Parameshwara Bricks Vs State Tax Officer (GSTAT Hyderabad)
Composition option lapses automatically on crossing the threshold but differential tax must be computed on cum-tax basis under Rule 35
Summary: The GST Appellate Tribunal, Hyderabad Bench, in Sri Parameshwara Bricks v. State Tax Officer & Ors., considered whether a manufacturer of red clay bricks could continue under the GST composition scheme after its aggregate turnover exceeded the prescribed threshold of ₹1.50 crore. The dispute covered financial years 2020-21 and 2021-22 and arose from discrepancies between turnover reflected in e-way bills and turnover declared in FORM GST CMP-08. The adjudicating authority confirmed differential tax of ₹1,27,250 for FY 2020-21 and ₹6,43,856 for FY 2021-22, together with interest and penalty. The First Appellate Authority upheld the demands. Before GSTAT, the taxpayer argued that the turnover breach resulted from pandemic-related disruption, inadvertence and bona fide belief that the composition option remained available. The Tribunal held that the composition option lapses automatically under Section 10(3) once aggregate turnover exceeds the statutory limit. Consequently, the taxpayer becomes liable to pay GST at the regular rate on supplies made on and after the date of lapse. Neither inadvertence nor bona fide belief can prevent this statutory consequence. However, the Tribunal granted relief regarding computation of the differential tax. Since Section 10(4) prohibits composition taxpayers from collecting GST separately, the Tribunal held that the consideration reflected in their invoices should be treated as tax-inclusive where no additional GST was collected. Accordingly, the differential tax must be recalculated under Rule 35 of the CGST Rules using the cum-tax formula. Relying on Unichem Laboratories Ltd. v. Collector of Central Excise, the Tribunal held that a lawful statutory benefit cannot be denied merely because the taxpayer failed to claim it. The appeals were disposed of with directions to recompute tax, interest and penalty, while leaving the question of transitional input tax credit open.
Facts
M/s. Sri Parameshwara Bricks (“the Appellant”) is engaged in the manufacture and supply of red clay bricks and was registered under the composition scheme under Section 10(1) of the Telangana Goods and Services Tax Act, 2017 (“the TGST Act”) read with the CGST Act, discharging tax at the concessional composition rate of 1% on its supplies. The prescribed aggregate turnover threshold for the composition scheme was Rs. 1.50 crore.
The Appellant was subjected to audit by the jurisdictional Audit Officers, who compared the turnover reflected in the e-way bills generated by the Appellant with the turnover declared in FORM GST CMP-08. For FY 2020-21, the e-way bill turnover stood at Rs. 1,95,53,800/- as against a declared turnover of Rs. 1,44,86,100/-. Placing reliance on Section 10(3) of the TGST Act, the audit authorities concluded that the Appellant had crossed the threshold of Rs. 1.50 crore and had consequently ceased to be eligible for the composition scheme for FY 2020-21 and FY 2021-22, and that the differential turnover of Rs. 50,67,700/- (being the e-way bill turnover in excess of Rs. 1.50 crore) had escaped assessment at the applicable normal rate.
Show Cause Notices were issued proposing recovery of differential tax for both the years, computed at 28% (14% CGST and 14% SGST) instead of the applicable rate of 5%. On adjudication under Section 73 of the TGST Act, the proper officer restricted the demand to the applicable rate of 5%, after excluding the excess turnover attributable to typographical errors in certain e-way bills, and confirmed differential tax of Rs. 1,27,250/- for FY 2020-21 and Rs. 6,43,856/- for FY 2021-22, along with interest under Section 50(1) and penalty at 10% of the tax under Section 73. The First Appellate Authority upheld the adjudication order and dismissed the appeals (“the Impugned Order”).
Before the Tribunal, the Appellant contended that the excess over the threshold occurred inadvertently and without any deliberate or conscious intent, as its business operations were adversely affected by the COVID-19 pandemic, on account of which it was unable to properly monitor its turnover and the consequential tax compliances. It was further contended that the Appellant acted under a bona fide and reasonable belief that it continued to be eligible for the composition scheme, and had neither suppressed any material particulars nor acted with any mala fide intention. The Appellant sought setting aside of the Impugned Order, restoration of the composition benefit, annulment of the demand of tax, interest and penalty, and refund of the pre-deposit.
