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CHAPTER - 5
IMPORTANT DEFINITIONS &
COMPOSITION Levy

Important Definitions

Aggregate Turnover
Section means the aggregate value of
2(6) Ü all taxable supplies (excluding the value of inward supplies on which tax is payable by a
person on reverse charge basis),
Ü exempt supplies,

Ü exports of goods or services or both and

Ü inter-State supplies of persons having the same Permanent Account Number,

to be computed on all India basis

but excludes central tax, State tax, Union territory tax, integrated tax and cess

Important Comments :
Q. What does “Aggregate” means?
uIt covers all the supplies effected by a person having same PAN all over India basis.

Q. Why Inward Supplies under RCM is excluded from aggregate turnover?

uAs per Sec 9(3) & 9(4) for liability under RCM all provision of this act are applicable to recipient as a
supplier & taxable in the hands of recipient as a supplier & taxable in the hands of recipient.
uIt can be misunderstood that the value of inward supply under RCM to be included in aggregate Turnover of
receipient.
uDefinition specifically excluded value of inward Supplies subject RCM.

Q. What is the Role of Aggregate Turnover in CGST Act, 2017?

uIt is relevant for determining threshold limit of 20L (10L in special category of state to obtain registration.
uIt is relevant for deciding eligibility of composition Scheme.
uCertain Supplies are excluded for calculation of aggregate turnover of Job worker.

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 Example 1 : XYZ ltd is a manufacturing company located in Bangalore. During the
financial year 2018-19 total value of supplies including inward supplies taxed under
reverse charge basis are as follows :
i) Intra state supplies of goods chargeable to Nil rate of GST - ` 15,00,000
ii) Intra state supplies made under forward charge - `88,50,000 (including GST@18%)
iii) Intra state supplies of goods exempted under section 11 of CGST act - ` 9,00,000
iv) Inward supplies of goods on which tax is payable under RCM - `5,00,000
v) Inter-State supply to various buyers ` 16,80,000 (including IGST @ 12%)
vi) Inter-State supply to own establishment under same PAN ` 11,20,000 (including IGST
@ 12%)
Calculate aggregate turnover.

Example 2 : M/s X Ltd. being a manufacturer of Audio Systems has three factories in
Maharashtra, Delhi, Gujarat, and two service Center in Jodhpur and Karnataka.

Place Turnover `
including Taxes @ 18%)
Maharashtra 5,90,000
Delhi 9,44,000
Gujarat 10,62,000
Jodhpur 3,54,000
Karnataka 2,36,000
Calculate aggregate turnover.

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Example 3 : Mr. Jolly LLB an Advocate has supplied following goods and services in F.Y.
18-19
i) Intra state supplies of legal services to business entity - ` 15,00,000
ii) Renting of immovable property - `5,00,000
iii) Trading of Goods - ` 9,00,000
Calculate aggregate turnover.

Turnover in State” or “Turnover in Union Territory

Section “turnover in State” or “turnover in Union territory” means the aggregate
2(112) value of
Ü all taxable supplies (excluding the value of inward supplies on
which tax is payable by a person on reverse charge basis) and
Ü exempt supplies made within a State or Union territory by a
taxable person,
Ü exports of goods or services or both and
Ü 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
& cess.

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 2(108) : Taxable Supply means a supply of goods or services or both which is
leviable to tax under this Act
2(78) : Non-Taxable means a supply of goods or services or both which is
Supply not leviable to tax under this Act (i.e. CGST Act) or
under the Integrated Goods and Services Tax Act
2(47) : Exempt Supply means a supply of any goods or services or both
Ü which attracts nil rate of tax or
Ü 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

Example 4 : On the basis of following , determine Total value of exempt supply

Value of Exempt
Particulars
Supply supply or not
a) Supply of goods @12% but fully exempted by notification 1,50,000

b) Supply of goods/services where rate in GST tariff is NIL 56,000

c) Supply of goods/services for exports where rate is zero rate 1,75,000

d) Supply of petrol & diesel 95,000

e) Supply of goods @ 18% but partly exempted by notification 48,000

f) Supply of goods/Services @ 5% where ITC is not available 86,000

g) Supply of goods under composition scheme 1% 20,000

Total value of supply 6,30,000

Value of exempt supply

2(72) : Manufacture means processing or raw material or inputs in any

manner that results in emergence of a new product
having a distinct name, character and use and the
term “manufacturer” shall be construed accordingly
[Section 2(72) of CGST Act]

