Can the composition dealer under the Karnataka VAT law applies for Composition scheme in GST law
By CA Sanjay Dhariwal and CA Annapurna Kabra
The scheme of composition is existing only in Karnataka VAT law and not in other State law and continued in GST law also. The GST law also provides the option of availing the benefit of Composition Levy to Small business entities.
Intra state supplies:
Under the KVAT law the composition scheme continues for intra state supplies and restricted from making interstate purchase (except works contractor) and interstate sales. Under the GST regime the Composition Scheme continues for only intra state supplies and debarred to person having interstate supplies. In simple terms the KVAT Composition dealer cannot make interstate purchase and sales whereas the composition dealer under the GST law can make inward supplies and not interstate supplies.
Under the KVAT law there is no restriction of turnover except for the traders’ up to 25 lakhs. Under the GST regime, there is restriction of aggregate turnover whose turnover is less than aggregate of Rs. 75 lakhs.
The composition scheme under KVAT is not applicable to Dealers who selling liquor, Manufacturers, Importers, Dealers who purchase goods from a registered dealer on high-sea basis. The composition levy under GST will not be applicable for taxability under reverse charge or to a person who is engaged in the manufacture of goods or supply of services or who makes any supply of goods which are not leviable to tax under the Act or who makes any interstate outward supplies of goods or who makes any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52 .
Under section 15 of the KVAT Act the composition scheme are available to dealers whose total turnover is not exceeding 25 lakhs, dealer executing works contract, dealer who is hotelier, restaurateur, caterer, dealer running a sweet meat stall or an ice cream parlor or bakery or any other class of dealers as may be notified by the Government or who is mechanized crushing unit producing granite or any other material. Under the GST regime the Composition Scheme is available for all traders, select manufacturing sectors and for restaurants in the services sector.
Under the GST regime the Composition benefit once opted has to be applied to all registered taxable persons having the same PAN. Under the KVAT law the separate registration can be taken for regular scheme and composition scheme if there is different nature of business as specified in section 15(2) of the KVAT Act.
Collection of tax
Under the KVAT Act the composition tax cannot be collected from the buyer except the works contractor and no input tax credit available to the buyer. Under the GST law such composition levy cannot be collected from recipient and no input tax credit will be available to the recipient and tax payer.
Business Vertical Registration
Under Rule 47 of the KVAT Rules 2005 there is provision and filing of returns by the branches of corporate bodies within the state subject to certain conditions. In these cases also if one of the units has applied for composition the other unit cannot apply for the regular scheme. Under the GST law, the composition scheme would be applicable for all business verticals/ registrations, which are separately held by the person with same PAN. In order to avail the benefit of composition levy scheme, it is necessary that all the registered business verticals/registrations which are separately held by a person having the same Permanent Account Number [‘PAN’] must opt for composition levy. In simple terms, composition supplier shall not be eligible to opt for composition scheme only for one out of his ten business verticals.
URD Tax and Reverse charge
Under section 15 of the KVAT Act the composition dealer is liable to pay URD tax in addition to the composition tax. Under the GST law even the composition supplier is liable to pay URD tax and reverse charge tax in addition to the composition tax.
Under the KVAT law the dealers are required to file monthly return VAT 120 by 15th of the following month except for the traders and in case of GST law the suppliers should file quarterly return in GST R-4 by 18th of the following quarter.
Under the KVAT law the dealers should issue the Bill of supply. Under the GST law the supplier 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. The person 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
Transition from the Existing law to the GST law
In case of the Composition dealer under the existing KVAT law and are planning to switch to Regular Scheme under the GST law then in such instances the transitional credit shall be allowed on inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the condition that such inputs must be used or intended to be used for making taxable supplies under the GST Laws and such credits should be eligible under the GST law and should possess the invoices not earlier than twelve months from appointed day. The supplier should not have goods in stock on transition date must not have 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.
The practical difficulty for the composition scheme dealer is that the input tax credits are not disclosed in the returns as filed to the department as they are not eligible for credit and in many instances it is capitalized as purchase cost and input tax credit is not bifurcated. Therefore it will be the challenging task to the departmental Authority to assess the transitional credit for composition scheme dealers who will shift to Regular scheme under the GST law. Basically works contractor and mechanized crushing units opted for composition scheme in KVAT law are outside the limb of the GST composition scheme as they are not eligible for composition scheme under the GST law.