The Revenue, relying on the cross-objections filed in both the appeals, contended that the voluntary payments made by the Appellant were computed at the composition rate and fell substantially short of the tax actually payable at the regular rate upon the threshold being crossed, and that the demand had been determined after duly allowing for the errors appearing in the e-way bills.
Issues
- Whether the option availed under the composition scheme lapses automatically upon the aggregate turnover exceeding the prescribed threshold of Rs. 1.50 crore, rendering the Appellant liable to discharge tax at the regular rate notwithstanding its plea of inadvertence and bona fide belief?
- Whether the differential tax on supplies made after the lapse of the composition option is to be computed on the entire value declared in the invoices or on a cum-tax basis by applying Rule 35 of the CGST Rules, when the Appellant had not claimed such benefit before any authority?
Held
The GSTAT, Hyderabad Bench in Common Order Nos. 001/HYD/2026 & 002/HYD/2026 held as under:
- Observed that, it was an admitted position that the Appellant had exceeded the prescribed threshold of aggregate turnover in both the financial years. A plain reading of Section 10(3) makes it abundantly clear that the option exercised under the composition scheme ceases to operate from the day on which the aggregate turnover during a financial year exceeds Rs. 1.50 crore, whereupon the registered person becomes liable to discharge tax at the applicable rate under the regular scheme. The consequence flowing from Section 10(3) is automatic and operates by force of statute; the composition levy stands terminated on the occurrence of the disqualifying event.
- Noted that, Rule 6(2) of the CGST Rules statutorily delineates the consequence of such cessation, namely, that the person becomes liable to pay tax under Section 9(1) from the day he ceases to satisfy the conditions of Section 10, must issue a tax invoice for every taxable supply made thereafter, and must file an intimation of withdrawal in FORM GST CMP-04 within seven days of the occurrence of such event. The expression “aggregate turnover” bears the meaning assigned under Section 2(6), computed on an all-India basis for persons having the same PAN. The Appellant was accordingly liable at the regular rate on all supplies made on and after the date of lapse, subject to due credit and adjustment of the composition tax already paid on such post-lapse turnover.
- Noted that, the Department had duly considered the Appellant’s contention regarding typographical errors in certain e-way bills and had excluded the turnover attributable thereto while determining the demand. In the absence of any further submissions beyond those on record, no sufficient ground existed to interfere with the figures determined in the Impugned Order or with the findings of the adjudicating authority.
- Observed that, although no argument was advanced on the method of computation of the differential tax, Section 10(4) prohibits a composition taxpayer from collecting any tax from the recipient and from availing input tax credit. The Appellant could not, therefore, have collected GST separately or shown any GST component in its invoices, which must be understood as reflecting the total consideration received from the recipients without any separately identifiable tax component.
- Held that, the case falls squarely within Rule 35 of the CGST Rules. Since the Appellant was not permitted to collect tax separately, and the Department had not alleged that any tax was collected over and above the invoice value, the value declared in the invoices must be treated as inclusive of tax and the tax component worked out in accordance with the formula prescribed under Rule 35. Tax cannot be calculated on an amount which already includes the tax component.
- Held that, the Appellant’s omission to claim the benefit of Rule 35, whether before the Tribunal or the authorities below, cannot disentitle it from receiving a benefit available under the Act and the Rules, particularly when the relevant facts are already on record. Relying on the judgment of the Hon’ble Supreme Court in Unichem Laboratories Ltd. v. Collector of Central Excise, Bombay [2002 (145) E.L.T. 502 (S.C.)], the authorities are duty bound to levy and collect tax in accordance with law – no less and no more – and it is no part of their duty to deprive an assessee of a benefit available in law with a view to augment revenue. Extending the benefit of Rule 35 grants no concession outside the statute; it merely ensures that tax is correctly calculated in accordance with the prescribed rule.
- Held that, the question of the Appellant’s entitlement to input tax credit upon cessation of the composition scheme was left open without expressing any opinion on merits, since such entitlement is neither automatic nor unconditional, is subject to strict compliance with Section 16 and the Rules, the burden lies on the person claiming the credit, and no specific claim was urged by the Appellant.
- Directed that, the proper officer shall recompute the differential tax liability only on the supplies made on and after the date of lapse of the composition option, by treating the declared value as cum-tax and applying the formula prescribed under Rule 35, and communicate the revised computation within two weeks. The consequential liability towards interest and penalty shall be determined afresh on the basis of the revised tax liability. The Impugned Order was accordingly upheld subject to this limited modification, and the appeals were disposed of.
