Is Composition Dealer liable to pay GST under Reverse Charge Mechanism
Dealers registered under Composition Scheme are required to pay GST at a fixed rate on their turnover. For example, manufacturers and traders can opt GST composition scheme and pay tax at a flat rate of 1% on their turnover irrespective of applicable GST rates on their goods. However, a dealer opting for composition scheme is not allowed to take input tax credit (ITC) in respect of inward supplies of goods or services.
Another important question about GST Composition Scheme arises as to “Whether Composition Dealers are liable for GST payment under RCM or not?”. This article discusses the issue of RCM applicability in case of composition dealers. The provisions relating to composition scheme are given under section 10 of CGST Act. Let’s read Section 10 of CGST Act, 2017 first:
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Section-10(1): “Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-section (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 under sub-section (1), an amount of tax calculated at such rate as may be prescribed, but not exceeding, -…..” |
See the words “Notwithstanding anything to the contrary contained in this Act”, it is clear from the language of the section 10(1), the provisions of composition levy supersede any other provisions of the GST law. Thus, once a dealer opts for composition scheme, he gets relieved from many provisions of GST law and even pays tax at a nominal fixed rate irrespective of the GST rate specified in Tariff in relation to goods or services supplied by him.
But, Section 10(1) is subjected to the provisions of section 9(3) and section 9(4) of the CGST Act, 2017. Both these sections talk about GST payable by a person under “Reverse Charge Mechanism” (RCM). Therefore, any person who opts for composition scheme shall be subjected to RCM provisions and will be liable to pay tax on inward supplies covered under RCM.
To make our view clearer, let us also read Rule 5(1)(d) of the CGST Rules, 2017 as follows:
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Rule 5(1): The person exercising the option to pay tax under section 10 shall comply with the following conditions, namely: - (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.” |
Thus, based on our reading of section 10(1) and Rule 5(1), we can finally conclude that a person who is registered under composition scheme is not exempted from the provisions of RCM. If a composition dealer receives any supplies of goods or services which falls under the provisions of section 9(3)/9(4), he shall be liable to discharge GST liability under RCM.
Further to note that a composition dealer is not eligible for ITC, thus, he will not get input tax credit of GST so paid by him under RCM. Thus, the GST paid under RCM will add to his cost of input supplies.
The information relating to inward supplies liable under RCM should be shown by the composition taxpayer in Table 4 of return in FORM GSTR-4. Form-4 is the format for filing of annual return by the composition suppliers.
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