GST Impact on SME Sector and composition schemes in GST ACT, 2017

GST Impact on SME Sector and composition schemes under GST, 2017

1. SME Sector has to face big competition with giant market player

Presently the SME manufacture has not liable to pay excise up to a turnover of Rs. 150 Lacks but in GST scenario he has to pay GST where his turnover has exceed the Rs. 20 lacks. The SME manufacturer has face huge competition with the big player of the market which already has a reputed share of market demand, and a product which has a brand value.

2. Negative as well as positive effect of GST on SME Sector and Indian economy;

1. This create a huge problem with SME sector and make a huge effect on Indian economy.

2. Government revenue may increase, after implementation of GST.

3. No of Taxpayer has increase.

4. Effect adversely the government scheme of MAKE IN INDIA and START UP.

5. Adversely effect the small manufacturer, even it create a situation of shut down.

6. Adversely affect the employment and rural industries.

7. Huge compliance and filing under GST also adversely affect the SSI.

8. Will Create a Less Cash economy.

Composition Scheme in GST; 

1. Option to pay tax at a lump-sum rate instead of regular tax rate.

2. Option to withdraw from scheme also available.

1. Applicability of composition scheme

1. Sec 10. (1) Notwithstanding anything to the contrary contained in this Act 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 fifty lakh rupees, may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not exceeding,––

(a) one per cent. of the turnover in State or turnover in Union territory in case of a manufacturer,

(b) two and a half per cent. of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and

(c) half per cent. of the turnover in State or turnover in Union territory in case of other suppliers,

Subject to such conditions and restrictions as may be prescribed

2. The effective rates of tax shall be 2%, 5% and 1% respectively (CGST and SGST).

3. The limit of 50 lakh shall be considered for all registration under same PAN.

4. Government may, by notification, increase the said limit of fifty lakh rupees to such higher amount, not exceeding one crore rupees as may be recommended by the Council.

5. The registered person who eligible and opt for composition scheme has to pay GST on reverse charge where applicable under sub section (3) or (4) of sec 9.

2. Availability of Composition scheme option;

The registered person shall be eligible to opt under sub-section (1), if:—

(a) he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II;

(b) he is not engaged in making any supply of goods which are not leviable to tax under this Act;

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

(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

(e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council:

(f) Casual or non- resident taxable person (rule-3)

Provided where one person has more than one registration under same PAN has to opt scheme for all registration.

3. Conditions and restrictions for composition levy –rule 3

(1) The person exercising the option to pay tax under section 10 shall comply with the following conditions:

(a) he is neither a casual taxable person nor a non-resident taxable person;

(b) the goods held in stock by him on the appointed day have not been purchased in the course of inter-State trade or commerce or imported from a place outside India or received from his branch situated outside the State or from his agent or principal outside the State, where the option is exercised under sub-rule (1) of rule 1;

(c) the goods held in stock by him have not been purchased from an unregistered person and where purchased, he pays the tax under sub-section (4) of section 9;

(d) he shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both received from un- registered persons;

(e) he was not engaged in the manufacture of goods as notified under clause (e) of sub-section (2) of section 10, during the preceding financial year;

(f) he shall mention the words “composition taxable person, not eligible to collect tax on supplies”at the top of the bill of supply issued by him; and

(g) he shall mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.

4. Procedure for opting composition, by registered person–rule 3

Any registered person who opts to pay tax under section 10 shall electronically file an intimation in FORM GST CMP-02, duly signed, on the Common Portal, either directly or through a Facilitation Center notified by the Commissioner prior to the commencement of the financial year for which the option to pay tax under the aforesaid section is exercised

He shall furnish the statement in FORM GST ITC-3 in accordance with the provisions of sub-rule (4) of rule ITC.9 within sixty days from the commencement of the relevant financial year.

Provided that Any person who applies for registration under rule Registration.1 may give an option to pay tax under section 10 in Part B of FORM GST REG-01, which shall be considered as an intimation to pay tax under the said section.

5. Consequence of availing the scheme;

Following two prohibition shall be imposed on taxable person who opt for composition scheme;-

The taxable person shall not collect any tax from the recipient on supplies made by him.

The taxable person shall he be entitled to any credit of input tax.

The registered person shall issue the bill of supply for supply made after that day.

6. Option Lapse and its consequences;

Sec 10 (3) The option availed of by a registered person under sub-section (1) shall lapse with

effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under sub-section (1).

Sec 18 of CGST Act, if a person ceases to pay tax under composition scheme he shall be entitled to take credit of input tax in respect of input held in stock, inputs contains in semi-finished goods or finished goods held in stock and on capital goods on the day immediately preceding the date from which he become liable to pay tax under normal scheme.

He shall issue Tax invoice for every taxable supply made thereafter and shall file a intimation for withdrawal from the scheme in FORM GST CMP-04 within 7 days of occurrence of such event.

The registered person shall file a statement in FORM GST ITC-01 containing the detail of stock of inputs and input contained in semi-finished or finished goods held in stock by him on the date on which the option is withdraw within 30 days from the option is withdraw.

7. Consequences of wrongly availed scheme;

Sec 10(5) If the proper officer has reasons to believe that a taxable person has paid tax under sub-section (1) 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.

Proper officer may issue SCN to such person In FORM GST CMP-05 and such person shall to reply of SCN in FORM GST CMP-06 within 15 days of receipt of such notice.

The proper officer shall issue an order in FORM GST CMP-07 within 30 days of receipt of reply from registered person for accepting or denying the option.

The registered person shall file a statement in FORM GST ITC-01 containing the detail of stock of inputs and input contained in semi-finished or finished goods held in stock by him on the date on which the option is denied within 30 days from the date of order passed in FORM GST CMP-07.

8. Transitional Provisions

1. Intimation for composition, by a person who migrate –Rule 1

Any person who has been granted registration on a provisional basis under sub-rule (1) of rule Registration.16 and who opts to pay tax under section 10, shall electronically file an intimation in FORM GST CMP-01, prior to appointed day but not later than within 30 day of appointed day and He shall furnish the detail of stock, including the inward supply of goods received from unregistered person, held by him on the day preceding the date from which he opt to pay tax under composition in FORM GST CMP-03 within 60 days from which the option is exercise.

2. CREDIT OF ELIGIBLE DUTIES AND TAXES ON INPUTS HELD IN STOCK TO BE ALLOWED TO A TAXABLE PERSON SWITCHING OVER FROMCOMPOSITION SCHEMEUNDER EARLIER LAW    [SECTION 140 (6) READ WITH SECTION 18(1)( c )]

1. A registered taxable person (RTP) who was either paying tax at a fixed rate or paying a fixed amount in lieu of the tax payable under the earlier law shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed date subject to the following conditions.

2. Such inputs and / or goods are used or intended to be used for making taxable supplies under this Act.

3. RTP is not paying tax under Section 10 (i.e. composition levy)

4. RTP is eligible for input tax credit on inputs under this Act.

5. RTP is in possession of invoice and/or other prescribed documents evidencing payment of duty under the earlier law in respect of such inputs and

6. Such invoices and /or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day.l,

Conclusion: In Many adverse situations, the composition scheme may help the small entrepreneurs to some extent and provide a huge relief to the small scale industries, but having considering the limit of RS 50 is not sufficient to overcome from these problem. In GST, abetment has also gone out in comparison to existing service tax law. We should wait and see how SME sector has come out from these difficulties. We see how SME sector plan its future strategies.