2021 (12) TMI 33 - AAR - GST

Applicant ineligible for GST Composition Scheme due to Gutka manufacturing. Decision stands unless voided.

The applicant was deemed ineligible for the Composition Scheme under Section 10 of the GST Act due to manufacturing activities involving Gutka ... Composition scheme under Section 10 - Supply of goods not leviable to tax - Exclusion of manufacturers from composition - Interpretation of Pan Masala and Gutka as goods attracting exclusion - Second proviso to Notification No. 14/2019-CT - goods excluded from compositionComposition scheme under Section 10 - Supply of goods not leviable to tax - Exclusion of manufacturers from composition - Interpretation of Pan Masala and Gutka as goods attracting exclusion - Second proviso to Notification No. 14/2019-CT - goods excluded from composition - Whether the applicant, a trader proposing to sell betel leaves, pan shop products and Gutka, is eligible for the Composition Scheme under Section 10 of the GST Act. - HELD THAT: - The authority examined the applicant's declared business of operating a Pan Shop and the list of goods intended to be sold. Betel leaves (Pan) are taxed at nil rate by Entry No. 93 in Notification No. 02/2017-Central Tax (Rate). The definition of Pan Masala (and the typical composition of Gutka) in the Chapter Notes shows that Gutka and Pan Masala are preparations involving betel nut with lime, katha and possibly tobacco. The Authority found that sale and also in shop preparation of Gutka (mixing bought ingredients to produce a distinct product) amounts to manufacture for the purpose of the Notifications. Notification No. 14/2019-CT and its table list Pan Masala and goods under Chapter 24 (tobacco and manufactured tobacco substitutes) among goods for which composition is not available. Section 10(2)(b) excludes persons engaged in the supply of goods that are not leviable to tax from the scheme, and other provisos and entries exclude manufacturers and specified goods. Applying these provisions and entries to the applicant's declared activities, the Authority concluded that the applicant's case is covered by the restrictive conditions in Section 10(2)(b) and 10(2)(e) and by the exclusions in Notification No. 14/2019-CT, so the applicant cannot avail composition. [Paras 7, 8]The applicant is not eligible for the Composition Scheme under Section 10 of the GST Act in respect of the declared Pan Shop activities.Final Conclusion: Ruling: Benefit of the Composition Scheme under Section 10 is not available to the applicant for the declared Pan Shop business; other questions withdrawn by the applicant are not adjudicated. Issues Involved:1. Eligibility for the Composition Scheme under Section 10 of the CGST/SGST Act.2. HSN codes required for registration under the Composition Scheme.3. Applicable tax rate on the supply of Pan Masala and Tobacco products under the Composition Scheme.4. Applicability of Notification No. 50/2020 on suppliers eligible for the Composition Scheme.Issue-wise Detailed Analysis:1. Eligibility for the Composition Scheme under Section 10 of the CGST/SGST Act:The applicant, engaged in trading Pan Masala and Tobacco products, sought clarity on eligibility for the Composition Scheme given their turnover is less than Rs. 1.5 crores. The authority noted that Section 10 of the CGST Act, 2017, allows registered persons with a turnover not exceeding Rs. 1.5 crores in the preceding financial year to opt for the Composition Scheme. However, the law explicitly excludes manufacturers of Tobacco, Ice Cream, Pan Masala, and Aerated Waters from this scheme. The applicant's business involves trading, not manufacturing, of these products, which initially seemed to allow eligibility. Nevertheless, the authority determined that the preparation of Gutka (a mix of betel nuts, lime, katha, and tobacco) at the Pan Shop equates to manufacturing, thus disqualifying the applicant from the Composition Scheme under Section 10(2)(b) and 10(2)(e).2. HSN Codes Required for Registration under the Composition Scheme:The applicant faced issues with the GSTN portal not allowing the addition of HSN codes for Pan Masala and Tobacco products during registration under the Composition Scheme. The authority did not provide a ruling on this matter as the applicant withdrew this question during the hearing.3. Applicable Tax Rate on the Supply of Pan Masala and Tobacco Products under the Composition Scheme:The authority did not address this issue directly in the ruling since the applicant withdrew the question. However, it was implied that the tax rate would be governed by the standard provisions applicable to such products outside the Composition Scheme.4. Applicability of Notification No. 50/2020 on Suppliers Eligible for the Composition Scheme:The ruling did not specifically address the applicability of Notification No. 50/2020 due to the applicant's withdrawal of this question. The focus remained on the primary eligibility for the Composition Scheme.Conclusion:The authority ruled that the applicant is not eligible for the Composition Scheme under Section 10 of the GST Act, 2017, due to the involvement in manufacturing activities (preparation of Gutka) at the Pan Shop. Other questions raised by the applicant were withdrawn and thus not addressed in the ruling. The ruling remains valid subject to provisions under Section 103(2) until declared void under Section 104(1) of the GST Act.