Key Highlights of Circular No. 77/51/2018

2025-03-03 08:58:35 02March

02March

Key Highlights of Circular No. 77/51/2018 - GST

<h2>1. Background: Understanding Rule 6 of CGST Rules</h2><ul><li>Rule 6 of CGST Rules governs the validity of the Composition Scheme and provides for both voluntary withdrawal and forced denial by tax authorities.</li><li>A composition taxpayer must remain compliant with Section 10 of the CGST Act to continue availing the scheme.</li><li>Two ways a taxpayer can exit the Composition Scheme: 1️⃣ Voluntary Withdrawal – When a taxpayer opts out of the scheme. 2️⃣ Denial by Tax Authorities – When the tax department finds the taxpayer ineligible.</li></ul><hr><h2>2. Effective Date for Withdrawal by Taxpayer</h2>✅ If a taxpayer voluntarily exits the Composition Scheme, the withdrawal will take effect:<ul><li>From the date mentioned in FORM GST CMP-04 (application for withdrawal).</li><li>This date cannot be before the start of the financial year in which the application is filed.</li><li>If a taxpayer is later found to have violated Composition Scheme rules, authorities can demand tax, interest, and penalties for past violations.</li></ul><hr><h2>3. Denial of Composition Scheme by Tax Authorities</h2>✅ If tax authorities find that a taxpayer has contravened the rules of the Composition Scheme, they will:<ul><li>Issue a show cause notice (GST CMP-05).</li><li>Allow the taxpayer to reply (GST CMP-06).</li><li>Pass an order (GST CMP-07) rejecting the Composition Scheme.</li></ul>✅ Effective date of denial:<ul><li>The tax officer can set an effective date retrospectively, but not before the date of actual contravention.</li><li>From the date of contravention until the denial order, tax, interest, and penalty will be assessed under Section 73 or 74 of CGST Act.</li></ul><hr><h2>4. Tax Implications After Denial of Composition Scheme</h2>? From the date of issue of the denial order (GST CMP-07):<ul><li>The taxpayer must start paying tax under the regular scheme (as per Section 9 of CGST Act).</li><li>They can claim ITC (Input Tax Credit) on stock and capital goods held immediately before the denial date, as per Section 18(1)(c) of CGST Act.</li></ul><hr><h2>5. Compliance Actions Required</h2>? If voluntarily exiting:<ul><li>File FORM GST CMP-04 on the GST portal.</li><li>Start issuing regular tax invoices from the withdrawal date.</li></ul>? If denied by tax authorities:<ul><li>Pay tax, interest, and penalty for the entire period of contravention.</li><li>Start filing regular GST returns (GSTR-1 & GSTR-3B) instead of composition returns (GSTR-4).</li><li>Claim eligible Input Tax Credit (ITC) on stock and capital goods before the transition.</li></ul><hr><h2>6. Trade Notices & Implementation</h2><ul><li>CBIC has directed tax authorities to issue trade notices to ensure taxpayers understand these clarifications.</li><li>Any challenges in implementation should be reported to CBIC.<a href="https://cms.plasament.com/storage/shubham-pathak/circular-no-77.pdf">circular-no-77</a>  </li></ul>