Our Comments
Composition levy and its automatic lapse: Section 10(1) of the CGST Act permits an eligible registered person whose aggregate turnover in the preceding financial year did not exceed Rs. 1.50 crore (Rs. 75 lakh in the specified special category States), as notified vide Notification No. 14/2019-Central Tax dated March 07, 2019, to pay tax at a concessional rate in lieu of the tax payable under Section 9(1), the rate for manufacturers being 1% (0.5% CGST and 0.5% SGST) of the turnover in the State. Section 10(3) provides that the option “shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit”. The lapse is thus not dependent on any order of the proper officer or on the intention or knowledge of the taxpayer; it is a consequence attached by the statute itself to the occurrence of the disqualifying event. Rule 6(2) of the CGST Rules completes the scheme by making the person liable to pay tax under Section 9(1) from the day of cessation, requiring tax invoices to be issued for every taxable supply thereafter and an intimation of withdrawal to be filed in FORM GST CMP-04 within seven days. Section 10(5) further provides that where the proper officer has reasons to believe that a person has paid tax under the composition scheme despite not being eligible, such person is liable to penalty in addition to the tax, and Sections 73 or 74 apply mutatis mutandis for determination of the tax and penalty. The Tribunal’s ruling that inadvertence, pandemic-related disruption or bona fide belief cannot revive a lapsed option is, therefore, a faithful application of the plain language of Section 10(3); a concessional scheme conditioned on a turnover ceiling admits of no equitable extension once the ceiling is breached.
Two aspects of the ruling on the first issue deserve attention. First, the Tribunal was careful to confine the regular-rate liability to supplies made “on and after the date of such lapse”, subject to credit and adjustment of the composition tax already paid on such post-lapse turnover. Supplies made up to the day of crossing the threshold continue to be governed by the composition levy. The Department’s methodology of taxing the e-way bill turnover in excess of Rs. 1.50 crore is, at best, a proxy for this date-wise cut-off, and can be contested where the e-way bill data includes non-supply movements (job work, branch transfers, sales returns, or cancelled and duplicated e-way bills) or where the chronological sequence of supplies does not match the aggregate figure. Second, the Tribunal proceeded on the measure of “aggregate turnover” under Section 2(6), computed on an all-India PAN basis and inclusive of exempt supplies and exports, which is the correct yardstick for the Section 10(3) ceiling; a composition taxpayer cannot exclude exempt or nil-rated turnover, or the turnover of other registrations under the same PAN, while testing the threshold.
Cum-tax valuation under Rule 35: Section 10(4) prohibits a composition taxpayer from collecting any tax from the recipient, and Section 32(2) bars a registered person from collecting tax except in accordance with the Act. The corollary, which the Tribunal has drawn correctly, is that the bill of supply value of a composition taxpayer represents the total consideration realised, and once the supplies are re-characterised as taxable under Section 9(1), that consideration must be treated as inclusive of the tax payable. Rule 35 of the CGST Rules prescribes the mechanism: Tax amount = (Value inclusive of taxes × tax rate in %) / (100 + sum of tax rates in %). On a declared value of Rs. 100 taxable at 5%, the tax works out to Rs. 4.76 and not Rs. 5, and the differential demand, interest and penalty reduce correspondingly. The Tribunal’s direction that this benefit must be extended suo motu, even though it was never pleaded, rests on the principle laid down by the Hon’ble Supreme Court in Unichem Laboratories Ltd. (supra) that the authorities must levy and collect the tax “no less and also no more”, and that it is no part of their duty to deprive an assessee of a benefit available in law in order to augment revenue.
