- Not every notice is a demand: scrutiny, audit, show-cause and order are different stages with different consequences.
- The show-cause notice must set out the grounds and quantum; the order cannot travel beyond them.
- An appeal to the first appellate authority is filed within three months of the order being communicated, with a pre-deposit of the admitted tax plus a percentage of the disputed amount.
- For financial years from 2024-25, the demand-and-recovery provisions are consolidated in section 74A of the CGST Act; earlier years continue under sections 73 and 74.
The staircase of GST proceedings
From return to appeal
- 01
Scrutiny
Officer reviews filed returns; discrepancies are intimated in Form ASMT-10 and answered in ASMT-11 (section 61).
- 02
Audit / inspection
Departmental audit (section 65) or search and inspection (section 67); findings are communicated and responded to.
- 03
Show-cause notice
Form DRC-01 under section 73 / 74 (or 74A) sets out tax, interest and penalty alleged; the taxpayer replies in DRC-06.
- 04
Order
Adjudicating authority passes a speaking order in Form DRC-07 after hearing.
- 05
Appeal
First appeal under section 107 in Form GST APL-01; further appeal to the Appellate Tribunal under section 112.
The two kinds of demand — and the 2024 change
For years up to 2023-24, section 73 dealt with tax not paid or short-paid without fraud, wilful misstatement or suppression, and section 74 dealt with the same where those elements were alleged. The Finance Act, 2024 inserted section 74A, which replaces both for financial year 2024-25 and later and applies a uniform set of time limits and penalty structure to both the non-fraud and fraud cases. Notices must therefore be read first for the period they cover and then for the provision they invoke; a notice that cites the wrong section for the year is open to challenge.
| Provision | Applies to | Notice must issue within | Order must be passed within |
|---|---|---|---|
| Section 73 | Non-fraud demands for years up to 2023-24 | 2 years 9 months from due date of annual return | 3 years from the due date of annual return |
| Section 74 | Fraud, wilful misstatement or suppression for years up to 2023-24 | 4 years 6 months from due date of annual return | 5 years from the due date of annual return |
| Section 74A | Both categories for 2024-25 onwards | 42 months (non-fraud) or 54 months (fraud) from due date of annual return | 12 months from the date of notice |
The five most common triggers
- GSTR-3B vs GSTR-2B mismatch: input tax credit claimed beyond what the supplier’s filed return shows.
- GSTR-1 vs GSTR-3B mismatch: outward supplies reported in one return and taxed in another differently.
- E-invoice and e-way bill mismatch: invoices on the portal not reflected in returns.
- Ineligible ITC: credit on blocked categories, or claimed after the statutory time limit in section 16(4).
- Wrong classification or rate on supplies, especially where an entry was reclassified by notification.
Replying: what a good response has
Response file for a show-cause notice
- Issue-wise table: the allegation, the fact, the supporting document, the legal basis
- Reconciliation of books, GSTR-1, GSTR-3B and GSTR-2B for the period in dispute
- Copies of invoices, e-way bills, contracts and bank evidence for the contested supplies
- Specific objection to limitation if the notice is out of time
- Prayer for personal hearing, and request for relied-upon documents the notice did not annex
- Signature by an authorised person and uploading on the portal before the due date
Appeals and pre-deposit
An appeal from an order of an adjudicating authority lies to the first appellate authority within three months of communication of the order, extendable by a further month on sufficient cause (section 107). The appellant must pay the admitted tax, interest, fine, fee and penalty and a pre-deposit of ten percent of the disputed tax; recovery of the balance is stayed while the appeal is pending. A second appeal lies to the GST Appellate Tribunal under section 112 on a higher pre-deposit, and thereafter to the High Court on a substantial question of law. The Tribunal’s constitution and benches have been put in place in stages; confirm its operational status and filing procedure at the time of filing.
Frequently asked
Is a GST notice always a demand?
No. Notices range from routine clarification requests (ASMT-10) and reminders for returns, to show-cause notices under the demand provisions. The form number and the section cited indicate the stage.
What if the reply deadline is missed?
The officer can proceed to pass an order on the available material. A late reply may still be filed in practice through a request for time or at the hearing, but the safe course is to respond within the date and, if more time is needed, to request it in writing before the date.
Can I pay the tax and close the matter?
In cases without fraud, paying the tax and interest before notice, or within the window after notice, can reduce or extinguish the penalty under the relevant provision. Paying under protest preserves the right to dispute; check which basis the payment is made on.
Is there a time limit for the department to issue notice?
Yes — see the table. A notice issued beyond the period is open to challenge on limitation, which is one of the first points to check on receiving any demand.
GST law is amended frequently by Finance Acts, notifications, circulars and orders of the GST Council, and the appellate structure is being put in place in stages. Confirm the current position, forms and limits before acting on any notice. Not a substitute for advice from an advocate or chartered accountant on your facts.