Composition Scheme for Service Providers

[Parag Paranjpe]

Respected Professionals.

PLEASE refer Notification No. 2/2019-Central Tax (Rate)-composition scheme for supplier of services with a tax rate of 6% having annual turn over in preceding year upto Rs 50 lakhs.

As per Condition no 6 of the Table - The registered person opting to pay tax under this notification shall be liable to pay tax at the rate of six percent on all outward supplies specified in column (1) notwithstanding any other notification issued under sub-section (1) of section 9 or under section 11 of said Act

Following is my Query.

1. Which exempt supply are they referring to.?
2. If the assessee has a Commission Income from Insurance Sector -on Which GST is payable on RCM basis vide Notification No. 13/2017- Central Tax (Rate) dated 28th June, 2017( Entry no 7)- Then whether such Commission will also be considered while calculating liability of 6% under Composition Scheme( since its Part of Aggregate Turnover).
3. If the assessee is receiving income from Rent of premises(Residential or Commercial)- Whether such rent will also be considered while calculating liability of 6% under Composition Scheme( since its Part of Aggregate Turnover).

Your Kind Guidance will be appreciated.

Thanks

[KASTURI SETHI]

Query-wise reply :

1. Exempt supply has been mentioned in Clause 2 of Notification No.2/19-CT(R) dated 7.3.2019 which is extracted below :-

"2. In computing aggregate turnover in order to determine eligibility of a registered person to pay central tax at the rate of three per cent under this notification, value of supply of exempt services by way of extending deposits, loans or advances insofar as the consideration is represented by way of interest or discount, shall not be taken into account."

2. Under RCM service recipient is deemed service supplier for payment of tax only. Such turnover will be accounted for into the account of supplier and not recipient's aggregate turnover.

3.Yes.

[Amit Agrawal]

Interesting query!

Issue raised is litigation-prone, to say the least.

My views are as under:

1. Notification No. 2/2019-Central Tax (Rate) dated the 7th March, 2019 is NOT issued under Section 10 (2A) of the CGST Act, 2017.

2. Subject notification is issued In exercise of the powers conferred by sub-section (1) of section 9, sub-section (1) of section 11 and sub-section (1) of section 16 of the CGST Act, 2017. Here, sub-section (3) of section 9 are conspicuous by its absence.

3. Plain & isolated reading of condition No. 6 quoted by you (i.e. 'The registered person opting to pay central tax at the rate of three percent under this notification shall be liable to pay central tax at the rate of three percent on all outward supplies specified in column (1) ...') can be interpreted to mean that tax @ 6% is payable on those outward supplies as well where tax is payable by recipient u/s 9 (3) of the CGST Act, 2014 (such as 'Commission' as quoted in Para 2 of your query).

4. However, in my humble view, such plain & isolated reading of condition No. 6 is wrong due to the following reasons:

A. As explained earlier in Para 2 above, powers under sub-section (3) of section 9 are NOT used while issuing subject notification.

B. Furthermore, referred condition No. 6 also does NOT refer to said sub-section (3) of section 9, though it specifically refers to 'any other notification issued under sub-section (1) of section 9 or under section 11 of said Act'.

C. The beginning of Notification No. 13/2017- Central Tax (Rate) dated the 28th June, 2017 is worth noting:

"In exercise of the powers conferred by sub-section (3) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government on the recommendations of the Council hereby notifies that on categories of supply of services mentioned in column (2) of the Table below, supplied by a person as specified in column (3) of the said Table, the whole of central tax leviable under section 9of the said Central Goods and Services Tax Act, shall be paid on reverse charge basis by the recipient of the such services as specified in column (4) of the said Table:- ....".

C. In my view, Govt. cannot levy and collect tax on same supply from both supplier as well as recipient simultaneously, in absence of specific supporting provision authorizing such double levy.

C1. Levy u/s 9 (1) & 9 (3) of the CGST Act, 2017 cannot be treated as two different levies on very same supply. In other words, when there is levy u/s 9 (3) (read with Notification No. 13/2017- Central Tax (Rate)) on any supply, such supply is excluded from levy u/s 9 (1) and consequently, from subject Notification No. 2/2019-Central Tax (Rate).

D. Considering the above, I am of the view that no tax is payable by eligible registered supplier - who has opted to pay taxes as per subject Notification No. 2/2019-Central Tax (Rate) - against outward supplies where recipient is made liable to pay whole tax under reverse charge method as per Notification No. 13/2017- Central Tax (Rate) dated the 28th June, 2017.

E. In summary, as answer to Query raised in Para 2 by you, in my humble view, no gst is payable by the registered supplier against such 'commission income'.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

AI Summary

Composition scheme liability for service providers: whether reverse charge and rent receipts count toward composition tax liability. The dispute concerns whether a composition taxpayer must pay tax under the composition notification on outward supplies that are exempt or subject to tax on reverse charge. One view notes certain exempt services (interest/discount on loans/deposits) are excluded from aggregate turnover, that reverse charge supplies are recorded in the supplier's turnover, and that rent receipts count toward turnover. An alternative view argues the composition notification was issued without powers used for reverse charge notifications and that dual levy on the same supply (supplier under composition and recipient under reverse charge) is not warranted, so commission subject to reverse charge should not attract composition tax.