The cum-tax principle has a long lineage in indirect tax jurisprudence. In Commissioner of Central Excise, Delhi v. Maruti Udyog Ltd. [2002 (141) E.L.T. 3 (S.C.)], the Hon’ble Supreme Court held that where the sale price realised is a cum-duty price, the element of excise duty is to be excluded in arriving at the assessable value, since the amount collected from the buyer cannot be regarded as wholly the price of the goods. The Larger Bench of the CESTAT in Srichakra Tyres Ltd. v. Collector of Central Excise, Madras [1999 (108) E.L.T. 361 (Tri.-LB)], affirmed by the Hon’ble Supreme Court [2002 (142) E.L.T. A279 (S.C.)], extended the benefit even where no duty had been charged in the invoices, and the Legislature thereafter codified the principle by inserting the Explanation to Section 4(1) of the Central Excise Act, 1944 with effect from May 14, 2003, deeming the price-cum-duty to include the duty payable. In Amrit Agro Industries Ltd. v. Commissioner of Central Excise, Ghaziabad [2007 (210) E.L.T. 183 (S.C.)], the Hon’ble Supreme Court allowed the cum-duty benefit to an assessee who had cleared goods under the belief that they were exempt – a situation closely analogous to that of a composition taxpayer whose option has lapsed without his knowledge. Under the service tax regime, Section 67(2) of the Finance Act, 1994 embodied the same rule, and the CESTAT in Commissioner of Central Excise, Kolkata v. Advantage Media Consultant [2008 (10) S.T.R. 449 (Tri.-Kolkata)], affirmed by the Hon’ble Supreme Court [2009 (14) S.T.R. J49 (S.C.)], held that the gross amount realised is to be treated as inclusive of service tax where the tax was not separately charged. Rule 35 of the CGST Rules is the GST counterpart of these provisions, and the present ruling is among the first pronouncements of the GST Appellate Tribunal applying it to a composition-lapse demand.
Limits of the benefit: The benefit is not unqualified. Rule 35 is attracted only “where the value of supply is inclusive of” tax; where the Department establishes that the supplier in fact collected tax over and above the invoice value, the value is not cum-tax and the benefit is unavailable – indeed, any amount collected as representing tax by a person not entitled to collect it becomes recoverable under Section 76 of the CGST Act, irrespective of whether the supply was taxable. Certain benches of the CESTAT have also declined the cum-duty benefit in cases of clandestine removal, reasoning that a person who never intended to discharge duty cannot be presumed to have built it into his price; however, the weight of authority after Maruti Udyog and Amrit Agro favours extending the benefit wherever the tax was not separately recovered from the buyer. In the composition context, the case for cum-tax treatment is stronger still, because Section 10(4) statutorily forbids separate collection, so that the presumption of inclusive pricing arises from the law itself and not merely from the conduct of the parties.
Input tax credit on transition: The Tribunal left open the Appellant’s entitlement to input tax credit upon cessation of the composition option. Section 18(1)(c) of the CGST Act entitles a registered person who ceases to pay tax under Section 10 to take credit of input tax on inputs held in stock, inputs contained in semi-finished or finished goods held in stock, and capital goods (reduced by the prescribed percentage points), on the day immediately preceding the date from which he becomes liable to pay tax under Section 9, subject to a declaration in FORM GST ITC-01 within thirty days under Rule 40(1)(b) and to the one-year limitation for invoices under Section 18(2). For the period after the lapse, regular credit under Section 16 is subject to the time limit under Section 16(4). Where a lapse is detected only in audit two or three years later, as in the present case, these windows would ordinarily have closed, and the taxpayer may find that the regular-rate liability is fastened without any corresponding credit. The Tribunal’s observation that entitlement to credit is “neither automatic nor unconditional” and that the burden lies on the claimant underscores that composition taxpayers must monitor their aggregate turnover on a real-time basis and file FORM GST CMP-04 and FORM GST ITC-01 within the prescribed timelines, rather than await a departmental determination.
Position of brick manufacturers from April 01, 2022: The composition finding in this ruling is confined to periods up to March 31, 2022. With effect from April 01, 2022, manufacturers of fly ash bricks, building bricks, bricks of fossil meals and earthen or roofing tiles have been excluded from the composition scheme vide Notification No. 04/2022-Central Tax dated March 31, 2022, the registration threshold for such persons has been reduced to Rs. 20 lakh vide Notification No. 03/2022-Central Tax dated March 31, 2022, and such goods attract GST at 6% (3% CGST and 3% SGST) without input tax credit under Notification No. 02/2022-Central Tax (Rate) dated March 31, 2022 or at 12% with input tax credit under Notification No. 01/2022-Central Tax (Rate) dated March 31, 2022. The cum-tax principle laid down by the Tribunal, however, is of general application and will govern every case in which a composition taxpayer – or, for that matter, any supplier who did not charge tax in the belief that the supply was exempt or non-taxable – is subsequently called upon to discharge tax at the regular rate.
