Short answer: GST demands arrive through a ladder, not out of nowhere. Automated mismatch intimation, then scrutiny, then a pre-notice intimation, then the show-cause notice, then the order. Each rung has its own reply window, and each rung you let pass makes the next one more expensive.
If you are holding a notice, the first task is identifying which rung you are on.
The ladder
| Stage | Form | What it is | Reply |
|---|---|---|---|
| Automated mismatch | DRC-01B (Rule 88C) | GSTR-1 output liability exceeds GSTR-3B | Explanation or payment on the portal |
| Automated mismatch | DRC-01C (Rule 88D) | GSTR-3B credit exceeds GSTR-2B | Explanation or payment on the portal |
| Scrutiny of returns | ASMT-10 (s.61) | Discrepancies noticed in your returns | ASMT-11, normally 30 days (extendable by 15) |
| Pre-notice intimation | DRC-01A (Rule 142(1A)) | Tax ascertained, before formal notice | Pay in DRC-03 or make a representation |
| Show-cause notice | DRC-01 (Rule 142(1)) | Formal demand proposed under s.73 / 74 / 74A | DRC-06, normally 30 days |
| Order | DRC-07 | Summary of the order and demand | Appeal |
| Registration | REG-17 (s.29) | Show-cause for cancellation | REG-18 |
The lower rungs are where matters are cheapest to resolve. A DRC-01B answered in the month it arrives is an administrative task; the same issue at DRC-01 stage is a demand with interest and penalty attached.
The rung most people ignore
DRC-01B and DRC-01C are not demands. They are system-generated comparisons — of your own GSTR-1 against your own GSTR-3B, and of your claimed credit against your GSTR-2B.
Because they are not demands, they get filed away. That is the mistake. An unanswered mismatch intimation is precisely what triggers scrutiny under Section 61, and scrutiny not satisfactorily answered is what produces a show-cause notice. The escalation is close to automatic.
Most of these have innocent explanations — timing differences between the month an invoice was reported and the month the liability was discharged, credit notes, amendments in a later period. But the explanation has to be given.
Section 73, 74 and now 74A
Which provision the notice is issued under matters enormously, because it drives both the limitation period and the penalty.
| Covers | Applies to | |
|---|---|---|
| Section 73 | Non-fraud cases | Up to FY 2023-24 |
| Section 74 | Fraud, wilful misstatement or suppression — extended period, much higher penalty | Up to FY 2023-24 |
| Section 74A | Single common provision replacing both | FY 2024-25 onward |
Section 74A was inserted by the Finance (No. 2) Act 2024 and unifies the regime from FY 2024-25. So a business facing notices across several years may be dealing with two different frameworks at once, and the applicable one is fixed by the financial year, not by the date of the notice.
The point worth pressing on a Section 74 notice. Invoking the fraud limb requires specific, substantiated allegations of fraud, wilful misstatement or suppression. High Courts have repeatedly set aside notices that simply reproduce the statutory language without particulars.
Suppression means deliberate withholding. It is not made out by non-payment alone, and it is not made out by a bona fide difference of interpretation. Where a notice reaches for Section 74 to gain the extended period without pleading the facts that justify it, that is a substantive ground, not a technicality — and it is worth testing before arguing the merits.
Limitation — and a live issue worth knowing about
Ordinary limitation under Section 73 runs from the due date of the annual return for the year, with Section 74 carrying a longer period.
For FY 2017-18, 2018-19 and 2019-20, the government extended those periods through notifications issued under Section 168A — Notification 13/2022, then 9/2023, then 56/2023.
Those extensions are under challenge and the position is unresolved. High Courts have divided: the Madras High Court has held 9/2023 and 56/2023 ultra vires, reasoning among other things that post-facto GST Council approval does not satisfy Section 168A; the Gauhati High Court quashed 56/2023; the Telangana High Court upheld it. A batch is pending before the Supreme Court.
Three practical consequences:
- If you hold a demand for FY 2017-18 to 2019-20, there is a live limitation ground that has nothing to do with the merits.
- It is jurisdiction-sensitive — your own High Court's position binds, other High Courts are persuasive only.
- It is unsettled, so the ground should be preserved and pleaded rather than relied on as decisive, and the current Supreme Court status checked before anything is filed.
This is the single most valuable thing to check on an older GST demand, and it is frequently missed because it does not appear anywhere in the notice.
The procedural grounds worth checking every time
A reply that argues only the merits is under-built. Run these in parallel:
- Personal hearing — Section 75(4). An opportunity of hearing must be given where requested in writing or where an adverse decision is contemplated. It is mandatory, and orders passed without it have been set aside.
- Reasoned order — Section 75(6). The order must set out the relevant facts and the basis of the decision. A conclusory order that does not engage with your reply is challengeable.
- A vague show-cause notice. An SCN that does not state what is alleged with enough particularity for you to answer it is defective — you cannot meaningfully reply to a notice that does not say what you did wrong.
- Bunching of financial years. A single notice covering several years, where limitation for each has to be computed separately, is open to objection.
- Parallel proceedings — Section 6(2)(b). Where one authority (Centre or State) has initiated proceedings on a subject matter, the other is barred from proceeding on the same subject matter. Worth checking whenever notices arrive from both.
- DIN and authentication. As with any departmental communication.
None of these depend on your figures being right, which is what makes them worth checking first.
The amnesty, for old years
Section 128A provides a conditional waiver of interest and penalty for FY 2017-18 to 2019-20, subject to conditions including payment of the tax. Where your exposure falls in that window, it should be evaluated before anything is paid or contested — the arithmetic of settling under the waiver can be very different from litigating, and the two need to be compared rather than assumed.
Registration cancellation
A separate and more urgent track. REG-17 is the show-cause for cancellation under Section 29, replied to in REG-18. Registration may also be suspended while proceedings run, which stops you issuing tax invoices — a commercial problem that arrives long before any demand is adjudicated.
Where cancellation has already happened, Section 30 provides for revocation, subject to its own timeline. Acting quickly matters far more here than in a demand matter, because the business impact is immediate.
What to do with a notice
- Identify the rung and the form. A mismatch intimation, a scrutiny notice and a show-cause are three different things with three different consequences.
- Diarise the reply date and the form to reply in — ASMT-11, DRC-06, REG-18.
- Check limitation and the provision invoked before touching the merits, particularly on FY 2017-18 to 2019-20 matters.
- Reconcile properly — GSTR-1 to GSTR-3B to books, and GSTR-2B to the purchase register. Most scrutiny points dissolve on a clean reconciliation, which is the same monthly discipline covered in input tax credit and GSTR-2B.
- Request a personal hearing in writing, so that Section 75(4) is engaged on the record.
- Plead grounds cumulatively — limitation, procedure, the characterisation under 73 versus 74, and the merits, in the alternative. The department needs one ground to succeed; so should you.
The wider position on registration, returns and credit is on the GST registration and return filing page, and income-tax notices are covered separately under tax notices and assessments.
GST procedure and limitation are moving quickly, and the Section 168A litigation in particular is unresolved as at the date above. This note describes the general framework; the position for a specific notice depends on the period, the provision invoked and your jurisdictional High Court, and should be confirmed against them before a reply is filed.