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G
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Introduction : Composition Levy
COMPOSITION LEVY

The word ‘Composition’ comes from the latin componere, meaning ‘Put togther’.
Composition scheme is an alternative method to tax small taxpayers while simplifying compliances and
reducing their compliance costs. Such schemes have existed in the previous regime of VAT laws, service tax
laws and excise laws as well. Even the income tax law has Section 44AD, 44ADA and 44AE to provide for a
flat rate of taxation in case of small assessees. (name given to such scheme under Income tax is
Presumptive scheme of taxation).
The very purpose of introduction of these schemes is to ensure proper tax collection to the government
without having to trouble the small taxpayers with additional compliances as in case of normal taxpayers.
Composition scheme under GST law has been given under Section 10 of the CGST Act
The objective of composition scheme is to bring simplicity and to reduce the compliance cost
for the small taxpayers. Small taxpayers with an aggregate turnover in a preceding financial year up to ` 1.5
Cr. shall be eligible for composition levy. Suppliers opting for composition levy need not worry about the
classification of their goods or services or both, the rate of GST applicable on the same, etc. They are not
required to raise any tax invoice, but simply need to issue a Bill of Supply . At the end of a quarter, the
registered person opting for composition levy would pay a certain specified percentage of his turnover of the
quarter as tax, without availing the benefit of input tax credit.

INDEX
CGST Act, 2017 Sec-10 Pg. No CGST Rules, 2017 Pg. No
10(1) Eligibility for Composition Levy 98 Rule 3 Intimation of Composition Levy

10(2) Other Conditions for eligibility 102 Rule 4 Effective date of Composition Levy
10(2A) Eligibility for Composition Levy for Rule 5 Conditions and Restriction for availing
supply of service (Newly Inserted) Composition Scheme
10(3) Composition Levy will lapse once Rule 6 Validity of Composition Levy
99
Aggregate Turn Over exceeds the Rule 7 Rate of Tax of Composition Levy
specified limits of 1.5 Crore/75 lakhs/
50 lakhs
10(4) Composition tax liability shall not be
collected from recipient
No ITC admissible to composition
supplier
10(5) Penalty in case of Contravention

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 Big Dealer
Very Small Dealer Small Dealer

Aggregate Aggregate
Turnover Turnover
10 L/20 L/40 L 1.5 Cr./75 L/50 L
Threshold Composition Normal
Mfg Trader SP Mfg Trader SP
Assessee

Tax benefits

procedure benefit

Registration

GST Invoice

GST Records

ITC

GST Return

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 Section 10 Eligibility Criteria for Composition Levy
Notwithstanding anything to the contrary contained in this Act
(1)
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 ` 1.5Cr.
(75 lacs for Special category State except state of Assam, Himachal Pradesh and Jammu & Kashmir,) may opt
to pay, in
lieu of the tax payable by him u/s 9(1), an amount calculated at such rate as may be prescribed, but not exceeding,–

(a) Half Per cent of the turnover in State or turnover in Union territory in case of a manufacturer,

