Introduction
Under the Goods and Services Tax (GST) Act, 2017, businesses are required to comply with various tax obligations, including filing returns, maintaining proper records, and ensuring accurate tax payments. In case of any discrepancies, the GST authorities issue notices to taxpayers, requiring clarification, rectification, or payment of tax shortfalls.
Failure to respond to these notices within the stipulated time may lead to penalties, interest liabilities, and even suspension of GST registration. This article provides a structured approach to handling GST scrutiny notices, including:
- Types of GST notices and their purpose
- Steps to respond to GST demand notices
- Common reasons for receiving a GST notice
- Legal consequences of non-compliance
- Preventive measures for businesses to avoid future scrutiny
1. Types of GST Notices & Their Applicability
GST notices are issued under different sections of the CGST Act, 2017, depending on the nature of the discrepancy. The table below provides an overview of common GST notices:
| Notice Type | Purpose | Relevant Section | Response Time |
|---|---|---|---|
| GST ASMT-10 | Discrepancies in GST returns (GSTR-1, GSTR-3B) | Section 61 | 15 days |
| GST DRC-01 | Show-cause notice for tax shortfall | Section 73/74 | 30 days |
| GST DRC-07 | Final demand order after adjudication | Section 73/74 | No further response allowed |
| GST DRC-13 | Notice to recover unpaid GST from a third party | Section 79 | Immediate |
| GST CMP-05 | Scrutiny of composition scheme eligibility | Section 10 | 7 days |
| GST REG-03 | Additional information required for GST registration | Rule 9(2) of CGST Rules | 7 days |
| GST PCT-03 | Show-cause notice issued to GST practitioners | Rule 83(6) of CGST Rules | 30 days |
Ignoring a GST notice can result in penalties under Section 122 of the CGST Act and potential suspension of GST registration under Section 29(2).
2. Procedure to Respond to a GST Notice
Step 1: Download the Notice from the GST Portal
- Log in to the GST portal (www.gst.gov.in)
- Navigate to ‘Services’ → ‘User Services’ → ‘View Notices and Orders’
- Download and review the details of the notice, including the reason for issuance, reference section, and response deadline
Step 2: Analyze the Discrepancy & Gather Supporting Documents
- Reconcile GST returns (GSTR-1, GSTR-3B, GSTR-2B) to identify mismatches
- Cross-check tax payments with electronic cash/credit ledgers
- Retrieve invoices, payment receipts, and purchase registers to validate ITC claims
Step 3: File a Response on the GST Portal
- Navigate to ‘Reply to Notice’ under the ‘Notices and Orders’ section
- Upload necessary documents, explanations, and rectifications
- If required, pay the outstanding tax along with interest under DRC-03
Step 4: Monitor the Status & File an Appeal (if necessary)
- Track the application status on the GST portal
- If the GST officer rejects the response, file an appeal under GST APL-01 within 90 days
3. Common Reasons for Receiving GST Notices
1. Mismatch Between GSTR-1 and GSTR-3B (Section 61)
- If outward supplies reported in GSTR-1 do not match with GST paid in GSTR-3B, the department issues GST ASMT-10.
- Solution: Regularly reconcile sales data and tax liability before filing returns.
2. Incorrect Input Tax Credit (ITC) Claims (Section 73/74)
- If ITC claimed in GSTR-3B exceeds the auto-generated ITC in GSTR-2B, authorities may issue DRC-01.
- Solution: Claim ITC only when it is legitimately available, and ensure supplier compliance with Rule 36(4) of CGST Rules.
3. Non-Payment of GST Liability (Section 73/74)
- If a taxpayer fails to pay GST on time, GST DRC-07 is issued.
- Solution: Ensure GST payments are made within due dates (20th of every month for regular taxpayers).
4. Discrepancy Between GST Turnover & Income Tax Return (ITR) Data
- If GST turnover is significantly lower than revenue declared in ITR, a notice is issued under Section 61.
- Solution: Maintain consistency between GST and income tax filings.
5. E-Way Bill Non-Compliance (Section 129/130)
- If goods valued above ₹50,000 are transported without an E-Way Bill, a penalty is levied.
- Solution: Always generate valid E-Way Bills for inter-state & high-value transactions.
4. Consequences of Not Responding to a GST Notice
Failure to comply with a GST notice within the stipulated timeframe can result in:
- Penalty under Section 122 – Minimum ₹50,000 (₹25,000 CGST + ₹25,000 SGST)
- Interest Liability under Section 50 – 18% per annum on the unpaid tax amount
- Suspension of GST Registration under Section 29(2)
- Attachment of Bank Accounts & Property under Section 79
In extreme cases, continuous non-compliance can lead to prosecution under Section 132, which includes imprisonment for wilful tax evasion exceeding ₹5 crore.
5. How to Avoid GST Notices in the Future?
- Ensure Monthly GST Reconciliations: Match GSTR-1, GSTR-3B, and GSTR-2B before filing returns.
- Verify ITC Claims: Claim only eligible ITC, ensuring suppliers have filed their GST returns.
- Timely Tax Payments: Pay GST before the 20th of each month to avoid interest & penalties.
- Maintain Proper Records: Keep sales invoices, purchase registers, and tax payment receipts for at least six years as per Section 36 of the CGST Act.
- Use Automated Accounting Software: Implement Tally, Zoho Books, or QuickBooks to track GST compliance.
6. FAQs on GST Notices & Scrutiny
1. Can I ignore a minor GST notice?
No. Every GST notice requires a response. Even small discrepancies, if left unaddressed, may result in penalties.
2. How can I check if my response has been accepted?
You can track the response status under ‘Notices and Orders’ → ‘Track Application Status’ on the GST portal.
3. Can I request an extension for responding to a GST notice?
Yes. In some cases, taxpayers can submit a request for an extension through the GST portal. However, it is subject to approval.
4. What happens if my appeal against a GST demand is rejected?
If an appeal is rejected, taxpayers can file a second appeal with the GST Appellate Tribunal under Section 112 of the CGST Act.
Conclusion
Handling GST scrutiny effectively requires a proactive approach to compliance. Businesses should:
- Monitor GST return filings for accuracy
- Respond to notices within the stipulated deadlines
- Reconcile tax liabilities & input credits regularly
- Seek professional advice for complex disputes
By following these best practices, businesses can mitigate tax risks, avoid penalties, and ensure smooth operations under the GST framework.
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