The composition scheme is provided under section 10 of the CGST Act. The relevant sections are as under:-
“10. Composition levy.— (1) Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (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) of section 9, an amount calculated at such rate]18 as may be prescribed, but not exceeding,––
(a) one per cent. of the turnover in State or turnover in Union territory in case of a manufacturer,
(b) two and a half per cent. of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and
(c) half per cent. of the turnover in State or turnover in Union territory in case of other suppliers, subject to such conditions and restrictions as may be prescribed:
Provided that the Government may, by notification, increase the said limit of fifty lakh rupees to such higher amount, not exceeding [one crore and fifty lakh rupees], as may be recommended by the Council:
[Provided further that a person who opts to pay tax under clause (a) or clause (b) or clause (c) may supply services (other than those referred to in clause (b) of paragraph 6 of Schedule II), of value not exceeding ten per cent. of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher].
[Explanation.––For the purposes of second proviso, the value of exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount shall not be taken into account for determining the value of turnover in a State or Union territory].
(2) The registered person shall be eligible to opt under sub-section (1), if:—
(a) [save as provided in sub-section (1), he is not engaged in the supply of services;]
(b) he is not engaged in making any supply of goods [or services] which are not leviable to tax under this Act;
(c) he is not engaged in making any inter-State outward supplies of goods [or services];
(d) he is not engaged in making any supply of goods [or services] through an electronic commerce operator who is required to collect tax at source under section 52;
(e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the [Council ;and]
(f) [he is neither a casual taxable person nor a non-resident taxable person:]
Provided that where more than one registered persons are having the same Permanent Account Number (issued under the Income-tax Act, 1961), the registered person shall not be eligible to opt for the scheme under sub-section (1) unless all such
registered persons opt to pay tax under that sub-section.”
Normally, the composition scheme relating to goods is not eligible, if the tax payer is also engaged in services. As per section 10(2)(a) exclusion is given, if the service turnover is within the limit mentioned in section 10(1).
In second proviso to section 10(1), the service turnover of Rs.5 lakhs or 10% of the turnover, whichever is higher is allowed.
Therefore, the service turnover as per the limitation given in above proviso becomes part of the composition turnover.
As per section 10(1)(c) half percent (total 1%) is payable on the turnover in State. The term “turnover in State” is defined in section 2(112) of CGST Act which reads as under:-
“(112) ―turnover in State‖ or ―turnover in Union territory‖ means the aggregate
value of all taxable supplies (excluding the value of inward supplies on which tax is
payable by a person on reverse charge basis) and exempt supplies made within a State or Union territory by a taxable person, exports of goods or services or both and inter-
State supplies of goods or services or both made from the State or Union territory by the
said taxable person but excludes central tax, State tax, Union territory tax, integrated tax
and cess;”.
As per above definition, the turnover in State will be the aggregate value of all taxable supplies. The term ‘supply’ is defined in section 7 of the CGST Act which reads as under:-
“7. Scope of supply.— (1) For the purposes of this Act, the expression ‘supply’ includes––
(a) all forms of supply of goods or services or both such as sale, transfer, barter,
exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;”
Thus, both supply of goods or services are covered in the term ‘supply’. Therefore, the turnover in State will be of goods and services both. Section 10(1)(c) requires payment of composition @1% on such turnover in State. Therefore, on service portion involved in composition turnover, the tax will be payable at 1%.
It can also be seen that there is no separate scheme for payment of tax on service portion separately by an eligible composition tax payer. Therefore, it should be part of the composition turnover and tax should be paid accordingly at 1%.