A GST show cause notice (Form GST DRC-01) asks why tax, interest and penalty should not be demanded from you. Read the section and tax period, reconcile your returns, then either pay the admitted amount through DRC-03 or file your reply in Form DRC-06 on the GST portal before the date in the notice. Ask for a personal hearing. Never ignore the notice.
What is a GST show cause notice?
A GST show cause notice (SCN) is a formal notice issued by the GST officer in Form GST DRC-01. It says that the officer believes tax is unpaid, short paid, wrongly refunded, or that input tax credit (ITC) was wrongly taken or used. It asks you to explain why the tax, interest and penalty should not be demanded from you.
The notice must state the amount, the tax period, the reasons, the section of the law, and the date by which you must reply. It is issued under section 73 or 74 of the CGST Act for periods up to FY 2023-24, and under section 74A for FY 2024-25 onwards.
An SCN is different from a scrutiny notice (ASMT-10). ASMT-10 asks you to explain a difference found in your returns. An SCN is the next, formal step towards a demand.
For the applicable law and rules, refer to the official CBIC GST website and the GST portal.
Why did you get a GST show cause notice?
The most common reasons are:
- Difference between GSTR-1 and GSTR-3B. Sales reported in one return do not match the other. See our guide on the GST mismatch notice.
- ITC mismatch. Credit claimed in GSTR-3B is higher than what appears in GSTR-2B.
- Ineligible ITC. Credit taken on blocked items (section 17(5)) or from a supplier whose registration was cancelled or who did not pay tax. Read our guide on GST registration cancelled.
- Tax collected but not paid. Tax shown on invoices was not deposited.
- Wrong refund. A refund was sanctioned that the officer now says was not due. See our guide on GST refund delayed.
- Reply not given to an earlier notice. An ASMT-10 or DRC-01A that went unanswered often turns into a DRC-01.
DRC-01A or DRC-01: what is the difference?
DRC-01A is a pre-notice intimation. The officer tells you the tax and interest he thinks is due and gives you a chance to pay or explain before a formal notice is issued. DRC-01 is the formal show cause notice.
The DRC-01A stage matters because it is the cheapest time to settle. In a non-fraud case, if you pay the full tax and interest at this stage (through Form DRC-03) and inform the officer, no notice is issued and no penalty is charged. If you ignore it, a DRC-01 follows, and the penalty rules become stricter.
Section 73, 74 or 74A: which applies to you?
The section depends on the financial year of the dispute, and on whether the officer alleges fraud.
| Particulars | Section 73 | Section 74 | Section 74A |
|---|---|---|---|
| Applies to | Non-fraud cases, up to FY 2023-24 | Fraud, wilful misstatement or suppression, up to FY 2023-24 | All cases, FY 2024-25 onwards |
| Fraud alleged? | No | Yes | One section covers both fraud and non-fraud cases, with different penalties |
| Notice time limit | At least 3 months before the 3-year limit ends | At least 6 months before the 5-year limit ends | 42 months |
| Order time limit | 3 years | 5 years | 12 months from notice |
| Penalty at order stage | 10% of tax or ₹10,000, whichever is higher | Up to 100% of tax | 10% or ₹10,000 for non-fraud; equal to tax for fraud |
Two practical points. First, if your notice is for FY 2024-25 or later but quotes section 73 or 74, ask a CA to examine it, because the wrong section can be a ground to challenge the notice. Second, if the notice alleges fraud under section 74, treat it as serious: the penalty is much higher and the reply must deal with the allegation directly.
Time limits: by when can the officer issue the notice and the order?
The officer cannot issue a notice at any time. Limits run from the due date of the annual return (GSTR-9) for that financial year.
| Provision | Notice Must Be Issued | Order Must Be Passed |
|---|---|---|
| Section 73 | At least 3 months before the end of 3 years (about 2 years and 9 months) | Within 3 years |
| Section 74 | At least 6 months before the end of 5 years (about 4 years and 6 months) | Within 5 years |
| Section 74A | Within 42 months | Within 12 months of the notice (extendable by up to 6 months) |
How to check: take the due date of the annual return for the year in the notice, add the period in the table, and compare it with the date on your notice. If the notice is later, your reply should raise limitation as the first ground. Under section 74A, no notice should be issued if the tax for the year is below Rs 1,000.
You can consult the official CBIC GST website for the CGST Act and relevant rules. Check the applicable provision and amendments before relying on a time limit.
How to reply to a GST show cause notice: 6 steps
Step 1: Read the notice fully. Note the section, the tax period, the amount of tax, interest and penalty, the reasons given, the reply date and the hearing date, if any. Download all attachments. The statement with the working of the demand is as important as the notice.
