REGARDING GST COMPOSITON

[PREMNATH RAO]

Dear Sir,

Can a cake shop who is a franchise opt for composition scheme. Is there any condition for opting composition scheme.

Since cake comes under food can a cake retailer shop apply GST under composition scheme. What will be the rate of GST to be paid under composition.

Thanks,

With regards,

P M Rao

[KASTURI SETHI]

Dear Querist,

First of all, there is no restriction on cake as a food for opting for Composition Scheme under Section 10 of CGST Act, 2017 as amended. As per CGST Amendment Act, 2018, the statutory composition limit has been increased to ₹ 1.50 crore w.e.f. 1.4.19 (Still notification is to be issued). Rate of tax for goods is 1 % as a manufacturer or trader. There are so many conditions imposed which are mentioned under Section 10 of CGST Act.

What is a major hurdle for you is that you are a franchisee. You are associated with the Franchisor and Franchisor grants a representational right to :

(a) sell or manufacture goods, or

(b) provide services, or

(c) undertake any process identified with Franchisor,

When the Franchisee represents the Franchisor the franchisee loses its individual identity and would be known by the identity of the Franchisor. The individual identity of the franchisee is subsumed in the identity of the franchisor. In the case of a franchisee, anyone dealing with the franchisee would get an impression as if he were dealing with the franchisor. As per the definition of 'franchise' in Service Tax law, franchisee is under obligation not to engage in selling or providing similar goods or services or process, identified with any other person.

In view of the above, it can be inferred that you will be working for and on behalf of Franchisor. Therefore, in my view, your turnover will be clubbed with that of Franchisor and thus it is most likely to cross threshold limit of ₹ 1.50 crore. So you will not be eligible for Composition Scheme.

[Ganeshan Kalyani]

Sri Kasturi Sir has given a clear answer . In my view , your outlet will be included in the GST registration of the franchisor . And the franchisor would comply for GST . Kindly check with the franchisor on this aspect.

AI Summary

Composition scheme eligibility may be lost for franchise outlets where turnover is treated as part of the franchisor's registration. Composition is available for food retailers as a trader or manufacturer at a concessional composition rate, subject to statutory conditions and a turnover eligibility threshold. A franchisee may be regarded as operating under the franchisor's identity so that the franchisee's turnover is aggregated with the franchisor's turnover; where turnover is aggregated and exceeds the eligibility threshold, the franchisee is not eligible for the composition scheme and the outlet may be included in the franchisor's GST registration.