GST Compliance – Compulsory Withdrawal from Composition Levy

Compulsory Withdrawal from Composition Levy

Edition: September 2025
Disclaimer: This manual is for compliance facilitation. It does not substitute statutory provisions, notifications, or circulars. Taxpayers must verify with the CGST/SGST Acts, Rules, and GSTN updates.

✍️ Preface

The Composition Scheme simplifies compliance for small taxpayers. However, if a taxpayer becomes ineligible or violates conditions, the Tax Officer may initiate compulsory withdrawal from the scheme. This ensures that only eligible taxpayers enjoy reduced compliance under the scheme.

This manual consolidates the law, procedure, timelines, FAQs with statutory basis, and a compliance checklist.

📑 Table of Contents

1. Law Governing Compulsory Withdrawal

2. When Can Compulsory Withdrawal Be Initiated?

3. Step-by-Step Procedure

4. Timelines & Orders

5. Effect of Withdrawal

6. FAQs (with Basis)

7. Compliance Checklist (Fillable Format)

⚖️ 1. Law Governing Compulsory Withdrawal

• Section 10, CGST Act, 2017 – Composition levy provisions.

• Rule 6(3), CGST Rules, 2017 – Compulsory withdrawal procedure.

• Form CMP-05 to CMP-07 – Prescribed for notices, replies, and orders.

🎯 2. When Can Compulsory Withdrawal Be Initiated?

As per FAQs:

• If taxpayer exceeds turnover limit.

• If taxpayer makes inter-state supplies, supplies through e-commerce operators, or manufactures restricted goods.

• If taxpayer fails to voluntarily opt out within 7 days of becoming ineligible.

🛠️ 3. Step-by-Step Procedure

1. Notice (Form CMP-05):

   • Issued by Tax Officer when taxpayer found ineligible.

2. Reply (Form CMP-06):

   • Taxpayer must reply within 15 days of notice.

   • Navigate: Services > Registration > Application for Filing Clarifications.

3. Order (Form CMP-07):

   • Officer may pass:

     • Withdrawal Order – If ineligible.

     • Drop Proceedings – If reply satisfactory.

   • Order communicated via portal, email, and SMS.

⏰ 4. Timelines & Orders

• Reply to SCN: Within 15 days.

• Officer’s Decision:

  • Within 30 days of reply, or

  • Within 15 days if no reply, whichever earlier.

📌 5. Effect of Withdrawal

• GSTIN flagged as Normal Taxpayer from effective date.

• If multiple GSTINs under same PAN → All flagged as normal.

• New registrations under same PAN inherit status until withdrawal order effective date.

❓ 6. FAQs (with Basis)

Q1. What is Compulsory Withdrawal?
Action by officer when taxpayer no longer eligible. (FAQ 1)

Q2. Can officer withdraw without notice?
No, SCN mandatory. (FAQ 6)

Q3. Time to reply to SCN?
15 days. (FAQ 3)

Q4. Where to view notice/order?
Services > User Services > View Notices & Orders. (FAQ 4)

Q5. What happens if reply not filed?
Officer may withdraw within 15 days. (FAQ 7)

Q6. What if taxpayer files new GST registration during proceedings?
Decision applies to all GSTINs under PAN. (FAQ 8)

Q7. What happens after withdrawal order?
Composition flag removed; taxpayer treated as normal. (FAQ 9)

✅ 7. Compliance Checklist (Fillable Format)