Key takeaways: (i) the lapse under Section 10(3) operates from the day of crossing the threshold, and only the post-lapse supplies attract the regular rate, with credit for the composition tax already paid on such supplies; (ii) the differential tax must be computed on a cum-tax basis under Rule 35, and adjudicating and appellate authorities are bound to extend the benefit even where it is not claimed; (iii) e-way bill data is a trigger for enquiry and not conclusive evidence of turnover, and taxpayers should reconcile it with their books to exclude non-supply movements; and (iv) credit on transition out of the composition scheme is a time-bound entitlement that must be secured contemporaneously.
Cases Discussed
- Amrit Agro Industries Ltd. v. Commissioner of Central Excise, Ghaziabad, 2007 (210) E.L.T. 183 (S.C.) (Supreme Court) — Discussed regarding the conditions for allowing cum-duty valuation. The citation is retained as supplied, subject to verification of the precise proposition attributed to the judgment.
- Unichem Laboratories Ltd. v. Collector of Central Excise, Bombay, 2002 (145) E.L.T. 502 (S.C.) / 2002-TIOL-237-SC-CX (Supreme Court) — Relied upon by the Tribunal for the principle that tax authorities must grant statutory benefits available in law and collect neither more nor less than legally payable.
- Commissioner of Central Excise, Delhi v. Maruti Udyog Ltd., 2002 (141) E.L.T. 3 (S.C.) (Supreme Court) — Discussed for the exclusion of the embedded duty component when the consideration recovered is a cum-duty price.
- Srichakra Tyres Ltd. v. Collector of Central Excise, Madras, 1999 (108) E.L.T. 361 (Tri.-LB) (CESTAT Larger Bench); Supreme Court reference: 2002 (142) E.L.T. A279 (S.C.) — Discussed for cum-duty treatment of consideration where duty was not separately recovered.
- Commissioner of Central Excise, Kolkata v. Advantage Media Consultant, 2008 (10) S.T.R. 449 (Tri.-Kolkata) (CESTAT); Supreme Court reference: 2009 (14) S.T.R. J49 (S.C.) — Discussed for treating gross consideration as inclusive of service tax when service tax was not separately charged.
FULL TEXT OF THE JUDGMENT/ORDER OF GST APPELLATE TRIBUNAL, HYDERABAD
1.0 The present common order disposes of Appeal Nos. APL/126/HYD/2026 and APL/26/HYD/2026, preferred by M/s. Parameswara Bricks in respect of the tax periods 2020–21 and 2021–22, respectively. Since both the appeals arise out of substantially identical facts and involve a common question of law and fact, they were heard together and are being disposed of by this common order.
2.0 The appellants are engaged in the manufacture and supply of red clay bricks and are registered under Section 10(1) of the Telangana Goods and Services Tax Act, 2017 (hereinafter referred to as “the TSGST Act”). The appellants have opted for and have been availing the benefit of the composition scheme prescribed under the Act. In terms of the said scheme, the appellants were liable to discharge tax at the prescribed composition rate of 1% in respect of the impugned goods under the TSGST Act as well as under the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “the CGST Act”).
3.0 During the relevant tax periods, the appellants were governed by the composition scheme under Section 10(1) of the TSGST Act, as applicable in the State of Telangana, read with the CGST Act, the prescribed aggregate turnover threshold being ₹1.50 crore. Upon the aggregate turnover of a registered person exceeding the said statutory limit, such person ceases to be entitled to continue under the composition scheme and becomes liable to discharge tax at the applicable regular rate, in accordance with law, in lieu of the concessional composition levy.
4.0 The appellants were subjected to audit by the jurisdictional Audit Officers. Upon examination and comparison of the turnover reflected in the e- way bills generated by the appellants during the relevant periods with the turnover declared in their respective FORM GST CMP-08 statements, the audit authorities noticed an apparent discrepancy between the two sets of figures.
4.1 It may be noted that, in terms of Rule 138(1) of the Telangana Goods and Services Tax Rules, 2017 (hereinafter referred to as “the Rules”), every registered person is required to furnish the prescribed particulars in an e-way bill before the commencement of movement of goods, subject to the applicable monetary threshold, including the prescribed limit of ₹1,00,000/-, and subject to such exemptions and conditions as may be notified by the Government from time to time.
