In this article we would discuss about the GST treatment of reverse charge supplies received by a Composition supplier. Before proceeding ahead let us briefly discuss about the Composition Scheme and the rate of taxes applicable on such suppliers.
The Composition levy scheme is a very simple, hassle free compliance scheme for small taxpayers. It is a voluntary and optional scheme.
Provisions related to composition levy have been provided under section 10 of the Central GST Act, 2017 and Chapter 2 of the CGST Rules, 2017. This scheme under Section 10(1) and (2) can be opted by a registered taxable person, whose aggregate turnover of the previous financial year does not exceed Rs. One crore fifty lakhs (Rs. 75 lakhs for special category States Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura ) [Refer Notification No. 14/2019-Central Tax, dated 7-3-2019].
Further a separate composition scheme is available under Section 10(2A) of the CGST Act, 2017, for service providers who are not eligible for composition levy under Section 10(1) / (2) of the CGST Act, 2017 and whose turnover is less than Rs. 50 lakh in the previous financial year. [Refer Notification No. 02/2019-Central Tax (Rate), dated 7-3-2019].
GST Rates applicable on Composition supplier:
The GST rates applicable to composition supplier are given in Rule 7 of the CGST Rules, 2017 which are tabulated below:
| Category of registered persons | CGST | SGST | Total GST payable by composition supplier |
| Manufacturer other than manufacturers of such goods as may be notified by the Government Sub-sections (1) and (2) of section 10 | 0.5% | 0.5% | 1% of turnover in State |
| Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II ( viz Supplier of food & drinks (restaurant ) Sub-sections (1) and (2) of section 10 | 2.5% | 2.5% | 5% of turnover in State |
| Any other supplier eligible for composition levy under sub-sections (1) and (2) of section 10 (Traders ) | 0.5% | 0.5% | 1% of turnover of taxable supplies |
| Registered persons not eligible under the composition levy under sub-sections (1) and (2), but eligible to opt to pay tax under sub-section (2A), of section 10 | 3% | 3% | 6% of the turnover of supplies of goods and services in the State or Union territory. |
Whether the concessional rates of GST also applicable on reverse charge supplies received by composition supplier:
From the table discussed supra the GST rates given are applicable on turnover in State / turnover of taxable supplies which means that such concessional rates are applicable on the outward supplies of the composition supplier and accordingly such rates cannot be applicable on inward supplies subjected to payment under reverse charge mechanism.
Further as per Rule 5 of the CGST Rules, 2017 the person exercising the option to pay tax under section 10 shall comply with the following conditions, namely:-
(a)….
(b)….
(c)….
(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.
In light of above we can conclude that concessional GST rates are not applicable on reverse charge inward supplies received by the composition supplier. Accordingly the normal GST rates applicable on such supplies will be required to be paid.
Whether Input Tax Credit of tax paid under reverse charge be availed by the composition supplier:
It may be noted here that as per Section 10(4) of the CGST Act,2017 the Composition supplier will not be entitled to any credit of input tax and accordingly no input tax credit towards GST paid under reverse charge mechanism can be availed.
Concluding remarks:
As discussed, composition supplier will be required to discharge its reverse charge obligations at normal GST rates and also he will not be able to avail input tax credit. It may be noted that at present there are only 23 services and 9 goods which have been notified for purpose of payment under reverse charge mechanism under Section 9(3) of the CGST Act / 5(3) of the IGST Act.
It appears that there is tax saving window here as the composition supplier can purchase goods / services (other than notified for reverse charge) from unregistered suppliers and in such a case neither the supplier being unregistered will charge any tax nor the composition supplier will have to pay, as such transaction is not covered under reverse charge.
It may be noted here that currently supplies from unregistered suppliers are subject to reverse charge under Section 9(4) of the CGST Act / 5(4) of the IGST Act, only for builders and not for composition suppliers.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
