Case Details
Case: Sri Parameshwara Bricks v. State Tax Officer, O/o State Tax Officer, Peddapalli Circle, Karimnagar Division, Telangana & Ors.
Forum: Goods and Services Tax Appellate Tribunal, Hyderabad, Division Bench, Court II
Appeal Nos.: APL/126/HYD/2026 and APL/26/HYD/2026
Common Order Nos.: 001/HYD/2026 and 002/HYD/2026
Bench: Hon’ble A P Ravi, Member (Judicial) and Hon’ble Duvvuri Krishna Srinivas, Member (Technical)
Date of Hearing: 13 August 2026
Date of Pronouncement: 17 August 2026
Order Dated: 20 August 2026
Background
The appellant was engaged in manufacturing and supplying red clay bricks and had opted for the composition scheme under Section 10(1) of the Telangana GST Act, 2017. It discharged tax at the composition rate of 1%, subject to the prescribed aggregate turnover limit of ₹1.50 crore.
During an audit, the authorities compared the turnover appearing in the appellant’s e-way bills with the turnover declared in FORM GST CMP-08. For the financial year 2020-21, the e-way bills reflected aggregate turnover of ₹1,95,53,800, whereas turnover of ₹1,44,86,100 was declared in FORM GST CMP-08. The Department consequently alleged that the appellant had crossed the statutory threshold and was no longer eligible for the composition scheme.
Proceedings were initiated under Section 73. Although the show-cause notices initially proposed tax at 28%, the adjudicating authority applied the relevant rate of 5%, along with interest under Section 50(1) and a penalty equivalent to 10% of the tax. The First Appellate Authority upheld the demands, following which the appellant approached the GST Appellate Tribunal for the financial years 2020-21 and 2021-22.
Issue Before the Tribunal
The principal issue was whether the appellant could continue under the composition scheme after its aggregate turnover exceeded ₹1.50 crore and whether the differential tax had been correctly calculated without extending the benefit of cum-tax valuation under Rule 35 of the GST Rules.
GSTAT’s Findings
The GSTAT held that Section 10(3) is unambiguous. The composition option lapses automatically from the date on which the registered person’s aggregate turnover exceeds the prescribed limit. Accordingly, the appellant became liable to pay tax at the applicable regular rate on supplies made from the date of crossing the threshold.
Under Rule 6(2), a person who ceases to satisfy the conditions of Section 10 must pay tax under Section 9(1), issue tax invoices for subsequent taxable supplies and intimate withdrawal from the composition scheme in FORM GST CMP-04 within seven days.
The Tribunal, therefore, upheld the finding that the appellant was not entitled to continue under the composition scheme after crossing the ₹1.50 crore turnover threshold.
Cum-Tax Benefit Under Rule 35
The GSTAT nevertheless found that the differential tax required fresh computation. Section 10(4) prohibits a composition taxpayer from collecting tax separately from customers. The Department had also not alleged that the appellant had collected GST over and above the invoice value.
Consequently, the amounts shown in the invoices represented the total consideration received and had to be treated as inclusive of GST. The tax component was required to be determined by applying the cum-tax formula prescribed under Rule 35.
The Tribunal clarified that tax cannot be calculated again on a value that already includes the tax component. It further held that the appellant’s failure to specifically claim Rule 35 relief before the lower authorities or the Tribunal could not deprive it of a statutory benefit available under the law.
Relying on the Supreme Court’s decision in Unichem Laboratories Limited v. Collector of Central Excise, Bombay, the GSTAT reiterated that the authorities must collect the amount legally payable—neither less nor more.
Direction of the GSTAT
The proper officer was directed to recompute the differential tax liability only on supplies made on and after the date on which the composition option lapsed. The declared value must be treated as cum-tax, and the formula prescribed under Rule 35 must be applied.
The revised computation was directed to be completed and communicated to the appellant within two weeks from the date of the order. The consequential interest and penalty must also be recalculated on the basis of the revised tax liability.
The Tribunal left the question of input tax credit open. It observed that any entitlement to ITC after cessation of the composition scheme would be subject to compliance with Section 16 and the applicable Rules and would not arise automatically.
Conclusion
The GSTAT upheld the denial of composition-scheme benefits after the appellant crossed the ₹1.50 crore turnover limit. However, it modified the impugned orders by granting cum-tax valuation under Rule 35 and directing fresh computation of tax, interest and penalty.
The appeals were accordingly disposed of with limited relief to the appellant and without any order as to costs.
Key Takeaway
Crossing the prescribed turnover threshold automatically terminates composition-scheme eligibility from the date of the breach. However, where GST was not collected separately from customers, the invoice value must be treated as inclusive of tax, and the benefit of Rule 35 cannot be denied merely because the taxpayer did not specifically claim it.
