Responding to a GST Notice: A Practical Guide for Indian Business

A GST notice is an administrative communication asking you to explain a difference the department has observed in your filings. Many are reconciliation queries rather than allegations of evasion, and a query answered on time with the supporting documents attached can be closed without escalation. What often converts a routine query into a demand is silence, a late reply, or a reply that argues the law without attaching the documents that prove the facts. This guide sets out how to categorise a GST notice, why input tax credit mismatches are a routine trigger, how to build the response file, and when to bring in a professional.

Identify which notice you have before you draft anything

The Central Goods and Services Tax Act, 2017 provides several distinct routes by which the department can ask you a question, and each carries a different reply form, a different reply period and a different downstream consequence. The section reference and form number printed on the communication tell you which route you are on, and that determines everything you do next. Read them before writing a single line of reply.

• Return default. Section 46 of the CGST Act, 2017 provides for a notice to a registered person who has not furnished a return, requiring it to be filed within the period specified. Continued default can lead to assessment on a best judgment basis under Section 62.
• Scrutiny of returns. Section 61 read with Rule 99 of the CGST Rules, 2017. The proper officer communicates discrepancies in FORM GST ASMT-10, the taxpayer replies in FORM GST ASMT-11, and acceptance of the explanation is recorded in FORM GST ASMT-12.
• System-generated mismatch intimations. Rule 88C deals with liability declared in the outward supply statement exceeding that declared in the summary return, intimated in FORM GST DRC-01B. Rule 88D deals with input tax credit availed in the summary return exceeding the credit available in the auto-drafted statement, intimated in FORM GST DRC-01C. These are not show cause notices, but leaving them unanswered restricts subsequent filings and frequently precedes a demand.
• Audit and investigation. Section 65 (audit by the tax authorities), Section 66 (special audit), Section 67 (inspection, search and seizure) and Section 70 (summons to give evidence and produce documents).
• Demand. Section 73 covers tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilised, for any reason other than fraud, wilful misstatement or suppression of facts. Section 74 covers the same defaults where fraud, wilful misstatement or suppression is alleged. A pre-notice intimation may be communicated in Part A of FORM GST DRC-01A under Rule 142(1A) of the CGST Rules, 2017; that rule has been amended and its issue is not in all cases mandatory, so verify the current text before arguing that its absence vitiates the notice. The show cause notice is summarised in FORM GST DRC-01 and the reply is filed in FORM GST DRC-06.

The line between Section 73 and Section 74 is the most consequential thing on the page, because the allegation, the penalty exposure and the window for concessional settlement all differ. For periods from the financial year 2024-25, Section 74A was introduced to provide a common determination framework; confirm which provision governs your period against the current CBIC notification rather than assuming continuity with earlier years. Do not compute interest or penalty from memory in either case.

Why input tax credit mismatches are a routine trigger

Input tax credit is the largest reconciliation surface in GST because the recipient's entitlement depends partly on facts that sit in the supplier's hands. Your books can be accurate, your payments genuine and your returns filed on time, and a difference can still appear on the department's screen because a supplier filed late, filed under the wrong GSTIN, or did not file at all. That structural dependency, not carelessness, is why credit differences generate so much correspondence.

The conditions in Section 16

Section 16 of the CGST Act, 2017 sets out both entitlement and the conditions attached to it. Sub-section (2) is the operative test, and every condition in it must be satisfied before credit is admissible. The conditions are set out below in the order in which they appear in the statute:

• Clause (a): the recipient holds a tax invoice or debit note issued by a registered supplier, or another prescribed document.
• Clause (aa): the details of that document have been furnished by the supplier in the statement of outward supplies and communicated to the recipient.
• Clause (b): the recipient has received the goods or services, including through the deemed-receipt provisions that cover bill-to-ship-to arrangements.
• Clause (ba): the credit has not been restricted in the details communicated to the recipient under Section 38.
• Clause (c): the tax charged in respect of the supply has actually been paid to the Government, in cash or through utilisation of admissible input tax credit.
• Clause (d): the recipient has furnished the return under Section 39.

Two further mechanics matter in practice. The second proviso to Section 16(2), read with Rule 37 of the CGST Rules, 2017, requires the recipient to pay the supplier the value of the supply along with tax within the prescribed period, failing which the credit is to be reversed with interest and can be re-availed on payment. Separately, Section 16(4) imposes a cut-off for availing credit relating to a financial year, and later amendments have altered the position for certain periods; confirm the current text and any applicable notification before conceding that a claim is time-barred.

