Validity of Composition Levy under GST – Rule 6

The composition scheme under GST is a beneficial tax scheme for small taxpayers, allowing them to pay tax at a fixed rate on their turnover instead of the regular GST rates. However, the validity of this scheme is governed by specific conditions outlined in Rule 6 of the GST Rules. Understanding these conditions is crucial to ensure compliance and avoid penalties.

1. Conditions for Continuing Under the Composition Scheme

According to Rule 6(1), a registered taxpayer opting for the composition scheme under Section 10 of the CGST Act can continue under the scheme as long as they satisfy all the conditions specified under the Act and rules.

2. When Does a Taxpayer Cease to be Eligible?

A taxpayer ceases to be eligible for the composition scheme in the following cases:

• If they fail to meet any conditions mentioned in Section 10 or this Chapter.

• If their turnover exceeds the prescribed limit (Currently Rs. 1.5 crore).

• If they engage in activities not allowed under the scheme (such as inter-state supplies or supply of non-exempt goods).

In such cases, under Rule 6(2):

• The taxpayer must start paying tax under Section 9(1) from the day they become ineligible.

• They must issue tax invoices instead of a bill of supply.

• They must file an intimation for withdrawal from the scheme using FORM GST CMP-04 within 7 days of becoming ineligible.

3. Voluntary Withdrawal from the Composition Scheme

If a registered person wants to opt out of the composition scheme, they must file an application in FORM GST CMP-04 before the withdrawal date. This application must be electronically verified on the GST portal (Rule 6(3)).

4. Show-Cause Notice for Ineligibility

If the proper officer believes that a taxpayer was wrongly availing the composition scheme or violated its conditions, they may issue a show-cause notice in FORM GST CMP-05. The taxpayer must respond within 15 days using FORM GST CMP-06.

Upon receiving the response, the officer will pass an order in FORM GST CMP-07 within 30 days either:

• Accepting the reply and allowing the taxpayer to continue under the composition scheme, or

• Rejecting the composition scheme from the date of ineligibility.

5. Stock Declaration After Withdrawal from the Scheme

After exiting the composition scheme (voluntarily or due to non-compliance), the taxpayer must file FORM GST ITC-01 electronically, detailing:

• Stock of inputs

• Semi-finished goods

• Finished goods

This must be done within 30 days from the date of withdrawal or order in FORM GST CMP-07.

6. Impact on Other Business Locations

If a taxpayer withdraws from the composition scheme in one state or union territory, it applies to all other business locations registered under the same PAN.

Conclusion

Compliance with Rule 6 of the GST Rules is essential for businesses opting for the composition scheme. Failure to meet the eligibility criteria can lead to penalties, tax liabilities, and mandatory withdrawal from the scheme. Small businesses must monitor their transactions and turnover limits to ensure they continue to qualify for the benefits of the composition scheme.

For expert assistance in GST compliance and composition scheme advisory, consult with professional Chartered Accountants today!