Composition limit under Section 10 crossed

[gunda ashok kumar]

Sir,

One of my client has opted the composition scheme under section 10 of CGST Act and forgotten to give option to come out from the composition. The authority has levied the tax as per scheduled rates of 12% and 18% on taxable goods but denied ITC as per Section 18 of the CGST Act.

1.Pl clarify whether the client is eligible ITC during the period in dispute as per Section 18 when the client was not opted from composition to regular taxpayer?

[Padmanathan KV]

What is the FY which is in question here?

As regard the ITC on goods lying in stock/ Finished goods etc... at the time of coming out of composition scheme, the time limit to take ITC by filing ITC-01 is 30 days under Rule 40. In certain cases, where there was technical glitches, the Court has extended the time limit.  However, in your case it is not due to technical glitches. So taking credit now would lead to litigation.

As regard ITC on purchases  made after coming out from composition scheme, if the time limit under section 16(4) has not elapsed, you can avail the same now, subject to satisfaction of other conditions in section 16 & 17.

[Padmanathan KV]

See Hari Om Arora v Union of India Calcutta - 2024 (7) TMI 1034 - CALCUTTA HIGH COURT HC - Delay in filing ITC-01 has been condined due to pandemic and medical grounds of CA.

So, you may have to show some sufficient cause for not filing within time.

[VENU K]

Rule 6. Validity of Composition Levy

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(4) Where the proper officer has reasons to believe that the registered person was not eligible to pay tax under section 10 or has contravened the provisions of the Act or provisions of this Chapter, he may issue a notice to such person in FORM GST CMP-05 to show cause within fifteen days of the receipt of such notice as to why the option to pay tax under section 10 shall not be denied.

(5) Upon receipt of the reply to the show cause notice issued under sub-rule (4) from the registered person in FORM GST CMP-06, the proper officer shall issue an order in FORM GST CMP-07 within a period of thirty days of the receipt of such reply, either accepting the reply, or denying the option to pay tax under section 10 from the date of the option or from the date of the event concerning such contravention, as the case may be.

(6) Every person who has furnished an intimation under sub-rule (2) or filed an application for withdrawal under sub-rule (3) or a person in respect of whom an order of withdrawal of option has been passed in FORM GST CMP-07 under sub-rule (5), may electronically furnish at the common portal, either directly or through a Facilitation Centre notified by the Commissioner, a statement in FORM GST ITC-01 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 or denied, within a period of thirty days from the date from which the option is withdrawn or from the date of the order passed in FORM GST CMP-07, as the case may be.

Sub Rule 4 requires an SCN, a reply, and an order by officer. Even then Sub Rule 6 says such a person is eligible for input tax as per the provisions.

So please verify whether the Officer has gone through the necessary Due Process. If no, object to such invention of due process by officer.

Point out even in such cases Sub rule 6 allows credit of input tax credit.

My opinion. I do not know whether any other provisions give power to the Officer to demand tax and penalty. See whether the provisions invoked by officer are proper.

Please also understand that Sec 10 sub section 5 gives the officer the following powers.

Sec 10 

(5) If the proper officer has reasons to believe that a taxable person has paid tax under sub-section (1) [or sub-section (2A), as the case may be,] despite not being eligible, such person shall, in addition to any tax that may be payable by him under any other provisions of this Act, be liable to a penalty and the provisions of section 73 or section 74 shall, mutatis mutandis, apply for determination of tax and penalty.

[Shilpi Jain]

Further facts required to comment on this query. Period involved.

Reason for not opting out. 

Lack of knowledge of law cannot be a valid reason.

AI Summary

GST Composition Scheme: Client Faces Standard Tax Rates Without ITC for Failing to Switch; Importance of Rule 40 Filing A client who opted for the GST composition scheme under Section 10 of the CGST Act failed to switch to a regular taxpayer, resulting in the authority imposing taxes at standard rates of 12% and 18% without allowing Input Tax Credit (ITC) as per Section 18. Respondents in the forum discuss the eligibility for ITC during the disputed period, emphasizing the importance of filing ITC-01 within 30 days as per Rule 40, and the possibility of litigation if not filed due to non-technical reasons. They also highlight procedural requirements for officers and potential penalties under Section 10(5).