
tax liability of Varun & Arun Associates for the quarters: April – June,
Jul-Septand Oct-Dec.

Note: The rates of tax on architectural services are CGST- 9% and SGST-9%.

6. Examine whether the suppliers are eligible for composition levy under
section 10 in the following independent cases in the beginning of the current
financial year.
(a) Technology Enterprises, registered in Jalandhar, Punjab, is engaged in
manufacturing and supplying computer systems. Its aggregate
turnover in the preceding financial year is ` 125 lakh. Technology
Enterprises supplies the computer systems manufactured by it within
the State of Punjab only. With a view to expand its business
 operations, it will also start providing the repairing services of
computer systems in Punjab inthe current financial year.
(b) M/s. Siddharth & Sons, registered in Delhi, owns a restaurant ‘Tasty
Foods’ with a turnover of ` 112 lakh in the preceding financial year. In
view of the growing customer demand, it will also start intra-State
trading of juices in Delhi.
(c) Sitaram Associates, registered in Sikkim, is engaged in running a
restaurant chain ‘Veg Kitchen’ in the State. It has a turnover of 73
lakh in the preceding financial year. In the current financial year, it
decides to shut down the food chain owing to huge losses being
incurred in the said business. Instead, it will start providing intra-State
architect services.
(d) Deepti Services Ltd., registered in Uttarakhand, is exclusively providing
intra-State hair styling services. It has turnover of ` 34 lakh in the
preceding financial year.
Will your answer be different, if Deepti Services Ltd. also start
intra- State supply of beauty products alongwith providing hair
styling services in the current financial year?

7. Bansal and Chandiok started a partnership firm of Chartered Accountants in

Jaipur (Rajasthan) on 1st April. The firm specializes in providing audit
services to banks in Rajasthan. It provided the following details of its
turnover:
Quarter Amount
(in `)
Apr-Jun 10 lakh

Jul-Sep 20 lakh

It crossed the threshold limit of ` 20 lakh on 1st August. Bansal and Chandiok
wishes to opt to pay tax at concessional rate under section 10(2A). Examine
whether the firm is eligible for this scheme? If yes, then determine the tax
payable by it in quarters (i) Apr-Jun & (ii) Jul-Sep?

ANSWER
1. Computation of amount payable under composition scheme
(i) If M/s Heeralal and Sons is a manufacturer:
 Tax is to be paid @ 1% (½% CGST+ ½% SGST) of the turnover in
the State as under:
1% of ` 32,00,000 [` 15,00,000 + 17,00,000]
= ` 32,000 [CGST = ` 16,000 and SGST = ` 16,000]
(ii) If M/s Heeralal and Sons is a trader:
Tax is to be paid @ 1% (½% CGST + ½%SGST) of the turnover of
taxable supplies of goods and services in the State as under:

= 1% of ` 15,00,000
= ` 15,000 [CGST = ` 7,500 and SGST = ` 7,500]

2. As per proviso to section 10(2), where more than one registered persons are
having the same PAN issued under the Income-tax Act, 1961, the registered
person shall not be eligible to opt for the composition scheme under
section 10(1) unless all such registered persons opt to pay tax under said
composition scheme.
In the given case, since MN Ltd. has two places of business (they are not
separate entities under the Income-tax Act, 1961), they would be registered
under the same PAN. Therefore, MN Ltd. cannot opt for composition
levy for only one of the places of business and pay tax under regular scheme
for other place of business.

3. As per section 10(1) read with Notification No.14/2019 CT dated

07.03.2019, a registered person, whose aggregate turnover in the preceding
financial year did not exceed ` 1.5 crore, may opt to pay, in lieu of the tax
payable by him, an amount calculated at the specified rates if, inter alia, he
is not engaged in the supply of services other than restaurant services.
However, the scheme permits supply of other marginal services for a
specified value along with the supply of goods and restaurant service, as the
case may be. Such marginal services can be supplied for a value up to 10%of
the turnover in a State/Union Territory in the preceding year or ` 5 lakh,
whichever is higher.
In the present case, since the aggregate turnover of Mr. Prem was ` 120 lakh
in preceding financial year (i.e. it did not exceed ` 1.5 crore), he is eligible
for composition scheme in the current financial year. Further, in the current
financial year, he can also supply services other than restaurant services for
a value upto ` 12 lakh (10% of ` 120 lakh) or ` 5 lakh, whichever is higher.
Thus, till the time his turnover from food delivery services does not exceed `
12 lakh, he is eligible for the scheme.
4. As per section 10(1) read with Notification No. 14/2019 CT dated 7.03.2019,
a registered person, whose aggregate turnover in the preceding financial year
did not exceed ` 1.5 crore, may opt to pay, in lieu of the tax payable by him, an
amount calculated at the specified rates if, inter alia, he is not engaged in the
supply of services other than restaurant services.

