Case Law

Cross Rs. 1.5 Crore and Your Composition Scheme Is Already Over

Published 25 Aug 2026· 4 min read

The Story

Here’s a scenario that plays out constantly with growing small businesses: a brick manufacturer is happily filing under the GST composition scheme, paying a flat, low rate, keeping paperwork simple. Then business picks up. Turnover creeps past Rs. 1.5 crore. Nobody notices — or nobody acts — and the CMP-08 returns keep going out exactly as before.

Sri Parameshwara Bricks was in exactly that spot. And when the State Tax Officer eventually noticed, the question that landed at GSTAT Hyderabad was blunt: does the composition scheme end the moment turnover crosses the threshold, or only once someone formally withdraws from it?

Section 10(3) of the CGST Act answers that plainly: the moment aggregate turnover crosses the limit, the composition option lapses — automatically. No application, no department order, no grace period tied to when anyone actually notices. The Tribunal confirmed exactly that on 20 August 2026.

That’s the less interesting half of the ruling.

Here’s the more useful half. Once the scheme lapses, the business is suddenly a regular taxpayer — but during the period nobody realised it, it wasn’t charging customers GST separately (it wasn’t allowed to, under composition rules). So how do you tax turnover that was never grossed up with tax in the first place?

The answer is Rule 35 of the CGST Rules — cum-tax valuation. Treat the invoice value as already inclusive of tax, and back the liability out of that, rather than bolting GST on top of the full invoice amount after the fact. It’s the difference between a manageable correction and a liability that’s suddenly and unfairly inflated.

And here’s the part practitioners will actually want to remember: the Tribunal said this benefit applies even if the taxpayer never specifically asked for it — as long as the underlying facts are already on record.

Sidebar: the Tribunal didn’t do the maths itself — it sent the matter back to the proper officer to recompute the demand on this corrected, cum-tax basis.

Why It Matters

This is a two-part ruling with practical significance for any composition-scheme dealer whose turnover has grown past the threshold. The automatic-lapse holding removes any argument that continued composition-basis filing preserves scheme eligibility. The cum-tax holding confirms the benefit is available even where counsel did not specifically raise it — reducing differential tax liability substantially.

Key Takeaways

Under Section 10(3) of the CGST Act, the composition option lapses automatically from the date aggregate turnover crosses the prescribed limit (Rs. 1.5 crore for the assessee’s category).
Where the assessee did not collect GST separately during the lapsed period, the invoice value must be treated as inclusive of tax under Rule 35 — computed on a cum-tax basis, not by adding GST on top.
The cum-tax benefit applies even if not specifically claimed, where the relevant facts are already on record.
The matter was remanded to the proper officer for recomputation on this corrected basis.

Practical Implications

Every composition-scheme client should have their turnover monitored against the applicable threshold on a continuing basis. Where a demand has already been raised treating post-threshold turnover as taxable at full invoice value, this ruling is directly useful to argue for recomputation on a cum-tax basis.

Action Checklist

Review composition-scheme clients’ turnover trends against the applicable threshold at each filing cycle.
Where a client’s turnover has crossed the threshold, advise on immediate transition to regular-scheme compliance from the date of crossing.
For clients facing turnover-breach demands, review whether differential tax was computed on a cum-tax basis; if not, cite this ruling.
Always raise the cum-tax benefit explicitly in replies and appeals as a matter of practice.

Relevant Sections / Rules / Notifications

Section 10, CGST Act, 2017 (composition levy)
Section 10(3), CGST Act, 2017 (automatic lapse of composition option on breach of turnover limit)
Rule 35, CGST Rules, 2017 (cum-tax valuation)
GSTAT Hyderabad Bench ruling: Sri Parameshwara Bricks v. State Tax Officer, 2026 TAXSCAN (GSTAT) 142, APL/26/HYD/2026, decided 20 August 2026

FAQs

Q: Does the composition scheme end only when the department notices the turnover breach?
A: No. The option lapses automatically from the date turnover actually crosses the threshold, irrespective of detection.

Q: If a composition dealer didn’t collect GST separately, is the entire invoice value taxed at the regular rate on top?
A: No — Rule 35’s cum-tax valuation applies: the invoice value is treated as inclusive of tax.

Q: Do we need to specifically plead the cum-tax benefit?
A: This ruling suggests it can apply even without a specific claim — but practitioners should still explicitly raise it as standard practice.

Internal Links

Compliance Alert — Week of 25–31 August 2026
GST / Case Laws hub

None this cycle — first Finoscape coverage of this specific ruling.

Author & Disclaimer

Prepared by Finoscape Editorial Team — contact@finoscape.com. This article is for general informational purposes and does not constitute legal or tax advice. Composition-scheme turnover monitoring and differential-tax computation are fact-specific.