Query :

Whether persons executing business of buying and selling of cloth / textiles will have to pay tax under section 9(4) on the stock held on 1st July , 2017 i.e. the appointed day , to get the facility of composition under section 10 of the SGST/CGSTAct , 2017.

Reply :

  • It is quite evident from Rule-5 of the CGST Rules , 2017 ( exactly the same is the rule under SGST Act , 2017 ) that following conditions and restrictions are to be satisfied in order to get the facility of composition as provided under section 10 of the SGST/CGST Act , 2017 :

“5. Conditions and restrictions for composition levy.-

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

(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 3 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 3;

(c) the goods held in stock by him have not been purchased from an unregistered supplier 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;

(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.”

  • Since there was no VAT  on cloths / textiles therefore there was no need  for the  traders of cloths /textiles to get themselves registered under the existing law . Thus all the purchases of cloth/textile were made from the unregistered suppliers without payment of tax . Thus whatever stock is held by such persons on the appointed day would have been  (i) purchased from the unregistered dealers and (ii) no tax would have been paid in respect of such goods held in stock as cloths/textiles were exempt from the levy of VAT .
  • Thus as per the condition envisaged in clause (c) of the aforesaid sub-rule (1) of rule-5,  any registered person who has been involved in the buying and selling of cloths/textiles and wishes to opt for composition levy under section 10 shall have to deposit tax in respect of the cloths/textiles held in stock on the appointed day under section 9(4) .
  • It is pertinent to note that GST rate of tax on cloth/textiles is 5% .

         (GST = SGST+CGST)

  • It is also pertinent to note that the composition under section 10 has been envisaged only in respect of output tax liability and this composition does not include liability of tax on inputs in its periphery . This is quite evident from condition envisaged in clause (d) of the aforesaid sub-rule which clarifies that the registered person who has opted for composition under section 10 shall continue to pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both.

 

 

 

 

 

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