SECTION 10 OF GST ACT – COMPOSITION LEVY (LLB EXAM NOTES)

Section 10 of the GST Act provides a Composition Scheme for small taxpayers to reduce their tax burden and compliance requirements.

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1. Statutory Provision

Section 10 is contained in the Central Goods and Services Tax Act, 2017.

👉 It is an optional scheme.
👉 Taxpayer may choose normal GST or composition scheme.

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2. Meaning of Composition Scheme

The Composition Scheme allows eligible small taxpayers to:

• Pay GST at a fixed lower rate
• File fewer returns
• Maintain less records

But in return, they:

• Cannot collect GST from customers
• Cannot claim Input Tax Credit (ITC)

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3. Section 10(1) – Who Can Opt for Composition Scheme

A registered person can opt for composition levy if:

Conditions

1. Aggregate turnover in preceding financial year:
   • Up to ₹1.5 crore
   • ₹75 lakh for special category states
2. He is:
   • Manufacturer (except notified goods)
   • Trader
   • Restaurant service provider (not serving alcohol)

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4. Persons NOT Eligible – Section 10(2)

A person cannot opt for composition scheme if he:

1. Makes inter-State outward supply
2. Supplies goods through e-commerce operator liable to collect TCS
3. Manufactures notified goods (ice cream, pan masala, tobacco)
4. Is a casual taxable person
5. Is a non-resident taxable person

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5. Tax Rates under Composition Scheme

Category	Rate
Manufacturer	1% (0.5% CGST + 0.5% SGST)
Trader	1%
Restaurant (no alcohol)	5%
Service provider (Sec 10(2A))	6%

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6. Section 10(2A) – Composition for Service Providers

Introduced later.

✔ Service providers with turnover up to ₹50 lakh
✔ Can opt for composition
✔ Tax rate: 6%

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7. Important Conditions – Section 10(4)

A composition taxpayer:

• ❌ Cannot collect GST from customer
• ❌ Cannot issue tax invoice
• ❌ Cannot claim ITC
• ✔ Must issue Bill of Supply
• ✔ Must mention:

  “Composition taxable person, not eligible to collect tax”

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8. Advantages of Composition Scheme

• Simple compliance
• Lower tax rate
• Less paperwork
• Suitable for small businesses

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9. Disadvantages

• No ITC
• Cannot do inter-State supply
• Not suitable for B2B business
• Cannot sell through e-commerce

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PROBLEM-BASED QUESTIONS (VERY IMPORTANT FOR LLB EXAMS)

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Problem 1

A trader has turnover of ₹1.20 crore and supplies goods only within the state.
Can he opt for composition scheme?

Answer:
Yes.
Under Section 10(1), turnover is below ₹1.5 crore and supplies are intra-State.
Hence, eligible.

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Problem 2

XYZ Ltd is a manufacturer of ice-cream with turnover ₹80 lakh.
Can it opt for composition levy?

Answer:
No.
Manufacturers of notified goods like ice-cream are barred under Section 10(2), irrespective of turnover.

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Problem 3

A composition dealer collects GST separately from customers.
Is it valid?

Answer:
No.
As per Section 10(4), a composition dealer cannot collect tax.
Such act leads to penalty and cancellation of scheme.

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Problem 4

A composition dealer supplies goods from Delhi to Haryana.
What will be the effect?

Answer:
Inter-State outward supply is prohibited under Section 10(2).
Composition scheme will be cancelled, and normal GST will apply.

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Problem 5

A service provider has turnover of ₹45 lakh.
Can he opt for composition scheme?

Answer:
Yes.
Under Section 10(2A), service providers up to ₹50 lakh can opt for composition and pay 6% GST.

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Problem 6

A composition dealer issues a tax invoice and claims ITC.
Is it allowed?

Answer:
No.
Composition dealer must issue Bill of Supply and cannot claim ITC.

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IMPORTANT CASE LAWS ON SECTION 10

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1. Suresh Traders v. State of UP

Issue:
Violation of conditions of composition scheme.

Held:
If a dealer violates Section 10 conditions, the benefit of composition scheme can be withdrawn.

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2. Bharti Airtel Ltd v. Union of India

Relevance:
Though not directly on Section 10, the Supreme Court emphasized that GST benefits depend strictly on statutory compliance.

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3. Panchvati Motors v. Union of India

Held:
Composition scheme is a concession, not a right.
Strict compliance of Section 10 conditions is mandatory.

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10. Examiner-Oriented Notes

Examiners usually ask:

• Explain composition scheme under GST
• Who can opt and who cannot
• Problem-based questions on inter-State supply
• Difference between normal scheme and composition scheme

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11. Difference: Normal GST vs Composition Scheme

Basis	Normal Scheme	Composition Scheme
Tax rate	Regular	Lower
ITC	Allowed	Not allowed
Invoice	Tax invoice	Bill of supply
Inter-State supply	Allowed	Not allowed

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12. Conclusion (For 15–20 Marks Answer)

Section 10 of the GST Act is a beneficial provision for small taxpayers, aimed at reducing compliance burden. However, it comes with strict conditions, and any violation leads to loss of benefit and penalties. Therefore, a taxpayer must carefully evaluate eligibility before opting for the composition scheme.

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