A GST show cause notice (SCN) demands tax that the department believes was not paid, short paid, wrongly refunded or wrongly claimed as input tax credit, with interest and penalty. The reply you file becomes the record for any appeal, so it should be prepared as carefully as an appeal itself.

Which section applies?

For financial years up to 2023-24:

  • Section 73 covers cases without fraud, wilful misstatement or suppression of facts. The order must be passed within three years from the due date of the annual return for that year, and the SCN at least three months before that.
  • Section 74 covers cases involving fraud, wilful misstatement or suppression. The time limit is five years, and the SCN must be issued at least six months before the order.

For financial year 2024-25 onwards, both are replaced by a single section 74A. An SCN can be issued within 42 months from the due date of the annual return, and the order must be passed within 12 months of the SCN, extendable by up to six months. The penalty still depends on whether fraud or suppression is alleged.

Always check which section the notice is issued under and whether it is within time. An SCN that invokes fraud or suppression without specific allegations can be challenged on that ground alone.

Penalties and how to reduce them

  • Non-fraud cases (section 73, or 74A without fraud): penalty of 10% of the tax or ₹10,000, whichever is higher. If the tax and interest are paid before the SCN or within the prescribed period after it, no penalty is payable.
  • Fraud or suppression cases (section 74, or 74A with fraud): penalty equal to 100% of the tax, reduced to 15%, 25% or 50% depending on whether the tax, interest and penalty are paid before the SCN, shortly after it, or shortly after the order.

Where part of the demand is clearly correct, paying that part early can save penalty while you contest the rest.

Before the SCN: DRC-01A

Many proceedings begin with an intimation in Form DRC-01A or a scrutiny notice in ASMT-10. Respond to these in writing with reconciliations — a good reply at this stage often ends the matter without an SCN.

How to draft the reply

  1. Read the notice and the relied-upon documents. Ask for any documents referred to but not supplied.
  2. Check limitation and jurisdiction — the period covered, the date of issue, the officer issuing it, and whether fraud or suppression is properly alleged.
  3. Reconcile the figures. Most notices arise from mismatches: GSTR-1 against GSTR-3B, GSTR-2A or 2B against ITC claimed, e-way bills against returns, or turnover in the income tax return against GST returns. Prepare a reconciliation that explains each difference.
  4. Answer every allegation separately, with documents as annexures — invoices, payment proof, supplier confirmations, contracts.
  5. State the legal position, with section references, circulars and case law.
  6. Ask for a personal hearing. A hearing must be granted where requested or where an adverse decision is contemplated.
  7. File the reply in Form DRC-06 on the GST portal within the time allowed, usually 30 days.

After the order

The order is issued in Form DRC-07. If you disagree, an appeal lies to the Appellate Authority in Form APL-01 within three months, on payment of a pre-deposit of 10% of the disputed tax (subject to a cap) along with the admitted amount. A further appeal lies to the GST Appellate Tribunal.

Frequently asked questions

What is the time limit to reply to a GST show cause notice?

Usually 30 days, as stated in the notice. File the reply in Form DRC-06 with supporting documents and ask for a personal hearing.

What is the difference between section 73 and section 74 of the GST Act?

Section 73 covers cases without fraud or suppression, with a three-year limit and a penalty of 10% or ₹10,000. Section 74 covers fraud or suppression, with a five-year limit and a penalty of 100%. From FY 2024-25, both are replaced by section 74A.

Can penalty be avoided on a GST show cause notice?

In non-fraud cases, no penalty is payable if the tax and interest are paid before the notice or within the prescribed period after it. In fraud cases, penalty is reduced, not waived, for early payment.

How do I appeal against a GST demand order?

File an appeal in Form APL-01 within three months of the order, with a pre-deposit of 10% of the disputed tax. A further appeal lies to the GST Appellate Tribunal.

How we help

ASKN & Co. LLP drafts replies to DRC-01A, ASMT-10 and show cause notices, represents clients in personal hearings and handles appeals before the Appellate Authority and the GST Appellate Tribunal. See our GST services and our guide to common errors in ITC claims.

This article is general information based on the law as at the date shown and is not professional advice. Please consult us before acting on it.