Section 10 - Composition levy.

THE CENTRAL GOODS AND SERVICES TAX ACT, 2017

Rule 5 - Conditions and restrictions for composition levy

Rule 6 - Validity of composition levy

Central Goods and Services Tax Rules, 2017

Yes, as per the provisions of Section 10(2)(c), the registered person opting for composition scheme, cannot make inter-state supply of goods.

Therefore, if a person from outside the sate comes to the shop of the composite dealer and asks for Tax Invoice, such composite dealer may refuse and tell the person that he can issue only Bill of Supply, and not the tax invoice.

Such conditions is not dependent upon the registration status of the buyer. Even if the buyer is not a registered person, once the place of supply is inter-state, the benefit of composition will be withdrawn. 

Therefore, the composite dealer may avoid mentioning the place of supply as outside his state.

In case of failure, i.e. in case composite dealer makes a Bill of Supply (or tax invoice wrongly) with the remarks as place of supply as outside his state, the composition scheme shall be withdrawn immediately (forthwith) by operation of law. He will be forced to pay GST under the normal provisions at normal rate of tax.

The provisions of Rule 6(3) states that:

(3) The registered person who intends to withdraw from the composition scheme shall, before the date of such withdrawal, file an application in FORM GST CMP-04, duly signed or verified through electronic verification code, electronically on the common portal.

Further, the provisions of Rule 6(3) states that:

(5) If the proper officer has reasons to believe that a taxable person has paid tax under sub-section (1) despite not being eligible, such person shall, in addition to any tax that may be payable by him under any other provisions of this Act, be liable to a penalty and the provisions of section 73 or section 74 shall, mutatis mutandis, apply for determination of tax and penalty.

Composition scheme prohibits inter state outward supplies, triggering immediate withdrawal and normal GST liability if violated. A registered person availing the composition scheme cannot make inter state outward supplies; place of supply outside the state requires issuance of a Bill of Supply only, and an inter state supply triggers immediate withdrawal of the composition scheme by operation of law. Withdrawal converts liability to tax under normal provisions, requires filing FORM GST CMP-04 electronically, and exposes the person to additional tax and penalty determination by the proper officer if composition was wrongly availed.