Category: GST Notices & Litigation

A show cause notice (SCN) in Form GST DRC-01 is the department formally saying that it believes tax has been short-paid, not paid, wrongly refunded, or that input tax credit (ITC) was wrongly availed. Which section the notice is issued under decides the time limit, the penalty, and how much you can save by acting early. This guide explains Sections 73, 74 and 74A of the CGST Act in plain terms and sets out what to do in the first week after the notice arrives.

Section 73, 74 or 74A: which one applies?

• Section 73 covers demands where there is no fraud, wilful misstatement or suppression of facts. It applies to tax periods up to FY 2023-24.
• Section 74 covers demands involving fraud, wilful misstatement or suppression of facts to evade tax. It also applies up to FY 2023-24.
• Section 74A applies from FY 2024-25 onwards and replaces both. It uses a single time limit, with different penalties depending on whether fraud or suppression is alleged.

Look at the top of the DRC-01 and the tax period it covers. A notice for FY 2024-25 citing Section 73 or 74 has cited the wrong provision, and that is worth raising in your reply.

Time limits the department must meet

• Section 73: the order must be passed within 3 years of the due date of the annual return for that year, and the SCN must be issued at least 3 months before that date.
• Section 74: the order must be passed within 5 years of the annual return due date, and the SCN at least 6 months before that date.
• Section 74A: the SCN must be issued within 42 months of the annual return due date, and the order within 12 months of the SCN (extendable by up to 6 months).

A notice or order issued after its time limit is invalid. Checking limitation is always the first step. It is also why an unusually large number of notices and orders appears near the end of each year’s window.

Penalty, and how to reduce it

The biggest saving in most SCNs comes from timing.

• Section 73 (non-fraud): no penalty if tax and interest are paid before the SCN, or within 30 days of it. Otherwise the penalty is 10% of the tax or ₹10,000, whichever is higher.
• Section 74 (fraud/suppression): penalty of 15% if paid before the SCN, 25% if paid within 30 days of the SCN, 50% if paid within 30 days of the order, and 100% otherwise.
• Section 74A: for non-fraud cases, no penalty if tax and interest are paid within 60 days of the SCN. For fraud or suppression cases, the penalty is 15% if paid before the SCN, 25% if paid within 60 days of the SCN, 50% if paid within 60 days of the order, and 100% otherwise.

Paying is not an admission that you agree. Where part of the demand is clearly correct, it often makes sense to pay that part within the window and contest the rest.

What to do in the first 7 days

1. Note the reply date and the hearing date. Both are in the notice. If there is no hearing date, ask for one in writing.
2. Check limitation and jurisdiction. Is the notice within time? Is the right officer issuing it? Is the correct section cited for the tax period?
3. Download the attachments. The DRC-01 summary is short. The detailed grounds are usually in an attached PDF, and that is what you are replying to.
4. Reconcile the numbers. Rebuild the officer’s figures from GSTR-1, GSTR-3B, GSTR-2A/2B, GSTR-9 and your books. Most demands contain at least some arithmetic or duplication errors.
5. Decide pay vs contest for each item, using the penalty windows above.
6. Draft and file the reply in DRC-06 with annexures, and attend the hearing.

Common grounds that succeed

• The SCN or order is time-barred or cites the wrong section for the period
• ITC was denied only because of a GSTR-2A/2B mismatch, while the invoices, payments and supplier returns support the claim
• Turnover differences caused by credit notes, advances or amendments in later months
• Non-application of mind: an order that ignores the reply, or a summary in DRC-07 that goes beyond the SCN
• No opportunity of a personal hearing before an adverse order

Read more: GST notice reply and representation in Delhi NCR · Appealing a GST demand order

This article is general information based on the CGST Act as amended, and is not legal advice. Check the facts of your own notice with a professional before acting.

Form GST ASMT-10 is a scrutiny notice. The proper officer has compared your returns, usually GSTR-1, GSTR-3B, GSTR-2A/2B and GSTR-9, found discrepancies, and is asking you to explain them. It is not yet a demand. Handled well, most ASMT-10 notices close at this stage. Handled badly, they turn into a show cause notice under Section 73, 74 or 74A.

