Facts of the Case:

In this case, the appellants had opted for the composition scheme under Section 10(1) of the TSGST Act, 2017. During the relevant period, the prescribed aggregate turnover threshold for continuation under the composition scheme was ₹1.50 crore.

During audit, the Department compared the turnover appearing in the e-way bills generated by the appellants with the turnover declared in their FORM GST CMP-08 statements. For FY 2020–21, the e-way bills reflected turnover of ₹1,95,53,800, whereas the turnover declared in CMP-08 was ₹1,44,86,100. The Department accordingly concluded that the appellants had exceeded the composition-scheme threshold by ₹50,67,700 and had thereby ceased to be eligible for the composition scheme.

Based on the audit objection, show-cause notices were issued proposing differential tax. Although tax was initially proposed at 28%, the adjudicating authority ultimately confirmed the demand at the applicable 5% rate, along with interest under Section 50(1) and penalty under Section 73. The First Appellate Authority upheld the adjudication order, prompting the appellants to approach the GSTAT.

The appellants contended that the excess turnover had occurred inadvertently and without any deliberate intention to violate the composition provisions. They submitted that their business operations had been adversely affected by the COVID-19 pandemic, which impaired their ability to properly monitor their business affairs and tax compliances. They claimed to have acted under a bona fide belief that they continued to be eligible for the composition scheme.

The Department, on the other hand, contended that once the prescribed turnover threshold was exceeded, the composition option ceased to operate and the appellants became liable to tax under the regular scheme. The Department sought confirmation of additional tax liability of ₹1,27,250 for FY 2020–21 and ₹6,43,856 for FY 2021–22, after accounting for errors in the e-way bills.

Issue:

Whether the appellants, having exceeded the prescribed aggregate turnover threshold of ₹1.50 crore, automatically ceased to be eligible for the composition scheme under Section 10(3) of the TSGST Act and became liable to pay tax under the regular scheme from the date of such cessation.

Held That:

The GSTAT held that crossing the prescribed turnover threshold automatically results in cessation of the composition scheme. Section 10(3) expressly provides that the option exercised under the composition scheme lapses from the day on which the aggregate turnover exceeds the prescribed limit. Therefore, once the appellants crossed the ₹1.50 crore threshold, they ceased to be entitled to the composition benefit from the date on which the threshold was crossed and became liable to pay tax under the regular scheme under Section 9(1).

The Tribunal further held that the liability to regular-rate tax was not to be imposed indiscriminately on the entire turnover of the financial year. The differential liability was required to be determined in respect of supplies made on and after the date on which the composition option lapsed, after giving appropriate adjustment for tax already paid under the composition scheme.

However, while upholding the Department’s basic finding regarding cessation of the composition scheme, the Tribunal granted the appellants significant relief on valuation of the differential tax. It noted that under Section 10(4), a composition taxpayer cannot collect tax separately from the recipient. Consequently, the consideration reflected in the invoices represented the total amount received from customers, without a separately identifiable GST component.

The GSTAT therefore held that the invoice value had to be treated as cum-tax value, particularly since the Department had not alleged that the appellants had actually collected GST over and above the invoice value. The differential GST was consequently required to be calculated by applying the formula prescribed under Rule 35, rather than simply applying the applicable tax rate to the entire invoice value.

Importantly, the Tribunal held that the appellants were entitled to the benefit of Rule 35 even though they had not specifically claimed it before the Tribunal or the lower authorities. The omission to claim a statutory benefit could not justify collection of tax in excess of the amount legally payable. The Tribunal reiterated the principle that tax authorities are required to collect “no less and also no more” than the tax legally due.

The GSTAT therefore upheld the order of the First Appellate Authority in principle, but modified it to the limited extent that the appellants were entitled to the cum-tax benefit under Rule 35. The proper officer was directed to recompute the tax liability for the supplies made after the lapse of the composition scheme and thereafter recompute the consequential interest and penalty.

Case Name: SRI PARAMESHWARA BRICKS v. STATE TAX OFFICER, O/O STATE TAX OFFICER PEDDAPALLI CIRCLE KARIMNAGAR DIVISION TELANGANA, STATE TAX OFFICER PEDDAPALLI CIRCLE & ORS. dated 20.08.2026

Citation No. 2026 Taxo.online 2521