2026-VIL-59-GSTAT-HYD
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  2. 2026-VIL-59-GSTAT-HYD

SGST Tribunal

GST - Composition Scheme, Automatic Lapse - Eligibility and Cessation on Exceeding Threshold Turnover - Appellant, a brick manufacturer registered under the composition scheme, was subjected to audit which disclosed a discrepancy between the turnover reflected in e-way bills and the turnover declared in FORM GST CMP-08 statements, showing that the aggregate turnover exceeded the prescribed threshold of Rs.1.50 crore. Upon such excess, the audit authorities proposed that the composition scheme was unavailable and demanded differential tax at the regular rate of 5% for the financial years 2020-21 and 2021-22, which was upheld on first appeal - Whether upon the aggregate turnover of a registered person exceeding the threshold limit of Rs.1.50 crore prescribed under Section 10(3) of the CGST Act, 2017 the option availed for the composition scheme ceases to operate automatically, and the registered person becomes liable to discharge tax at the applicable regular rate instead of the concessional composition rate - HELD - The option availed of by a registered person under Section 10(1) shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under Section 10(1), and this consequence is automatic and operates by force of statute. Upon the aggregate turnover crossing the statutory ceiling prescribed under the Act, the composition levy stands terminated on the occurrence of the disqualifying event, whereby the registered person ceases to remain eligible for the benefit of the composition scheme from the date of such crossing - The expression aggregate turnover bears the meaning assigned under Section 2(6) of the Act, computed on an all-India basis. The consequence flowing from Section 10(3) is automatic and the composition levy terminates immediately upon the turnover exceeding the prescribed threshold. Upon such cessation, the registered person becomes liable to discharge tax at the applicable regular rate on all supplies made on and after the date of such lapse, subject to due credit and adjustment of any composition tax already paid - The impugned order is upheld with limited modification - GST - Composition Scheme - Computation of Differential Tax - Cum-tax Valuation under Rule 35 - Where value of supply is inclusive of tax - Upon cessation of the composition scheme due to exceeding the turnover threshold, the tax authorities computed the differential tax on the entire value declared in invoices without applying the cum-tax principle - Whether the differential tax liability should be computed applying the cum-tax valuation formula prescribed under Rule 35, treating the invoice value as inclusive of tax, when a composition scheme taxpayer who was prohibited from collecting tax separately exceeds the threshold limit and becomes liable to discharge tax at the regular rate - HELD - A person opting for the composition scheme is prohibited from collecting tax from recipients and cannot claim input tax credit; invoices issued must reflect the total consideration received without any separately identifiable tax component, meaning the value must be treated as inclusive of tax. Rule 35 prescribes the methodology for determining tax amount where the value of supply is inclusive of tax. Since the Department has not alleged that the appellants collected any tax over and above the invoice value, the value declared in invoices must be treated as inclusive of tax and the tax component must be worked out in accordance with the formula prescribed under Rule 35 - The appellants are entitled to the benefit of Rule 35 even though they did not specifically claim it, as they cannot be deprived of the benefit available to them in law. The proper officer is directed to recompute the differential tax liability on the supplies made on and after the date of lapse of the composition option by treating the declared value as cum-tax and by applying the formula prescribed under Rule 35, with consequential liability towards interest and penalty recalculated on the basis of the revised tax liability - The impugned order is modified to the extent that the appellants shall be entitled to the benefit of cum-tax valuation in terms of Rule 35 and the tax liability shall be recomputed accordingly.
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