The legal basis

Scrutiny of returns is covered by Section 61 of the CGST Act and Rule 99 of the CGST Rules. The officer issues ASMT-10 listing the discrepancies. You reply in Form ASMT-11. If the explanation is accepted, the officer issues ASMT-12 and the matter closes. If not, the officer can start audit, special audit, inspection, or demand proceedings.

How much time you get

The reply is due within 30 days of the notice, or a longer period if the officer allows it. If you need more time, ask in writing before the deadline and give reasons.

The discrepancies officers raise most often

• ITC in GSTR-3B higher than GSTR-2A/2B: often caused by suppliers filing late, or by timing differences across months
• Outward tax in GSTR-1 higher than GSTR-3B: often amendments, credit notes or advances
• Turnover in GSTR-9 not matching the financial statements or e-way bill data
• ITC on blocked items under Section 17(5), or reversals not made under Rule 42/43
• Interest on delayed payment of tax
• RCM liability not paid on services such as legal fees, GTA or rent from unregistered persons

How to write an effective ASMT-11 reply

1. Answer every point, in the officer’s numbering. A reply that skips an item invites a demand on that item.
2. Show the working. For each difference, attach a month-wise reconciliation that ties the officer’s figure to yours.
3. Attach evidence: supplier invoices, payment proof, supplier return status, credit notes and ledger extracts.
4. Accept what is correct. If part of the discrepancy is a real short payment, pay it with interest through DRC-03 and say so in the reply. This keeps the rest of the reply credible.
5. Ask for ASMT-12. End by requesting that the proceedings be dropped and an order in ASMT-12 be issued.

What if you do not reply?

Without a satisfactory explanation, the officer can move straight to a show cause notice. At that point interest keeps running, penalty exposure starts, and the matter becomes harder and more expensive to close.

Read more: GST show cause notices under Section 73, 74 and 74A · GST notice reply in Delhi NCR

This article is general information and is not legal advice.

When a GST officer passes a demand order (summary in Form DRC-07), recovery can start soon afterwards, including attachment of bank accounts. An appeal filed on time with the required pre-deposit stops recovery of the balance and gives you a fresh hearing on the merits. This guide covers both stages: the first appeal and the GST Appellate Tribunal (GSTAT).

Stage 1: Appeal to the Appellate Authority (Section 107)

• Form: APL-01, filed online on the GST portal
• Time limit: 3 months from the date the order is communicated. The Appellate Authority can condone a further 1 month of delay for sufficient cause, but no more.
• Pre-deposit: the full amount of tax, interest, fine, fee and penalty that you admit, plus 10% of the disputed tax (subject to the statutory cap)
• Effect: once the pre-deposit is paid, recovery of the balance is deemed stayed

Stage 2: Appeal to the GST Appellate Tribunal (Section 112)

GSTAT has now started functioning and accepting appeals, which gives taxpayers a real second forum after years of waiting.

• Form: APL-05
• Time limit: 3 months from communication of the first appellate order
• Pre-deposit: a further 10% of the tax that remains in dispute, over and above the first-stage pre-deposit
• Backlog appeals: special cut-off dates were notified for orders passed before GSTAT became operational. If you have an older appellate order that was never taken further, check at once whether a window is still open.

Grounds that carry weight in GST appeals

• Limitation: SCN or order issued after the time limit in Section 73, 74 or 74A
• Wrong section: for example, Section 73 or 74 invoked for FY 2024-25, where Section 74A applies
• Natural justice: no personal hearing, or the reply not considered
• Order beyond the SCN: the demand exceeds or differs from what was proposed
• Merits: genuine ITC denied only for a 2A/2B mismatch, classification or valuation errors, or duplicate demands

Practical checklist before filing

1. Get the certified order, the SCN and your reply together in one file.
2. Calculate the pre-deposit exactly and pay it through the electronic cash or credit ledger, as permitted.
3. Draft the statement of facts and the grounds of appeal. Weak grounds cannot easily be added later.
4. Keep proof of filing and payment, and write to the proper officer asking that recovery be stayed.

Watch the calendar

For FY 2022-23, orders under Section 73 must be passed by 31 December 2026. A large number of orders can be expected in the last quarter of 2026, which puts their 3-month appeal windows in early 2027. If you have a pending SCN for that year, prepare your appeal file now.

Read more: GST appeal services · Show cause notices under Section 73, 74 and 74A

This article is general information and is not legal advice. Pre-deposit percentages and caps are as per the CGST Act as amended; confirm the current position for your case.