Goods and Services Tax and Custom Duty

Q1. What is composition scheme? Describe the scope and features of composition
scheme.

Answer:- The Composition Scheme under the Goods and Services Tax (GST) in India
is a simplified tax scheme aimed at reducing the compliance burden for small
businesses. It allows small taxpayers to pay tax at a reduced rate based on their
turnover, and they are exempt from maintaining detailed records required under the
regular GST scheme.
Scope of Composition Scheme

1.Eligibility:

Turnover Limit: The scheme is available for businesses with an aggregate

turnover of up to ₹1.5 crore in the previous financial year (₹75 lakh for special
category states).
Type of Businesses: It is primarily for small manufacturers, traders, and service
providers (subject to conditions).
Manufacturers: Businesses engaged in the manufacture of goods can opt for
the composition scheme.
Traders: Those dealing in the supply of goods can also choose this scheme.
Restaurant Services: Restaurants can opt for the scheme but must comply with
specific rules.
Not for Service Providers: Service providers (except restaurants) generally
cannot opt for the composition scheme, though some exceptions apply (e.g.,
those providing a few specific services like restaurant services).

2. Non-Eligibility:

Businesses that deal in inter-state supply of goods.

Businesses dealing in exempted goods or non-taxable goods.
Manufacturers of notified goods such as pan masala, tobacco, etc.
Service providers (except for restaurant services and a few other exceptions).
Features of Composition Scheme
3.Simplified Tax Rates:

Taxpayers under the Composition Scheme pay tax at a lower rate, which is
typically a percentage of their turnover.

1. The tax rates for different categories of businesses are:

1% for manufacturers and traders (for goods).

5% for restaurant service providers.

6% for some other categories (e.g., mixed suppliers).

2. Limited Compliance Requirements:

Under the Composition Scheme, businesses need to file only quarterly returns
(GSTR-4), as opposed to monthly returns for regular taxpayers.
No detailed record-keeping is required, and businesses don't need to maintain a
stock register or file detailed invoices.

3. No Input Tax Credit (ITC):

Businesses under the Composition Scheme are not allowed to claim Input Tax
Credit (ITC) on purchases, which means they cannot offset the tax paid on
inputs against their output tax liability.

4. Restricted Inter-State Supply:

Businesses under the Composition Scheme cannot engage in inter-state supply

of goods, except in certain cases (e.g., if the buyer is also a composition
taxpayer).

5. Tax Payment Based on Turnover:

The tax liability is based on the turnover of the business, which simplifies
calculation and makes the tax payment process more predictable.

6. Invoice Requirements:
 Composition taxpayers must issue simplified invoices, and these invoices
should mention that the tax is paid under the Composition Scheme.

7. No Collection of Tax:

Businesses under this scheme cannot collect tax from their customers. The tax
is absorbed by the business itself.

* Advantages of the Composition Scheme

1. Lower Compliance Cost: It simplifies the tax system for small businesses,
reducing paperwork, and the need for accountants and tax professionals.
2. Reduced Tax Rate: Small businesses enjoy lower tax rates, which helps reduce
their overall tax burden.
3. Fewer Returns: Quarterly filing is simpler than monthly filings for regular
taxpayers.
4. Ease of Doing Business: The simplified process allows small businesses to
focus on their operations rather than on complex tax compliance.

* Disadvantages of the Composition Scheme

1. No Input Tax Credit: Businesses cannot claim ITC on purchases, leading to

higher costs on inputs, which may affect pricing and profitability.
2. Limited Scope for Expansion: The turnover limits might restrict business growth,
as businesses exceeding the prescribed turnover threshold will no longer be
eligible for the scheme.
3. Inability to Supply Interstate: Businesses under this scheme cannot engage in
interstate trade, limiting their market reach.

* Conclusion
The Composition Scheme is a beneficial tax option for small businesses, providing
ease of compliance and lower tax rates. However, it comes with limitations, such as
the inability to claim input tax credit and restrictions on interstate supply, which may
not be suitable for all businesses, particularly those looking to scale up or engage in
diverse business activities.
Q2. What is meant by "Jobwork" under GST? What are the benefits and restrictions
with regard to jobwork application to principal.

Answer:- Under the Goods and Services Tax (GST) regime in India, "jobwork" refers to
the processing or working on raw materials, semi-finished goods, or goods supplied
by a principal (the main business entity) to a third party (the job worker) for further
processing or treatment. Essentially, the job worker performs the work on behalf of
the principal and returns the processed goods.

The definition of jobwork under GST is provided in Section 2(68) of the CGST Act,
2017. The principal retains ownership of the goods, and the job worker is merely
engaged to process or work on those goods as per the principal's instructions.

Jobwork Process under GST

1. Principal's Responsibility: The principal supplies raw materials or unfinished

goods to the job worker for further processing, like manufacturing, assembling,
packaging, etc.
3. Job Worker’s Responsibility: The job worker performs the agreed-upon
2.
processing or manufacturing activity and returns the finished goods or
processed goods to the principal.
4. Ownership of Goods: The ownership of the goods remains with the principal,
while the job worker is only responsible for processing the goods.

Benefits of Jobwork under GST for the Principal

1. No GST on Supply of Goods to Job Worker (in certain cases):

If goods are sent to a job worker for processing, there is no supply of goods
for GST purposes when goods are sent to a job worker within India.
The movement of goods to the job worker is not considered as a sale, so
no GST is applicable when the principal sends goods to the job worker for
further processing.

2. Input Tax Credit (ITC):

 The principal can claim Input Tax Credit (ITC) on the goods sent to the job
worker, provided the job worker is registered under GST.
The principal can also claim ITC on services provided by the job worker
related to the processing or treatment of goods.

3. No Need for Separate Registration for Job Worker:

A job worker is not required to obtain separate GST registration, provided

they are not engaged in taxable supply themselves and are working under
the principal’s direction.

4. Exemption on Return of Processed Goods:

Goods sent to a job worker can be returned within 1 year (for inputs) or 3
years (for capital goods), without triggering GST, as long as they are
returned within the prescribed period.

Restrictions for the Principal in Jobwork under GST

1. Time Limit for Return of Goods:

Goods sent to the job worker must be returned within 1 year for inputs and
3 years for capital goods. If the goods are not returned within this period,
GST would be applicable on the goods as if they were sold.
2. Job Worker’s Location:
The goods must be sent to a registered job worker. If the job worker is
unregistered, the principal may be liable to pay GST on the goods sent,
as the supply to an unregistered job worker is considered a taxable
event under GST.
3. Compliance Requirements:

The principal must comply with documentation and reporting requirements like
issuing challans, maintaining records of goods sent to the job worker, and
ensuring the goods are returned within the specified period.

4. Inter-State Supply Restrictions:

If the goods are sent from one state to a job worker in another state, it is treated
as an inter-state supply, and GST at the applicable rate is required to be paid,
 unless the job worker is registered in the same state as the principal.

5. Treatment of Waste/By-products:

If there are waste or by-products generated during the jobwork process, the
principal may have to account for the GST on the sale of such waste or by-
products, as it would be considered a taxable supply.

* Conclusion

Jobwork under GST allows principals to outsource processing or manufacturing

work, while retaining ownership of goods and benefiting from ITC and the flexibility of
time frames for returning goods. However, the principal must adhere to certain time
limits for the return of goods and ensure compliance with the necessary
documentation and registration requirements. Non-compliance can lead to tax
implications for both the principal and the job worker.