This circular provides clarification on the effective date of withdrawal from the composition scheme by taxpayers and denial of the composition option by tax authorities under the GST law.

It explains that a registered person opting out of the composition scheme must file an intimation in Form GST CMP-04. The withdrawal becomes effective from the date mentioned by the taxpayer in the intimation, but such date cannot be earlier than the beginning of the financial year in which the application is filed. If any contravention of the GST provisions is subsequently noticed, tax, interest and penalty proceedings may be initiated as per law.

The circular further clarifies the procedure where the tax authorities deny the composition option. If a taxpayer is found to be ineligible or to have contravened the provisions of the CGST Act or Rules, the proper officer may issue a show cause notice and, after due process, deny the composition option through an order in Form GST CMP-07. The denial may take effect from a retrospective date, but not earlier than the date of such contravention.

In cases of denial, the taxpayer becomes liable to pay tax as a normal taxpayer, and proceedings for determination of tax, interest and penalty are to be initiated for the period of contravention. The circular also clarifies that input tax credit on eligible stock and capital goods may be claimed as per section 18(1)(c) of the CGST Act from the date immediately preceding the denial order.