4.2 The audit authorities alleged that, during the financial year 2020–21, the appellants had exceeded the prescribed turnover limit for availing the benefit of the composition scheme. According to the figures reflected in the e- way bills generated by the appellants, their aggregate turnover amounted to ₹1,95,53,800/-, whereas the turnover declared by them in their FORM GST CMP-08 statements was only ₹1,44,86,100/-.
4.3 On that basis, the audit authorities concluded that the appellants had exceeded the prescribed threshold of ₹1.50 crore for eligibility under the composition scheme. It was accordingly alleged that the differential turnover of ₹50,67,700/- had not been subjected to tax at the applicable normal rate and had, therefore, escaped assessment.
4.4 In respect of the financial years 2020-21 & 2021–22, the audit authorities placed reliance upon Section 10(3) of the TSGST Act and contended that, once the turnover of a taxable person exceeded the prescribed threshold during a financial year, the taxable person would cease to be eligible for the composition scheme.
4.5 Accordingly, the audit authorities proposed that the benefit of the composition scheme was unavailable to the appellants for the financial years 2020-21 & 2021–22 and that tax was consequently liable to be demanded on the turnover, after deducting ₹1.50 crores, reflected in the e-way bills for the period 2020-21.
4.6 Pursuant to the aforesaid audit objections, show-cause notices were issued to the appellants proposing the recovery of differential tax for both the financial years in question. While computing the proposed liability, the rate of tax was initially adopted at 28%, comprising 14% CGST and 14% SGST, instead of the applicable rate of 5%.
4.7 Upon adjudication, however, the proper officer restricted the confirmation of the tax demand to the applicable rate of 5%, in proceedings initiated under Section 73 of the TSGST Act. The proper officer further ordered recovery of applicable interest in terms of Section 50(1) of the Act and imposed a penalty equivalent to 10% of the tax under Section 73 of the Act.
4.8 Aggrieved by the said order, the appellants preferred appeals before the First Appellate Authority. The First Appellate Authority, however, upheld the order passed by the adjudicating authority and dismissed the appeals.
4.9 Being aggrieved by the impugned order, the appellants have preferred the present appeals before this Bench in respect of both the aforesaid financial years.
4.10 The appellants seek setting aside of the impugned order; restoration and continuation of the benefit of the composition scheme; annulment of the demands towards tax, interest and penalty; and refund of the amounts deposited by them as pre-deposit, together with all consequential reliefs. 6
5.0 The principal issue that arises for consideration in the present appeals is whether, during the respective financial years under consideration, the appellants had exceeded the prescribed threshold turnover of ₹1.50 crore and, consequently, had ceased to be eligible for the benefit of the composition scheme. A further question requiring determination is whether the First Appellate Authority, while exercising jurisdiction under Section 107 of the TSGST Act, 2017, was justified in affirming the order passed by the adjudicating authority and in dismissing the appeals preferred by the appellants.
6.0 Heard both sides.
7.0 The learned counsel appearing for the appellants submits that the excess over the prescribed threshold turnover occurred inadvertently and without any deliberate or conscious intent on the part of the appellants. It is contended that, during the period in question, the appellants’ business operations were adversely affected by the COVID-19 pandemic, on account of which they were unable to properly monitor and administer their business affairs, including their turnover and consequential tax compliances.
8.0 The learned counsel further submits that the appellants were acting under a bona fide and reasonable belief that they continued to be eligible to avail the benefit of the composition scheme. It is asserted that the appellants neither suppressed any material particulars nor acted with any mala fide intention to wrongly avail or retain the benefit of the scheme.
9.0 The learned counsel submits that no further submissions are sought to be advanced on behalf of the appellants and requests that the appeals may be adjudicated on the basis of the submissions already placed on record.
10.0 Per contra, the learned Departmental Representative (“DR”) draws our attention to the cross-objections filed by the Department in both appeals. He submits that the voluntary payments made by the appellants were calculated at the composition-scheme rate and, consequently, fell substantially short of the tax actually payable.
11.0 The learned DR further submits that, upon the appellants exceeding the prescribed threshold limit for availing the composition scheme, they became liable to discharge tax at the applicable regular rate. Accordingly, the appellants are liable to pay an additional amount of ₹1,27,250/- (₹63,625/- each as CGST and TSGST) for the financial year 2020–21 and ₹6,43,856/- (₹3,21,928/- each as CGST and TSGST) for the financial year 2021–22.