two and a half per cent of the turnover in State or turnover in Union territory in case of persons engaged in
(b)
making supplies referred to in clause (b) of paragraph 6 of Schedule II, and
(c) half per cent of the turnover of taxable supply of goods & services in State or turnover in Union territory in
case of other suppliers.
Actual Rate of Tax under Composition Scheme notified in Rule 7 of CGST Rules, 2017
(Amended by N/n 1/2018 C.T.) [ following rates to be remember by students]
Sr.No Categories of registered person Central State/UT Total Basis of
Rate GST Rate Rate Calculation
1 Manufacturers other than manufacturers of such 0.5% 0.5% 1%
Turnover in State
goods as may be notified by the government
2 Suppliers making supplies referred to in Clause (b) 2.50% 2.50% 5%
of para 6 of schedule II
Example - Restaurant, Catering, Mess or any other Turnover in State
service contract where goods as food or drink is supplied
for human consumption
Other Suppliers (Normally Traders not involved in
3 0.50% 0.50% 1% Turnover of taxable
manufacure) supplies of goods
Note:- Section 10(2)(a) provides that a person who is a service
provider is not eligible for option composition scheme under section & services in State
10(1). This is the reason that the term “other eligible suppliers” as
mentioned in Rule 7 has been interpreted as “Traders”.
Important Comment
a) Please note that the scheme is optional i.e. one may not pay tax under the composition scheme even if he is otherwise
eligible to do so.
b) The tax payable u/s 10 is in lieu of tax payable u/s 9(1). Therefore, he is relieved of his tax liability as a normal taxpayer. (This
insertion was just clarificatory in nature).
c) Special category state eligible for composition scheme having aggregate turnover of ` 75 lakhs. (Special Category State as
follows:- Arunachal Pradesh, Manipur , Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Uttarakhand)
d)For Three Special category of states Assam, Himachal Pradesh and Jammu & Kashmir ( now it is treated at UT) applicable
limit is 1.5 Cr (for Ladakh (UT) clarification yet to come)
Proviso 1 Provided that the Government may, by notification, increase the said limit of fifty lakh rupees to such higher
amount, not exceeding one crore & fifty lakh rupees, as may be recommended by the Council.
The limit as per bare Act was initially `50 Lakh. However as per notification it was increased to ` 1 Cr & now after
the recent notification no 14/2019-CT dt 07/03/2019 the limit has been increased to `1.5 Cr.

Proviso 2 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 10% of
turnover in a State or Union territory in the preceding financial year or 5 lakh rupees, whichever is higher.
(Detailed discussion on explanation is done on subsequent pages)
“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.”
Newly Inserted by F.A. 2019
(Detailed discussion on explanation is done on subsequent pages)

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 Section 10 (3) - Eligibility Criteria for Composition Scheme Newly Inserted by F.A. 2019

The option availed of by a registered person under sub-section (1) or as the case may be Sub-section (2A) shall lapse with
effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under sub-section (1).
Newly Inserted by F.A. 2019
(i.e. 1.5 Cr.) or as the case may be Sub-section (2A) (i.e. `50 lakh )

Diagram

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Following Examples assume that aggregate turnover of PFY does not exceeds ` 1.5 Cr.

Example 1 : If supplier does not opt for composition

Inward Supply Intra-State outward supply

Supplier
Input & inputs services A Nil rated Supply ` 15,00,000
Ü used in Nil Rated `18,00,000 B Exempted Supply ` 20,00,000
Ü used in other ` 10,00,000 C Other Taxable Supply ` 15,00,000
Taxable Supply
Calculate net tax payable. If Input & output rate of GST is 12%

Example 2 : If supplier opt for composition

Inward Supply Intra-State outward supply

Supplier
Input & Inputs services A Nil rated Supply ` 15,00,000
Üused in Nil Rated `18,00,000 B Exempted Supply ` 20,00,000
Üused in other Supply ` 10,00,000 C Other Taxable Supply ` 15,00,000
Calculate net tax payable. If Input Tax rate of GST is 12% & Composite Rate is 1%

Whether GST is payable at normal rate under RCM if the taxable person is opting for composition scheme ?
Answer:- Section begins with a non-obstante clause i.e. it overrides other provisions of the act but is subject to sub-section (3) and (4) of
Section 9 i.e. he shall pay tax under Reverse Charge Mechanism on inward supplies (meaning thereby that the benefit of a flat rate of tax is
only on outward supplies and not on inward supplies liable to reverse charge)

Inward Supply Intra-State outward supply

Supplier
Other Taxable Supply ` 25,00,000
ÜLegal Service from `18,00,000
individual Advocate Calculate net tax payable. If Input Tax rate of GST is 18% & Composite Rate is 1%

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 Section 10 (2) - Conditions for Composition Scheme

Following conditions are to be consider

a) For deciding eligibility of composition scheme in current financial year- It mean that if any of following supply is made
in P.F.Y. then taxable person is not eligible for composition levy in current F.Y.
b) For payment of tax in current Financial year- If no such supply is made in P.F.Y, but such supply is made in current F.Y.
before crossing Aggregate T/O of `150/75 lakhs then the day when such a supply is made the composition levy shall be
said to be withdrawn and henceforth tax is payable at normal rate.

