CMP-05 is a Show Cause Notice issued to a composition dealer when the officer has reason to believe that the dealer is ineligible for the composition scheme or has violated its conditions. Common violations include crossing the turnover threshold, supplying interstate (not allowed under composition), collecting GST from customers (prohibited), supplying non-GST goods, or being in an ineligible business category.
Common Triggers — Why You May Have Received This
Annual aggregate turnover crossed ₹1.5 crore (or ₹75 lakh for special states)
Supplied goods/services interstate (only intra-state allowed under composition)
Collected GST separately from customers on invoices (not allowed — must issue Bill of Supply)
Supplied non-GST goods along with GST goods without proper classification
Supplied services other than restaurant services (not eligible for standard composition)
Registered as manufacturer of notified ineligible goods
How to Respond — Step by Step
Response form: CMP-06 | Deadline: 15 days
1
Download and read CMP-05
Note the specific violation alleged and the period. Download all evidence cited by the officer.
2
Verify the allegation
Check your own records — invoices, bill of supply, bank statements, and turnover calculation. Determine if the allegation is correct or a misunderstanding.
3
File CMP-06 reply within 15 days
If the violation is not genuine: explain with evidence (correct turnover calculation, intra-state supply proof, etc.). If the violation is genuine: acknowledge and compute the regular tax payable with interest.
4
If violation is genuine — pay tax as regular dealer
From the date of violation, you become a regular taxpayer. Compute CGST + SGST at applicable rates (not composition rates) and pay with interest at 18% p.a.
5
File Form CMP-07
If the officer is satisfied with your CMP-06, they pass an order in CMP-07 (order for withdrawal from composition scheme). Your GSTIN is then moved to regular scheme from the date of violation.
Penalty Implications
⚠️ If found to have violated composition conditions: tax difference (regular rate minus composition rate paid) for the violation period, plus interest at 18% p.a., plus penalty up to 100% of the tax amount.
Expert Tips
Composition dealers must proactively opt out using Form CMP-04 when turnover crosses the threshold — waiting for a CMP-05 notice increases penalty exposure.
Even after opting out, you can only switch back to composition at the beginning of the next financial year.
If you issued any inter-state invoices by mistake, gather them and calculate the exact tax impact before responding.
Calculate your penalty or interest if you missed a deadline:
The regular scheme applies from the date on which the violation first occurred — which may be months or even a financial year earlier than the notice date. This creates a large backdated tax liability.
Yes. File Form CMP-04 on the portal at any time during the year. The switch takes effect from the beginning of the following quarter. You avoid CMP-05 proceedings entirely by proactively switching.
When switching from composition to regular scheme (voluntarily or after CMP-07), you can claim ITC on the closing stock on the date of switch, subject to conditions under Section 18(1) of the CGST Act. File Form GST ITC-01 within 30 days.
