Composition scheme - whats so exciting !

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Shivani (Querist)
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23 April 2017 Dear Experts

Why should Mr. X opt for Composition Scheme?

1. He gets no input credit. So it gets added into the cost which makes his product expensive.

2. His customer does not get any input credit of the goods bought from Mr. X. So buyers will prefer the ones from whom they can get credit. Mr. X looses customers.

3. X cant collect tax from customers. So he pays out of his pocket. Why the hell will someone like to do that?

4. Also they are considering aggregate turnover and not taxable turnover.
What common sense is that?

Is there anything I am missing.
What is a single thing which makes anyone opt for this ill thought scheme.

regards
shivani

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Kalam

Kalam (Expert)
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24 April 2017 Basically composition is suitable for the last man in distribution chain and who is having a good margin and low turnover. For example say A is having profit of 20% on cost. Buy a product for Rs 100 and sell it for 120. Say product is in 18% tax rate, he need to pay Rs 3.60 even after taking input credit. However under composition he would pay Rs 1.20. Hence he will be benefited under composition scheme.

But I agree with you that composition scheme has become meaningless after insertion of Section 9(4) of CGST Act, which provides that in case of purchase from unregistered person, registered person has to pay tax under reverse charge. Now most of the traders opting for composition would be buying major portion of goods from unregistered person. In case if they buy from unregistered person, they need to pay tax at normal rate on their purchases ( as per above example @ 18%) and further they would not get the credit. A retrogressive move in my opinion. Further a person under composition neither can issue tax invoice nor can collect tax. Basically he is supposed to collect a specified sum @ certain % which is not termed as tax but as an amount. Please understand that the nature of indirect tax is such that it is ultimately collected from the consumer and remitted to the government. Same was case in case of existing VAT laws.

I hope I am understood.

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