A CMP-05 show cause notice is issued by a GST officer when your business is suspected of violating the conditions of the Composition Scheme under GST. If you receive one, you have 15 days to respond using Form CMP-06, failing which your composition registration may be cancelled and you could be liable to pay regular GST with interest and penalties. This notice typically affects small businesses, retailers, manufacturers, and restaurants registered under the composition levy.

• Composition dealers pay tax at a flat rate (1% to 6%) but must not cross the ₹1.5 crore turnover threshold.
• Violations can trigger demand of regular GST, interest at 18% per annum, and penalties up to 100% of tax due.
• Timely, professionally drafted replies significantly reduce the risk of cancellation or demand orders.

What is Form CMP-05?

Form CMP-05 is a show cause notice under Rule 6(2) of the CGST Rules, 2017. It is issued by the proper GST officer when they have reason to believe that a taxpayer registered under the Composition Scheme has contravened the provisions of Section 10 of the CGST Act, 2017 or the rules made thereunder.

The notice asks the taxpayer to explain why their composition registration should not be cancelled and why they should not be asked to pay tax as a regular dealer, along with applicable interest and penalties.

This is a quasi-judicial proceeding and your reply forms the basis for the officer's final order. A weak or missed reply can result in cancellation and retrospective demand covering multiple financial years.

Common Reasons for CMP-05 Notice

GST officers issue CMP-05 notices based on data mismatches, third-party audit findings, or direct inspections. The most frequent reasons include:

Violation Type	What Triggers It
Turnover exceeding limit	Aggregate turnover crossed ₹1.5 crore (₹75 lakh for special category states) in a financial year
Interstate supply	Making inter-state outward supplies, which is prohibited for composition dealers
Supply of non-permitted goods/services	Supplying goods not taxable under GST or services beyond the permitted restaurant/trader category
Incorrect tax collection	Collecting GST from customers (composition dealers cannot collect GST; tax is borne by them)
Non-filing of CMP-08 / GSTR-4	Failing to file quarterly statement CMP-08 or annual return GSTR-4
Manufacture of notified goods	Manufacturing goods notified under Section 10(2) that are ineligible for composition
Incorrect constitution	Registering as a casual or non-resident taxable person or being an e-commerce operator

Legal Framework Behind CMP-05

The issuance of CMP-05 is governed by the following provisions:

• Section 10 of CGST Act, 2017: Lays down the eligibility conditions for the Composition Scheme.
• Rule 6(2) of CGST Rules, 2017: Mandates issuance of CMP-05 before cancelling a composition taxpayer's status.
• Rule 6(3): Requires the taxpayer to reply via Form CMP-06 within 15 days of receiving the notice.
• Rule 6(4): Empowers the officer to pass an order in Form CMP-07 after considering the reply.
• Section 73 / Section 74: Tax demand provisions that apply if fraud or willful misstatement is detected along with the violation.

If the officer is not satisfied with your reply, they can pass an order under CMP-07 withdrawing the composition benefit from the date the taxpayer first became ineligible, and demand all tax, interest, and penalty accordingly.

How to Reply to CMP-05: Step-by-Step

Step 1: Read the Notice Carefully

Identify the exact ground of violation mentioned in the notice. CMP-05 will specify the period under scrutiny and the nature of contravention alleged. Do not assume the ground — reply only to what is mentioned.

Step 2: Gather Supporting Documents

Collect books of accounts, invoices, bank statements, and turnover calculations for the period in question. If the notice relates to interstate supply, gather delivery challans and transport documents. For turnover disputes, prepare a reconciliation statement matching books with GSTR-4 / CMP-08 data.

Step 3: File Reply in Form CMP-06

Log in to the GST portal (www.gst.gov.in), navigate to Services > Registration > Application for Withdrawal of Show Cause Notice. File Form CMP-06 within 15 days of the CMP-05 notice date. Attach all supporting documents and provide a clear, factual explanation addressing each ground raised.

Step 4: Attend Personal Hearing (if called)

The officer may call for a personal hearing before passing the final order. Attend with all documents and, preferably, with a GST consultant or CA to represent your case.

Step 5: Await CMP-07 Order

After your reply, the officer issues Form CMP-07. If satisfied, they drop the proceedings. If not satisfied, they cancel your composition status and issue a demand. You can appeal this order before the Appellate Authority within 3 months of the CMP-07 order.