However, the scheme permits supply of other marginal services for a

specified value along with the supply of goods and restaurant service, as the
case may be. Such marginal services can be supplied for a value up to
10% of the turnover in a State/Union Territory in the preceding year or ` 5
lakh, whichever is higher [Second proviso to section 10(1)]. Although exempt
services are included in determining the value of turnover in a State or
Union territory, explanation to section 10(1) clarifies that for the purposes
of second proviso to section 10(1), 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.
Further, the exempt services are also included in the aggregate turnover
[Section 2(6)]. However, explanation 1 to section 10 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 from aggregate turnover.
In this backdrop, in the given case, the aggregate turnover of Shubhlaxmi
Foods in the preceding FY is ` 140 lakh (since bank interest of ` 20 lakh
from the fixed deposits will not be taken into account for computing
aggregate turnover). Resultantly, it is eligible to opt for composition
scheme under sub-sections (1) and (2) of section 10 in the current FY.
Further, apart from restaurant services, it can provide services upto ` 14
lakh [i.e. 10% of ` 140 lakh or ` 5 lakh, whichever is higher], in the current
FY. Asalready seen, bank interest of ` 20 lakh from fixed deposits will not
be considered while determining this limit.
Further, tax payable @ 5% (2½% CGST+ 2½% SGST) of the turnover in the
State by Shubhlaxmi Foods in the current financial year is as follows:
= 5% of ` 1,40,00,000 [` 1,30,00,000 + ` 10,00,000]
[(Bank interest of ` 30 lakh from the fixed deposits is not considered while
computing turnover in the State for determining the tax payable under
composition scheme (In terms of explanation 2 to section 10)]
= ` 7,00,000 [CGST = ` 3,50,000 and SGST = ` 3,50,000]
5. The composition scheme under sub-sections (1) and (2) of section 10 is
available in case of goods and restaurant service. Further, marginal services
upto specified limit can be provided along with the supply of goods or
restaurant service, as the case may be. Since, in the given case, Varun &
Arun Associates is supplying services other than restaurant services, it is not
eligible to pay tax under sub-sections (1) and (2) of section 10. However,
section 10(2A) provides an option to a registered person, who is not eligible
to pay tax under sub-sections (1) and (2) of section 10, of paying tax @ 6%
(CGST-3% and SGST/UTGST-3%) provided his aggregate turnover in the
preceding financial year is upto ` 50 lakh. Said person can pay tax @ 6% of
the turnover in State or turnover in Union territory up to an aggregate
turnover of ` 50 lakh, subject to specified conditions.
In the given case, Varun & Arun Associates has started the supply of
services in the current financial year. Therefore, its aggregate turnover in
the preceding financial year is Nil. Consequently, it is eligible to avail the
benefit of composition scheme under section 10(2A) of the CGST Act in the
current financial year. It becomes eligible for the registration when its
aggregate turnover exceeds ` 20 lakh. While registering under GST, it has
toopt for composition scheme under section 10(2A).
For determining its turnover of the State for payment of tax under
composition scheme under section 19(2A), 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], it 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, its aggregate turnover reaches ` 50 lakh*.
Consequently, its option to avail composition scheme under section 10(2A)
shall lapse by the end of July-Sept quarter and thereafter, it is required to
pay tax at the normal rate. Thus, the tax payable for Oct-Dec quarter is
` 20 lakh × 9%, i.e. CGST - ` 1,80,000 and SGST - ` 1,80,000.
*Note - While computing aggregate turnover for determining Varun & Arun
Associates’ 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 also included.

6. 6. As per section 10(1), the following registered persons, whose aggregate

turnover in the preceding financial year did not exceed ` 1.5 crore, may opt
to pay tax under composition levy:
(i) Manufacturer,
(ii) Persons engaged in making supplies referred to in clause (b) of
paragraph 6 of Schedule II (restaurant services), and
(iii) Any other supplier eligible for composition levy.
The composition scheme under sub-sections (1) and (2) of section 10 can
essentially be availed in respect of goods and only one service namely,
restaurant service. However, the scheme permits supply of other marginal
services for a specified value along with the supply of goods and restaurant
service, as the case may be. Such marginal services can be supplied for a
value up to 10% of the turnover in the preceding year or ` 5 lakh,
whichever is higher. Further, the registered person should not be engaged
in makingany inter-State outward supplies of goods.
Furthermore, newly inserted section 10(2A) provides an option to a
registered person, who is not eligible to pay tax under section 10(1) and
10(2), of paying tax @ 6% (CGST-3% and SGST/UTGST-3%) provided his
aggregate turnover in the preceding financial year is upto ` 50 lakh. Said
person can pay tax @ 6% of the turnover in State or turnover in Union
territory up to an aggregate turnover of ` 50 lakh, subject to specified
conditions. One of such conditions is that the registered person should
not be engaged in making any inter-State outward supplies of goods or
services.
In view of the above-mentioned provisions, the answer to the given
independent cases is as under:-

