GST INSIGHT
Composition Scheme Lapse and Cum-Tax Benefit under Rule 35
Sri Parameshwara Bricks v. State Tax Officer & Ors. GSTAT, Hyderabad – Division Bench
Appeal Nos.: APL/126/HYD/2026 & APL/26/HYD/2026
BACKGROUND
• The appellant, a manufacturer and supplier of red clay bricks, was availing the benefit of the Composition Scheme under Section 10(1) of the CGST/TSGST Act.
• During audit, the Department compared turnover in e-way bills with that declared in FORM GST CMP-08 and found that the aggregate turnover had exceeded the prescribed threshold of ₹1.50 crore.
• The Department denied the benefit of the Composition Scheme and raised a demand for GST at the regular rate along with interest and penalty.
KEY ISSUE
Whether, after crossing the prescribed turnover threshold, the taxpayer is liable to pay GST under the regular scheme and whether the value of supplies should be treated as inclusive of GST for computing the differential tax liability under Rule 35 of the CGST/TSGST Rules.
FINAL DECISION
The GSTAT upheld the denial of the Composition Scheme after the turnover threshold was crossed, but modified the order to grant the benefit of cum-tax valuation under Rule 35.
The proper officer was directed to:
- Recompute GST only on supplies made on and after the date of lapse of the Composition Scheme;
- Treat the declared value as inclusive of tax;
- Apply the formula prescribed under Rule 35; and
- Recalculate the consequential interest and penalty based on the revised tax liability.
TRIBUNAL’S FINDINGS
1. Composition Scheme Lapses Automatically
Under Section 10(3), the option to pay tax under the Composition Scheme lapses from the day the aggregate turnover exceeds the prescribed threshold. The taxpayer becomes liable to pay GST under the regular scheme on supplies made from the date of lapse.
2. Cum-Tax Benefit under Rule 35 Must Be Granted
A composition taxpayer cannot collect GST separately. As there was no allegation that GST was collected over and above the invoice value, the declared value must be treated as inclusive of tax and the differential tax liability computed by applying the cum-tax formula prescribed under Rule 35.
3. Statutory Benefit Cannot Be Denied for Want of Claim
Even though the taxpayer had not specifically claimed the benefit of Rule 35, the Tribunal held that such benefit cannot be denied when the relevant facts are already on record. Authorities must determine and collect only the tax legally payable—neither more nor less.
4. Interest and Penalty to Be Recomputed
Consequential liability towards interest and penalty is to be recomputed based on the revised tax liability after allowing cum-tax benefit.
5. ITC Issue Left Open
The Tribunal observed that eligibility to claim ITC may arise after cessation from the Composition Scheme, subject to statutory conditions. However, as no specific claim was made, the issue was left open without expressing any opinion.
CORE LEGAL PRINCIPLE
“ Once the aggregate turnover exceeds the prescribed Composition Scheme threshold, the option lapses automatically from the date of such excess. However, where a composition taxpayer has not collected GST separately, the sale consideration must be treated as cum-tax for determining the regular GST liability under Rule 35. A statutory benefit available on the admitted facts cannot be denied merely because the taxpayer did not specifically claim it. ”
GSTCORNOR® TAKEAWAY
Crossing the Composition Scheme threshold does not justify computing GST on supplies as if tax were charged separately. Regular tax liability arises from the date of lapse, and where the consideration is inclusive of tax, the benefit of cum-tax valuation under Rule 35 must be considered for arriving at the correct tax liability.
Radhika Goyal is Author of Taxconcept Gurugram head office, for deeply reported tax, gst and income tax articles on issues that matter. He splits her time between New Delhi and Bengaluru, and has worked as a reporter, a podcaster and an editor for publications across India.