12.0 It is further submitted that the aforesaid demand has been determined after duly taking into account and allowing for the errors appearing in the e- way bills. The learned DR, therefore, prays that the appeals filed by the appellants be dismissed and the demands confirmed by the lower authorities be sustained.
13.0 The learned DR submits that he has no further submissions to make and requests that the matter be decided on the basis of the submissions already placed on record.
14.0 It is an admitted position that the appellant exceeded the prescribed threshold limit of aggregate turnover in both the financial years under consideration. A plain reading of Section 10(3) of the Act makes it abundantly clear that the option exercised under the composition scheme ceases to operate from the date on which the aggregate turnover of the registered person exceeds the threshold limit of ₹1.50 crore prescribed under Section 10(3) of 8 the Act. Upon such cessation, the registered person becomes liable to discharge tax at the applicable rate under the regular scheme, instead of the concessional rate prescribed for composition taxpayers. The relevant provision is reproduced below:
“(3) The option availed of by a registered person under sub-section (1) 10[or sub-section (2A), as the case may be] shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under sub-section (1) 10[or sub-section (2A), as the case may be].”
14.1 The consequence of such cessation is statutorily delineated in Rule 6(2) of the CGST/TSGST Rules, 2017, which provides that a person ceasing to satisfy any of the conditions prescribed under Section 10 shall, from the date of such cessation, be liable to pay tax under Section 9(1), issue tax invoices for all taxable supplies thereafter, and intimate withdrawal from the scheme in FORM GST CMP-04 within seven days of the occurrence of such event. The relevant portion of the said rule is reproduced below:
“(2) The person referred to in sub-rule (1) shall be liable to pay tax under sub-section (1) of section 9 from the day he ceases to satisfy any of the conditions mentioned in section 10 or the provisions of this Chapter and shall issue tax invoice for every taxable supply made thereafter and he shall also file an intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days of the occurrence of such event.”
14.2 For the aforesaid purpose, the expression ‘aggregate turnover’ bears the meaning assigned to it under Section 2(6) of the Act, namely, the aggregate value of all taxable supplies, exempt supplies, exports of goods or services or both, and inter-State supplies of persons having the same PAN, computed on an all-India basis, but excluding the value of inward supplies on which tax is 9 payable under reverse charge, as also Central Tax, State Tax, Union territory tax, integrated tax and cess.
15.0 In the present case, there is no controversy that the appellants had exceeded the threshold limit of ₹1.50 crore during the financial year 2020–21. Upon the aggregate turnover crossing the statutory ceiling prescribed under the Act, the appellants ceased to remain eligible for the benefit of the composition scheme from the date of such crossing. The consequence flowing from Section 10(3) of the Act is automatic and operates by force of statute, whereby the composition levy stands terminated on the occurrence of the disqualifying event. As a result, the appellants became 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 in respect of such post-lapse turnover.
16.0 It is further observed that the Department duly considered the appellants’ contention regarding the typographical errors allegedly occurring in certain e-way bills raised by them. The impugned demand was determined after excluding the excess turnover attributable to such errors, as accepted by the Department. In the absence of any further oral submissions on behalf of either party beyond the written submissions already placed on record, and having regard to the material available before us, we find no sufficient ground to interfere with the figures determined in the impugned orders or with the findings recorded by the adjudicating authority.
17.0 Although no specific arguments were advanced by the learned Counsel regarding the method adopted for computation of the differential tax, we consider it appropriate to examine the issue in the light of Section 10(4) of the Act. The relevant provision is reproduced below:
“(4) A taxable person to whom the provisions of sub-section (1) 10[or, as the case may be, sub-section (2A)] apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.”
The provision is clear and admits of no ambiguity. A person opting for the composition scheme is prohibited from collecting tax from the recipient and is also not entitled to avail input-tax credit. Therefore, during the period in which the appellants operated under the composition scheme, they could not have collected GST separately from their customers or shown any GST component in the invoices issued by them.
17.1 The invoices issued by the appellants must, therefore, be understood as reflecting the total consideration received from the recipients, without any separately identifiable tax component. The question that arises is whether the differential tax should be calculated on the entire value declared in those invoices or whether the benefit of the cum-tax principle under Rule 35 of the Rules should be extended to the appellants.