Step 2: Check the section, the year and the time limit. Match the financial year with section 73, 74 or 74A (see the tables above). Check whether the notice was issued within the time limit. A notice issued too late can be challenged as time-barred.
Step 3: Reconcile your numbers. Compare GSTR-1, GSTR-3B, GSTR-2B (and GSTR-9 if filed) with your books and invoices for the period. Split the demand into three buckets: amounts that are correct, amounts that are wrong because of the officer’s data, and amounts that are a timing difference. Our guide on the GST mismatch notice shows how to build a reconciliation.
Step 4: Decide whether to pay or contest. Pay what you agree is due, with interest, through Form DRC-03 and quote the notice number. Paying the admitted amount early can reduce or remove the penalty (see the penalty table below). Contest the rest with evidence.
Step 5: Draft the reply. Write the facts, attach the reconciliation, state your legal grounds (limitation, wrong section, no fraud, ITC conditions met) and ask for a personal hearing. A sample is linked below.
Step 6: File the reply in Form DRC-06 on the GST portal before the due date. Keep the ARN and the filed copy. If you cannot finish in time, write to the officer for more time before the date passes.
How to reply to a show cause notice on the GST portal?
The reply is filed online in Form GST DRC-06. Menus can change, so follow the notice on your screen. The usual path is:
- Log in at the GST portal with your username and password.
- Go to Services > User Services > View Additional Notices/Orders.
- Open the notice and click Case Details.
- Click Replies, then Add Reply.
- Check the auto-filled details: type, SCN reference number, date and financial year.
- If the officer has not already fixed a hearing, choose a personal hearing option.
- Type your reply and upload your documents (PDF, within the size limit shown on the portal).
- Tick the declaration, name the authorised signatory and enter the place.
- Click Preview, then File.
- Sign with DSC or EVC (OTP). You will get an ARN. The case status then shows “Reply furnished, pending for order by tax official”.
What must your DRC-06 reply include?
A good reply is short, factual and organised. Use this structure:
- Heading: Your name, GSTIN, notice number and date, tax period.
- Facts: A brief summary of your business and the transactions in question.
- Preliminary objections: Limitation (notice issued late), wrong section for the year, notice not specific, or no allegation of fraud when section 74 is used.
- Reply to each allegation: One paragraph per issue with the amount and the proof.
- Reconciliation statement: A table of GSTR-1, GSTR-3B and GSTR-2B figures with differences explained.
- Payments made: DRC-03 details for any amount you have already paid.
- Case law and circulars that support you, if any: Have a CA verify each citation.
- Prayer: Drop the proceedings or reduce the demand, and a request for a personal hearing with reasonable notice.
- Annexures list: Invoices, e-way bills, bank statements, supplier tax-payment proof, notices and replies.
A free sample draft can be prepared as a separate downloadable Word document, which you can copy and adapt to your case. The facts, amounts and legal grounds must be checked before filing.
Penalty on a GST show cause notice: what do you pay at each stage?
The penalty depends on the section and on when you pay. Interest under section 50 is payable on top of all amounts below.
| When You Pay | Section 73 (Non-fraud, up to FY 2023-24) |
Section 74 (Fraud, up to FY 2023-24) |
Section 74A (Non-fraud, FY 2024-25 onwards) |
Section 74A (Fraud, FY 2024-25 onwards) |
|---|---|---|---|---|
| Before the notice (DRC-01A stage) | No penalty | 15% of tax | No penalty | 15% of tax |
| Within 30 days of the notice | No penalty | 25% of tax | Not applicable (60-day window) | Not applicable (60-day window) |
| Within 60 days of the notice | Not applicable (30-day window) | Not applicable (30-day window) | No penalty | 25% of tax |
| After the order | 10% of tax or ₹10,000, whichever is higher | 50% of tax if paid within 30 days of the order; up to 100% later | 10% of tax or ₹10,000, whichever is higher, as ordered | 50% of tax if paid within 60 days of the order; otherwise equal to the tax |
What happens after you file the DRC-06 reply?
After you reply, the officer reviews your explanation and documents. You may be called for a personal hearing, either in person or online. After the hearing, the officer passes an order:
- Case dropped or closed (Form DRC-05). This happens when your explanation is accepted, or when you have paid the full amount in time.
- Demand order (Form DRC-07). This confirms the tax, interest and penalty you must pay. The order itself acts as a recovery notice, so check the payment date and your appeal time at once.
The order must be passed within the time limit for the section (see the table above). Check this too: an order passed after the limit can be challenged.
What if you ignore a GST show cause notice?
If you do not reply, the officer can pass an order on the information available, without hearing your side. The demand, with interest and penalty, then becomes recoverable. Recovery can include attachment of bank accounts, blocking of ITC or the electronic credit ledger, and action on your registration. You also lose the chance to explain. Always reply, even if you only ask for more time or a hearing.
