How to Respond to a GST Show Cause Notice in India

Kaustav Chowdhury
10 minutes ago
5 min read

Receiving a show cause notice (SCN) under the Central Goods and Services Tax Act, 2017 is a serious matter that demands a prompt, structured, and well-documented response. Whether the notice is issued under Section 73 (for non-fraud cases), Section 74 (for cases involving fraud, wilful misstatement, or suppression of facts), or the newly introduced Section 74A (applicable to financial years from 2024-25 onwards), the taxpayer's response within the prescribed timeline is the single most important step in avoiding an adverse demand order. This guide covers the legal framework, the types of notices, the response process, personal hearing rights, and the appeal mechanism, including the pre-deposit requirements as amended by the Finance (No. 2) Act, 2024.

Understanding Sections 73, 74, and 74A of the CGST Act

The CGST Act provides distinct provisions depending on the nature of the alleged default. Section 73 applies to cases where tax has not been paid, has been short-paid, or has been erroneously refunded, or where input tax credit has been wrongly availed or utilised, for reasons other than fraud, wilful misstatement, or suppression of facts. The proper officer must issue the SCN at least three months before the time limit for passing the order, which is three years from the due date for filing the annual return for the relevant financial year. Section 74 applies where the non-payment or short-payment involves fraud, wilful misstatement, or suppression of facts to evade tax. The time limit for the order is five years, and penalties are correspondingly higher. For financial years from 2024-25 onwards, the newly inserted Section 74A consolidates fraud and non-fraud cases into a single procedural framework. Under Section 74A, the proper officer must issue the notice within 42 months from the due date for filing the annual return, and the order must be passed within 12 months of the notice. The penalty structure under Section 74A maintains the distinction between fraud and non-fraud outcomes, but the procedural pathway is unified.

Types of Notices: DRC-01 and DRC-01A

Two key forms are associated with the demand and recovery process. Form DRC-01A is an intimation issued before the formal show cause notice. It gives the taxpayer an opportunity to pay the tax and interest voluntarily, thereby avoiding or significantly reducing penalties. If the taxpayer pays the full amount of tax and interest at the DRC-01A stage in a non-fraud case under Section 73, no penalty is levied. Form DRC-01 is the formal show cause notice itself. It sets out the specific allegations, the tax period in question, the amount of tax, interest, and penalty demanded, and the legal provisions under which the demand is raised. The DRC-01 notice triggers the formal adjudication process and establishes the deadline for the taxpayer's response.

Timeline for Response

The reply to a DRC-01 notice must be filed in Form DRC-06 on the GST portal within 30 days from the date of issuance of the notice. The proper officer may, depending on the complexity of the case, allow a shorter or longer period, but 30 days is the standard timeline. It is critical to file the reply within this window: if the taxpayer fails to respond, the proper officer may proceed to pass a demand order in Form DRC-07 based on the available records, without giving the taxpayer a further opportunity to present their case. An early settlement option exists: if the taxpayer pays the tax and interest before the issuance of the DRC-01 notice (at the DRC-01A stage), or within 30 days of the notice in non-fraud cases, the penalty can be eliminated or sharply reduced. Under Section 73(8), payment of tax and interest within 30 days of the SCN results in the proceedings being deemed concluded with no penalty.

How to Draft Your Reply in Form DRC-06

The reply should be comprehensive, structured, and supported by documentary evidence. Begin by acknowledging receipt of the notice and identifying the specific tax period, the section under which the notice is issued, and the amount demanded. Address each allegation individually: if the department has alleged short-payment, explain the basis of your computation with supporting invoices, returns, and reconciliation statements. If the allegation involves wrongly availed input tax credit (ITC), provide purchase invoices, supplier GSTR-2A/2B reconciliation data, and proof that the goods or services were received and used for taxable supplies. Where the allegation involves classification or valuation disputes, cite relevant circulars, advance rulings, or judicial precedents. If part of the demand is admitted, pay the admitted amount with interest immediately to limit exposure. All supporting documents should be uploaded as attachments to the DRC-06 filing on the portal.

Personal Hearing and Adjudication

The taxpayer has the right to request a personal hearing before the adjudicating officer. This right is especially important in complex cases involving valuation, classification, or ITC eligibility disputes. The personal hearing provides an opportunity to present oral arguments, clarify factual positions, and respond to any additional material that the department may have gathered. The adjudicating officer must consider the reply and the submissions made during the personal hearing before passing the order. If the officer decides to confirm the demand, the order is issued in Form DRC-07, specifying the tax, interest, and penalty payable. If the officer drops the demand, the proceedings are concluded.

Filing an Appeal Under Section 107 and the GST Appellate Tribunal

If the adjudication order is adverse, the taxpayer may file an appeal before the Appellate Authority under Section 107 of the CGST Act within three months of the date of the order (extendable by one month on sufficient cause). The appeal is filed in Form APL-01 on the GST portal. A mandatory pre-deposit of 10% of the disputed tax must be paid before filing the appeal, subject to a maximum cap of Rs 20 crore for CGST and Rs 20 crore for SGST/IGST. This reduced pre-deposit rate (down from the earlier effective rate) was introduced by the Finance (No. 2) Act, 2024 and came into effect on 1 November 2024. If the Appellate Authority's order is also adverse, the taxpayer may file a further appeal before the GST Appellate Tribunal (GSTAT) under Section 112, with an additional pre-deposit of 10% of the disputed tax. The GSTAT has become operational in 2026, with the Principal Bench in New Delhi commencing hearings in February 2026, followed by phased operationalisation of State Benches in Kolkata, Chennai, Hyderabad, Cuttack, and other locations. Beyond the GSTAT, appeals lie to the High Court on substantial questions of law and, ultimately, to the Supreme Court.

Key Takeaways

Section 73 covers non-fraud cases (3-year limit); Section 74 covers fraud (5-year limit); Section 74A (from FY 2024-25) consolidates both into a unified 42-month framework.
Reply to a DRC-01 notice in Form DRC-06 within 30 days; missing the deadline allows the officer to pass an ex parte order in DRC-07.
Paying tax and interest at the DRC-01A stage or within 30 days of the SCN can eliminate penalties entirely in non-fraud cases.
Appeal pre-deposit is 10% of disputed tax (max Rs 20 crore each for CGST and SGST/IGST), effective 1 November 2024.
The GST Appellate Tribunal (GSTAT) is now operational, with the Principal Bench in New Delhi and State Benches being rolled out in phases during 2026.