17.2 Rule 35 provides as follows: “Rule 35. Value of supply inclusive of integrated tax, central tax, State tax, Union territory tax.—Where the value of supply is inclusive of integrated tax or, as the case may be, central tax, State tax, Union territory tax, the tax amount shall be determined in the following manner, namely,—
Tax amount = (Value inclusive of taxes × tax rate in % of IGST or, as the case may be, CGST, SGST or UTGST) / (100 + sum of tax rates, as applicable, in %)”
17.3 The present case falls within the scope of Rule 35. Since the appellants were not permitted to collect tax separately from the recipients, and the Department has not alleged that they had, in fact, collected any tax over and above the invoice value, the value declared in the invoices must be treated as inclusive of tax.
17.4 The tax component must consequently be worked out in accordance with the formula prescribed under Rule 35. Tax cannot be calculated on an amount which already includes the tax component. The benefit of cum-tax valuation is, therefore, required to be extended while determining the differential tax liability.
18.0 It may be observed that the appellants did not specifically claim the benefit of Rule 35 either before this Bench or before the authorities below. In our view, this omission cannot disentitle them from receiving a benefit available under the Act and the Rules, particularly when the relevant facts are already available on record.
18.1 Rule 35 is intended to ensure that tax is calculated on the value of the supply exclusive of the tax component. The authorities are required to determine the correct tax liability in accordance with law. They cannot collect tax in excess of what is legally payable merely because the taxpayer did not specifically claim a statutory benefit.
19.0 It is a settled principle that the Department must collect the tax legally due—neither more nor less. In this regard, reliance may be placed on the judgment of the Hon’ble Supreme Court in M/s. Unichem Laboratories Limited v. Collector of Central Excise, Bombay, reported in 2002-TIOL-237-SC-CX, wherein it was observed:
“13. For the aforementioned reasons, we are of the view that denial of benefit of the notification to the appellant was unfair. There can be no doubt that the authorities functioning under the Act must, as are in duty bound, protect the interest of the Revenue by levying and collecting the duty in accordance with law – no less and also no more. It is no part of their duty to deprive an assessee of the benefit available to him in law with a view to augment the quantum of duty for the benefit of the Revenue. They must act reasonably and fairly.”
19.1 The above principle applies to the present case. The appellants are entitled to the benefit of Rule 35, even though they did not specifically claim it. Extending this benefit would not amount to granting any concession outside the statute; it would merely ensure that the tax is correctly calculated in accordance with the prescribed rule.
19.2 Accordingly, the proper officer is directed to recompute the differential tax liability only 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. The revised computation shall be completed and communicated to the appellants within two weeks from the date of this order.
19.3 Any consequential liability towards interest and penalty shall also be determined afresh on the basis of the revised tax liability and in accordance with the applicable provisions of law.
20.0 The other aspect arising from Section 10(4) relates to input-tax credit. A person who has opted for the composition scheme is not entitled to avail input-tax credit during the period for which the scheme remains applicable.
21.0 It is not in dispute that, upon cessation of the composition scheme consequent upon the registered person crossing the prescribed turnover threshold, such person may become entitled to avail input-tax credit, subject to strict compliance with the conditions stipulated under Section 16 of the Act and the Rules framed thereunder. Such entitlement, however, is neither automatic nor unconditional. The burden rests upon the person claiming the credit to establish, by cogent and legally admissible material, that each of the statutory requirements governing its availment stands duly satisfied. Since no submission was advanced, nor was any specific claim urged by the appellants in this regard, we consider it inappropriate to examine the issue in the present proceedings. Accordingly, we leave the question of the appellants’ entitlement to input-tax credit open, without expressing any opinion on its merits.
22.0 In view of the findings recorded hereinabove, the order of the First Appellate Authority is upheld, subject to the limited modification that the appellants shall be entitled to the benefit of cum-tax valuation in terms of Rule 35 of the Rules.
23.0 Accordingly, the impugned order is modified to the limited extent indicated in this order. The tax liability of the appellants shall be recomputed after giving effect to the cum-tax valuation under Rule 35 of the TSGST Rules, 2017, in accordance with the directions contained in paragraph 19.2 above. 14
The consequential liability towards interest and penalty shall also be recalculated on the basis of the revised tax liability.
24.0 On the above terms, the appeals are disposed of.
25.0 No order as to costs. Parties shall act on the authenticated record.