How to appeal against a GST demand order?
If the order goes against you, you can appeal.
- First appeal: To the Appellate Authority under section 107, within 3 months from the date the order is communicated. The authority may allow a further 1 month for a good reason. File online in Form GST APL-01.
- Pre-deposit: You must pay the admitted amount and 10% of the disputed tax before the appeal is accepted. The cap on this amount has changed, so check the current limit before filing.
- Second appeal: To the GST Appellate Tribunal (GSTAT) under section 112. GSTAT benches began hearings in 2026. Check the current limit, forms and pre-deposit for your State bench.
- High Court: On questions of law, after the earlier stages, or by writ in cases where natural justice is denied.
Keep the order, the proof of its communication date and the DRC-06 copy together. Your appeal depends on them.
8 mistakes that weaken a GST show cause notice reply
- Missing the reply date. The officer may proceed without your reply.
- Replying without a reconciliation. A statement of denial with no numbers carries little weight.
- Not checking the time limit. A time-barred notice is one of the strongest grounds.
- Ignoring the section. Sections 73, 74 and 74A have different penalties; answer the one in your notice.
- Not answering the fraud allegation. Under section 74, silence on suppression or fraud can lead to a much higher penalty.
- Paying part of the amount without writing to the officer. Make the payment through DRC-03 and mention it in the reply.
- Not asking for a personal hearing. If you do not ask, the order may be passed without a hearing.
- Filing no proof. Attach invoices, e-way bills, bank statements and supplier proofs for each item.
Illustrative example: ITC difference of Rs 4.2 lakh
The figures below are made up to show the method. They are not a real case.
A trader in Gurgaon receives a DRC-01 under section 73 for FY 2022-23. The officer says ITC of Rs 4.2 lakh claimed in GSTR-3B is not shown in GSTR-2B.
The trader reconciles the year. Rs 2.6 lakh relates to invoices that appeared in GSTR-2B in the next year (timing difference). Rs 1.1 lakh is on invoices where the supplier filed late, but tax was paid. Rs 0.5 lakh is on a supplier whose tax payment cannot be proved.
The trader files a DRC-06 with the reconciliation, the invoices and the supplier’s tax-payment proof, pays the Rs 0.5 lakh with interest through DRC-03 and informs the officer, and asks for a hearing. The officer accepts the first two items and drops the proceedings on them. Penalty on the paid amount is not charged, as full tax and interest were paid within the allowed window.
The lesson: Split the demand into items, prove each one, and pay what is truly due.
Frequently asked questions: GST show cause notice reply
Log in to the GST portal and open Services > User Services > View Additional Notices/Orders > Case Details. Click Replies > Add Reply, fill in the reply text, attach documents, choose a personal hearing option, then preview and file with DSC or EVC. You get an ARN as proof. Portal menus can change, so follow the notice on your screen.
Read the notice and note the section, tax period and amount. Reconcile your returns and books, then decide whether to pay the admitted part (DRC-03) or contest. Draft a reply with facts, evidence and legal grounds, and file it in Form DRC-06 before the date in the notice. Ask for a personal hearing.
A GST show cause notice is a formal notice in Form GST DRC-01 from the tax officer asking why tax, interest and penalty should not be demanded from you. It gives you a chance to explain before any order is passed. It is issued under section 73 or 74 for periods up to FY 2023-24, and section 74A from FY 2024-25.
After you reply, the officer reviews your reply and documents, may give a personal hearing, and then passes an order. If your explanation is accepted or you pay in full, the case is closed (DRC-05). If not, a demand order (DRC-07) is issued, and you can pay or file an appeal within the time allowed.
The reply date is written in your notice, and notices commonly allow 30 days. Do not confuse this with the 30-day or 60-day windows to pay and reduce penalty, which run from the notice or the order depending on the section. If you need more time, send a written request to the officer before the date.
Section 73 covers non-fraud cases and section 74 covers fraud, wilful misstatement or suppression, both for periods up to FY 2023-24. Section 74A covers all cases from FY 2024-25 and sets a 42-month limit for the notice and 12 months for the order from the date of the notice.
In non-fraud cases, paying the tax and interest before the notice, or within the allowed window after it, avoids penalty; later the penalty is 10% of tax or Rs 10,000, whichever is higher. In fraud cases, the penalty is 15% before the notice, 25% after it, 50% after the order, and up to 100% of the tax.
Need help with your GST show cause notice?
A show cause notice has a fixed reply date, so do not wait. GVC Audit is a CA firm in Gurgaon that prepares reconciliations, drafts DRC-06 replies, appears at hearings and files appeals. Send us your notice on WhatsApp at [number] or book a call, and we will tell you the section, the time limit and your options. See also our GST notice reply service in Gurgaon.
