Central Tax Circulars

CGST Circular 77/2018

To,

The Principal Chief Commissioners/Chief Commissioners/Principal Commissioners/
Commissioners of Central Tax (All)

The Principal Directors General/Directors General (All)

Madam/Sir,

Subject: Denial of composition option by tax authorities and effective
date thereof – Reg.

1) Rule 6 of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as
the “CGST Rules”) deals with the validity of the composition levy. As per the
said rule, the option exercised by a registered person to pay tax under the
composition scheme shall remain valid so long as he satisfies the conditions
mentioned in section 10 of the Central Goods and Services Tax Act, 2017
(hereinafter referred to as the “CGST Act”) and the CGST Rules. The rule lays
down the procedure for withdrawal from the composition scheme by a taxpayer who
intends to withdraw from the said scheme and also the procedure for denial of
option to the taxpayer to pay tax under the said scheme where he has
contravened the provisions of the CGST Act or the CGST Rules.

2) In this connection, doubts have been raised as to the date from which
withdrawal
from the composition scheme shall take effect in a case where the composition
taxpayer has exercised such option to withdraw. Doubts have also been raised
regarding the effective date of denial of the option to pay tax under the
composition scheme where action has been initiated by the tax authorities to
deny such option to the composition taxpayer. Further, clarification has been
sought regarding the follow up action to be taken by the tax authorities when
the composition option is denied to the taxpayer retrospectively. In order to
clarify these issues and to ensure uniformity in the implementation of the
provisions of the law across field formations, the Board, in exercise of its
powers conferred by section 168 (1) of the CGST Act, hereby clarifies the
issues raised as below.

3) Sub-rule (2) of rule 6 of the CGST Rules provides that the composition
taxpayer shall
pay tax under sub-section (1) of section 9 of the CGST Act as a normal taxpayer
from the day he ceases to satisfy any of the conditions of the composition
scheme and shall issue tax invoice for every taxable supply made thereafter.
Sub-rule (3) of rule 6 of the CGST Rules provides that the registered person
who intends to withdraw from the composition scheme shall, before the date of
such withdrawal, file an application in FORM GST CMP-04 on the common portal.
He shall file intimation for withdrawal from the scheme in FORM GST CMP-04
within seven days of the occurrence of such event.

4) As per sub-rule (4) of rule 6 of the CGST Rules, where the proper officer
has reasons
to believe that the registered person was not eligible to pay tax under section
10 of the CGST Act or has contravened the provisions of the CGST Act or the
CGST Rules, he may issue a notice to such person in FORM GST CMP-05 to show
cause as to why the option to pay tax under section 10 of the CGST Act shall
not be denied. Upon receipt of the reply to the show cause notice from the
registered person in FORM GST CMP-06, the proper officer shall, in accordance
with the provisions of sub-rule (5) of rule 6 of the CGST Rules, issue an order
in FORM GST CMP-07 within a period of thirty days of the receipt of such reply,
either accepting the reply, or denying the option to pay tax under section 10
of the CGST Act from the date of the option or from the date of the event
concerning such contravention, as the case may be.

5) It is clarified that in a case where the taxpayer has sought withdrawal
from the
composition scheme, the effective date shall be the date indicated by him in
his intimation/application filed in FORM GST CMP-04 but such date may not be
prior to the commencement of the financial year in which such
intimation/application for withdrawal is being filed. If at any stage it is
found that he has contravened any of the provisions of the CGST Act or the CGST
Rules, action may be initiated for recovery of tax, interest and penalty. In
case of denial of option by the tax authorities, the effective date of such
denial shall be from a date, including any retrospective date as may be
determined by tax authorities, but shall not be prior to the date of
contravention of the provisions of the CGST Act or the CGST Rules. In such
cases, as provided under sub-section (5) of section 10 of the CGST Act, the
proceedings would have to be initiated under the provisions of section 73 or
section 74 of the CGST Act for determination of tax, interest and penalty for
the period starting from the date of contravention of provisions till the date
of issue of order in FORM GST CMP-07. It is also clarified that the registered
person shall be liable to pay tax under section 9 of the CGST Act from the date
of issue of the order in FORM GST CMP-07.

Provisions of section 18(1)(c) of the CGST Act shall apply for claiming credit
on inputs held in stock, inputs contained in semi-finished or finished goods
held in stock and on capital goods on the date immediately preceding the date
of issue of the order.

6) It is requested that suitable trade notices may be issued to publicize the
contents of
this circular.

7) Difficulties, if any, faced in implementation of the above instructions
may be brought
to the notice of the Board at an early date. Hindi version would follow.