CBIC clarifies issue of denial of composition option by tax authorities and effective date thereof

Circular No.ES/335 /2018-19                                                             January 05, 2019

To: Members of the Council

Sub.: CBIC clarifies issue of denial of composition option by tax authorities and effective date thereof

Dear Member,

We would like to inform you that the Central Board of Indirect Taxes and Customs (CBIC) has issued Circular No.77/51/2018-GST dated 31st December, 2018 clarifying the issue of denial of composition option by tax authorities and effective date thereof.

As you are aware, Rule 6 of the CGST Rules, 2017 deals with the validity of the composition levy. Accordingly, 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 the CGST Act, 2017 and the CGST Rules, 2017. 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.

In this connection, CBIC has received doubts on the following –

  • 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.

  • 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.

  • Clarification 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 has clarified that the effective date shall be the date indicated by the taxpayer 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. Also, if at any stage it is found that the taxpayer 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. Further, CBIC has clarified that 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

For further clarification on the issue members may refer to Circular No.77/51/2018-GST dated 31st December, 2018.

Thanking you,

Yours faithfully,

S. BALARAJU
EXECUTIVE DIRECTOR