Consequences of Not Replying to CMP-05

Ignoring a CMP-05 notice is one of the costliest mistakes a small business can make. Here is what happens if you miss the reply deadline:

• Ex-parte order: The officer passes CMP-07 against you without hearing your side.
• Composition status cancelled retrospectively: Tax liability is recalculated as regular GST from the date of violation, not just from the notice date.
• Interest at 18% per annum: Applies on the entire differential tax amount for the period.
• Penalty up to 100% of tax due under Section 122 of CGST Act in cases of fraud or suppression.
• ITC blocked: You cannot claim Input Tax Credit for the period you were under composition, creating an additional cash flow burden.

CMP-05 vs. Other GST Notices: Key Differences

Notice Type	Purpose	Reply Form	Reply Time
CMP-05	Violation of Composition Scheme conditions	CMP-06	15 days
REG-17	Cancellation of regular GST registration	REG-18	7 days
ASMT-10	Discrepancy in returns / scrutiny	ASMT-11	30 days
DRC-01	Tax demand show cause notice	DRC-06	30 days
ADT-01	GST Audit notice	Written response	As specified

For related notices such as GST ADT-01 audit notices, the process differs but the urgency is equally high. If you have also received a summon notice, read Taxocity's guide on handling GST summon notices.

How to Avoid a CMP-05 Notice

Prevention is always better than responding to a notice under pressure. Key compliance steps for composition dealers include:

• Monitor aggregate turnover every quarter. Once you approach ₹1.4 crore, proactively migrate to the regular scheme.
• Never supply goods or services inter-state. If your business model requires it, composition is not appropriate for you.
• File CMP-08 quarterly by the 18th of the month following each quarter. File GSTR-4 annually by 30 April after the financial year.
• Maintain clear records of all supply types. Do not mix restaurant supply with trading supplies without checking eligibility.
• Do not issue tax invoices. Issue only bills of supply as a composition dealer.
• Ensure your GST registration correctly reflects your business category and do not make post-registration changes that alter your eligibility.

Why Professional Help Matters for CMP-05

A CMP-05 notice is not a routine query. It is a formal legal proceeding that can result in cancellation of your composition status and multi-year tax demands. The reply must be legally precise, factually supported, and filed within the strict 15-day window.

Taxocity, with over three decades of GST and tax compliance experience and a 4.8/5 rating from 5,000+ clients, provides end-to-end support for CMP-05 notices. Our team of real human experts reviews your notice, drafts a watertight CMP-06 reply, represents you at personal hearings, and handles appeal filings if an adverse CMP-07 order is passed. We offer a 100% compliance guarantee on all notice handling engagements.

Our services cover the complete lifecycle: from GST registration and GST filing to notice management, audit support, and full regulatory compliance as your business scales.

Key Takeaways

1. CMP-05 is a show cause notice under Rule 6(2) of CGST Rules for composition scheme violations.
2. You must reply using Form CMP-06 within 15 days on the GST portal.
3. Failure to reply results in retrospective cancellation and full GST demand with 18% interest.
4. Common triggers include turnover exceeding ₹1.5 crore, interstate supply, and non-filing of CMP-08/GSTR-4.
5. The officer's final order comes in Form CMP-07 and is appealable within 3 months.
6. Proactive turnover monitoring and timely return filing are the best safeguards against this notice.

Frequently Asked Questions

Can I convert to regular GST after receiving CMP-05?

Yes, you can voluntarily withdraw from the composition scheme at any time using Form CMP-04. However, if a CMP-05 is already issued, the withdrawal does not automatically stop the proceedings. You still need to file CMP-06 and address the notice for the prior period.

What if I genuinely exceeded the turnover limit by a small margin?

You should disclose this honestly in your CMP-06 reply, provide turnover reconciliation, and offer to pay the differential GST with applicable interest. Officers generally consider genuine cases more leniently when the taxpayer is transparent and cooperative.

Is there a penalty if I proactively opt out before receiving CMP-05?

If you identify a violation and opt out of composition scheme proactively before a notice is issued, penalties are typically lower and the department is more likely to accept voluntary compliance without adversarial proceedings.

Can a CMP-05 notice be challenged in court?

Yes. If the officer passes an adverse CMP-07 order, you may appeal to the GST Appellate Authority. In cases of jurisdictional errors or procedural violations, a writ petition before the High Court is also possible, though this is typically a last resort.

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Disclaimer: This article is intended for informational purposes only and does not constitute tax, legal, or professional advice. GST laws and procedures are subject to change. Please consult a qualified tax advisor or GST practitioner for advice specific to your situation before taking any action in response to a CMP-05 notice or any other tax notice.