COMPOSITION SCHEME LAPSED: GST CALCULATION CLARIFIED BY GSTAT

Imagine you run a #SmallBusiness and have opted for the #CompositionScheme.

Everything is going smoothly…

You are paying #Tax under the composition scheme and following the applicable rules.

Then, one day, your #Turnover crosses the prescribed threshold.

From that point, the composition benefit stops.

Fair enough.

But here comes the PRACTICAL QUESTION – If you have already made supplies after crossing the threshold without separately collecting #GST from your customers, can the #Department simply calculate GST on the entire amount as though it were an additional amount recoverable from the #Customer❓

This is where the “Method of Calculation” matters.

In Sri Parameshwara Bricks v. State Tax Officer, the GSTAT Hyderabad held that once the composition scheme lapses, the supplies thereafter are taxable under the regular scheme. Since a composition dealer cannot separately collect tax under Section 10(4), the #Invoice value already received had to be treated as cum-tax value and GST worked out using the Rule 35 formula, not by applying the rate on top of the invoice value.

This benefit was extended even though the appellant hadn’t specifically claimed it, the #Tribunal held that a taxpayer’s omission to claim a statutory benefit cannot justify collecting tax in excess of what is legally due.

And then there’s the ITC point handled quite differently.

The Tribunal acknowledged that once the composition scheme ceases, a taxpayer may become entitled to ITC but that entitlement is neither automatic nor unconditional. It comes subject to strict #Compliance with Section 16, and the burden lies on the taxpayer to establish, with cogent material, that every statutory condition is satisfied.

Since no submission or specific claim was made on #ITC by the appellants, the Tribunal declined to examine the issue altogether, leaving the question of entitlement open, without expressing any opinion on merits either way.

So, the TAKEAWAY is quite simple…

Crossing the #Threshold changes your tax treatment. But it does not mean the tax can be calculated without following the prescribed method. And it doesn’t mean every benefit follows automatically, cum tax relief was extended even without being claimed because the facts were on record; ITC was left open precisely because it wasn’t claimed or argued at all and the burden of proof was not discharged. What you don’t ask for, the Tribunal won’t decide for you.

Check out the facts, the issues and the Tribunal’s reasoning in our one page explainer ⚖️

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