(a) Save as provided in subsection (1), he is not engaged in the supply of services
Comment: - Thus the person who is opting for composition levy u/s 10(1) (i.e. Manufacturer , restaurant/ caterers , Trader )cannot supply
any service (Taxable or Exempt) except as allowed in proviso 2 of sec 10(1)
As we have seen in proviso to sec 10(1), 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 10% of turnover in a State or Union territory in
the preceding financial year or 5 lakh rupees, whichever is higher.(Detail analysis is done on next page)
Examples : Finolex Ltd (MH branch), sells electrical cables, motor and wire & also undertakes repair of switches, motor sets
.The Aggregate Turnover during preceding financial 2019-20 year from supply of goods & services was ` 70 lakhs.The T/O of 1st
Quarter of C.F.Y. 20-21 for supply of goods is `30 lakhs and repairing service 3 lakhs.
Whether Finolex Ltd., is eligible for composition scheme & supply of services in C.F.Y.. Advice.
Answer : Yes. As per proviso to sec 10(1) inserted via CGST amendment act 2018, Finolex Ltd.,can make supply of services
upto 10% of turnover in state in previous fin.yr. i.e. ` 7 lakhs or ` 5 lakhs whichever is higher. Therefore, the benefit of
composition scheme will be available to Finolex Ltd. as the turnover from services has not exceeded the limit of ` 5 lakhs as
computed above .Also the aggregate turnover in previous fin.yr. is below 1.5 Cr. thus eligible for composition scheme.

(b) He is not engaged in making any supply of goods which are not leviable to tax under this Act;
Comment :- a person who is engaged in the supply of alcoholic liquor for human consumption or any of the 5 petroleum products
mention in section 9 (petroleum crude, high speed diesel, motor-spirit, natural gas and aviation turbine fuel) cannot opt for
composition scheme for any of his other GST supplies.
Examples : Mr. Jay is dealer who is selling taxable goods, exempted goods and non-taxable goods (i.e. Liquor). His turnover in
the preceding financial year is ` 35 lakh, ` 10 lakh, ` 15lakh goods which are leviable to GST exempted and non-taxable
respectively. Whether Mr. Jay is eligible for composition Scheme?
Answer : If a person is selling the goods, which are not leviable to tax under GST, then he is not eligible to opt for composition
Scheme.
In this case aggregate turnover not exceeds ` 1.5 Cr even though, Mr. Jay is not eligible for composition Scheme.

(c) He is not engaged in making any inter-State outward supplies of goods

Comment :- 1) Cannot make inter-state outward supplies of goods including stock transfers to own branches outside of the
state as it is also a supply as per the GST law. However, there is no restriction on inter-state inward supplies.
2) Author’s opinion : This restriction is only applicable for interstate supply of goods and not for interstate supply of services.
This, it seems that composite dealer u/s 10(1) can make interstate supply of services within permissible limit as mentioned in
proviso 2 of sec 10(1).

Examples : Mr. C of Maharashtra is a retailer dealing with cell phones. He supplies goods to the person located in Maharashtra
and Goa. Aggregate turnover in the preceding financial year is ` 45 lakhs. Mr. C wants to opt for composition scheme in the
current financial year.
Answer : No. When the person makes inter-State supply of goods benefit of composition scheme is prohibited. Therefore, Mr. C
will not be entitled to the benefit of composition scheme.

(d) He is not engaged in making any supply of goods through an electronic commerce operator who is required to
collect tax at source under section 52; and omitted by F.A. 2019
Comment :- Please note that he is still allowed to make supplies through an E-Commerce operator. He has only been barred
from making supplies through an E-Commerce operator who is liable to collect tax at source u/s 52.

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