(a) The turnover limit for being eligible for composition scheme under
under sub-sections (1) and (2) of section 10 for Jalandhar (Punjab)
is ` 1.5 crore in the preceding financial year. Thus, Technology
Enterprises can opt for said composition scheme as its aggregate
turnover is less than ` 1.5 crore in the preceding financial year
and it is making intra-State supplies. Further, since the registered
person opting for composition scheme 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.
Thus, Technology Enterprises can supply repair services up to a
value of ` 12.5 lakh [10% of `125 lakh] in the current financial year.
(b) In the given case:-
(i) the turnover in the preceding year is less than the eligible
turnover limit under composition scheme under sub-
 sections
(1) and (2) of section 10 for Delhi, i.e. ` 1.5 crore.
(ii) the supplier is engaged in providing restaurant service
whichis an eligible supply under said composition scheme.
(iii) the supplier wants to engage in trading of goods which is
also an eligible supply under said composition scheme.
Thus, M/s. Siddharth & Sons is eligible for composition scheme
under sub-sections (1) and (2) of section 10.
(c) The turnover limit for being eligible for composition scheme under
sub-sections (1) and (2) of section 10 for Sikkim is ` 75 lakh in the
preceding financial year. However, a registered person who is
exclusively engaged in supplying services other than restaurant
services are not eligible for said composition scheme. Thus, Sitaram
Associates cannot opt for composition scheme under sub-sections
(1) and (2) of section 10.
However, the benefit of composition scheme under section
10(2A)is available in case of a registered person who is not eligible
to pay tax under sub-sections (1) and (2) of section 10 provided its
aggregate turnover in the preceding financial year does not exceed
` 50 lakh.
Thus, in view of the above-mentioned provisions, Sitaram
Associates cannot avail the benefit of composition scheme under
section 10(2A) also as its aggregate turnover in the preceding financial
year is more than ` 50 lakh.
(d) A service provider can opt for the composition scheme under sub-
sections (1) and (2) of section 10 only if he is engaged in supply of
restaurant services. Said scheme permits supply of marginal
services for a specified value, but only when the same are supplied
along with goods and/ or restaurant service.
Since Deepti Services Ltd.is exclusively engaged in supply of services
other than restaurant services, it is not eligible for composition scheme sub-
sections (1) and (2) of section 10 even though its turnover in the preceding
year is less than ` 75 lakh, the eligible turnover limit for Uttarakhand.
However, since Deepti Services Ltd. is not eligible to opt for composition
scheme under sub-sections (1) and (2) of section 10 and its aggregate
turnover in the preceding financial year does not exceed ` 50 lakh, Deepti
Services Ltd.is entitled to avail benefit of composition scheme under section
10(2A) in the current financial year.
Further, the answer will remain the same even if Deepti Services Ltd. also
start supplying beauty products alongwith providing hair styling services in
 the current financial year since it fulfils the conditions laid down for availing
the benefit of composition scheme under section 10(2A) of the CGST Act. It can
avail the benefit of composition scheme under section 10(2A) till the time its
aggregate turnover in the current year doesn’t exceed ` 50 lakh.

7. The composition scheme under sub-sections (1) and (2) of section 10 is

available in case of goods and restaurant service. Further, marginal services
upto specified limit can be provided along with the supply of goods or
restaurant service, as the case may be. Since, in the given case, Bansal and
Chandiok is supplying services other than restaurant services, it is not
eligible to pay tax under sub-sections (1) and (2) of section 10. However,
section 10(2A) provides an option to a registered person, who is not eligible
to pay tax under sub-sections (1) and (2) of section 10, of paying tax @ 6%
(CGST-3% and SGST/UTGST-3%) provided his aggregate turnover in the
preceding financial year is upto ` 50 lakh. Said person can pay tax @ 6% of
the turnover in State or turnover in Union territory up to an aggregate
turnover of ` 50 lakh, subject to specified conditions.
In the given case, Bansal and Chandiok has started the supply of services in
the current financial year. Therefore, its aggregate turnover in the
preceding financial year is Nil. Consequently, it is eligible to avail the
benefit of composition scheme under section 10(2A) of the CGST Act in the
current financial year. It becomes liable to the registration when its
aggregate turnover exceeds ` 20 lakh. While registering under GST, it has
toopt for composition scheme under section 10(2A).
Tax payable by the firm is as follows:
(i) Apr-Jun quarter: Tax payable by the firm in first quarter is nil
since the firm’s turnover [` 10 lakh] has not yet exceeded the
threshold limit of ` 20 lakh (viz. the threshold limit applicable for
registration in the State of Rajasthan).
(ii) July-Sep quarter: While computing the tax payable by the firm in
second quarter, the turnover from 1st April to the date from
which he becomes liable for registration under the Act is to be
excluded.Tax payable will be computed as under-
Total Turnover ` 30,00,000/-
Less: Threshold limit for registration ` 20,00,000/-
Taxable Turnover ` 10,00,000/- Tax
@ 6% ` 60,000/-*
*CGST = ` 30,000 and SGST = ` 30,000-