Section 16(2)(c) of the CGST Act, 2017 deserves separate attention, because it is the condition a recipient cannot directly control. A business can hold a valid tax invoice, have received the goods, and have paid the supplier in full, and still face a proposal to reverse credit because the department's records do not reflect payment of the tax by the supplier. Litigation on how far a bona fide recipient can be made to bear that consequence continues, and the practical answer at notice stage is evidentiary rather than rhetorical: show the transaction was real, show you paid, and show what you did to make the supplier regularise.

Section 17: apportionment and blocked credits

Section 17 of the CGST Act, 2017 restricts credit where inputs are used partly for business and partly for other purposes, or partly for taxable and partly for exempt supplies, with the computation prescribed in Rules 42 and 43 of the CGST Rules, 2017 for inputs and input services and for capital goods respectively. Section 17(5) then lists categories on which credit is blocked altogether, including specified motor vehicles, works contract and construction of immovable property, and goods lost, stolen, destroyed, written off or disposed of by way of gift or free sample, each subject to its own exceptions. Where credit is blocked or apportioned, the answer is a corrected computation and a schedule, not an argument.

Treat the auto-populated statement as a starting point, not as the truth

The auto-drafted input tax credit statement is generated from what your suppliers have filed, so a difference against your purchase register is expected rather than exceptional. Common and entirely innocent causes include timing (the supplier reported the invoice in a later period), supplier data errors (wrong GSTIN, wrong document date, a business-to-business supply reported as business-to-consumer), credit notes recorded on different dates, import IGST evidenced by a bill of entry, and tax payable under reverse charge. Where the portal's Invoice Management System is available to your registrations, recipients can accept, reject or keep supplier documents pending before the statement is generated; confirm the current functionality and cut-offs, as portal behaviour has changed over time.

Assembling the response file

Reconcile before you argue

Run a three-way reconciliation for each GSTIN and each tax period: purchase register in the books, credit actually availed in the summary return, and credit reflected in the auto-drafted statement. Then bucket every difference into a reason code, such as timing, supplier non-filing, wrong GSTIN, credit note, ineligible or blocked credit, reverse charge, imports, or duplication. A reply that hands the officer a reconciliation with reason codes and totals that tie back to the notice is a reply that can be accepted; a reply that asserts correctness in prose is a reply that generates a second notice.

Evidence, invoice by invoice

• Tax invoice or debit note carrying the supplier's GSTIN and the prescribed particulars, with the invoice reference number and QR code where e-invoicing applies to that supplier.
• Proof of receipt: e-way bill, transporter documentation, gate entry or goods receipt note for goods; acceptance, timesheets or deliverables for services.
• Proof of payment to the supplier within the prescribed period: bank statement, transaction reference and the supplier ledger.
• Accounting entry and the input tax credit register extract for the period in which credit was taken.
• Purchase order or contract establishing the commercial basis of the supply.
• For imports, the bill of entry. For supplies taxed under reverse charge, the supplier's invoice where the supplier is registered, or the recipient's own invoice issued under Section 31(3)(f) of the CGST Act, 2017 where the supplier is unregistered, together with proof that the tax was discharged.

Chase the supplier in writing

Supplier follow-up is not only a commercial step, it is evidence. Write to the defaulting supplier asking them to file or amend the outward supply statement for the period, and to furnish the return acknowledgement, the payment challan and a confirmation that tax on your invoices has been discharged. CBIC has prescribed a procedure for verifying such differences for the initial years of GST, which contemplates reliance on a certificate from the supplier and, where the amount involved exceeds a prescribed value, a certificate from a chartered accountant or cost accountant; confirm which circular applies to your period and the threshold currently in force. Keep the correspondence in the annexures, because it goes to bona fides.

Drafting the reply itself

A usable GST reply has five parts: a short statement of facts and the periods involved; a reconciliation table setting the figure alleged against your figure with reason codes; the legal position with precise provisions cited; an annexure index mapping each line of the table to the documents that prove it; and a clear statement of what you accept and what you dispute. Where you accept a portion, pay it, quote the payment particulars in FORM GST DRC-03 and say so in the reply. Disputing everything reflexively costs credibility on the items where you are right.

A GST reply is an evidence file with a covering argument, not an argument with documents attached.

Ask for a personal hearing in writing. Section 75(4) of the CGST Act, 2017 requires that an opportunity of hearing be granted where a request is received in writing from the person chargeable, or where any adverse decision is contemplated. Equally, Section 75(7) provides that the amount of tax, interest and penalty demanded in the order shall not be in excess of the amount specified in the notice, and that no demand shall be confirmed on grounds other than the grounds specified in the notice. Record the grounds actually alleged, and object on the record if the order travels beyond them.

Timeline discipline

Section 169 of the CGST Act, 2017 recognises several modes of service, including making the communication available on the common portal. A notice can therefore be validly served without anyone in your organisation opening an envelope, which is why the single highest-return control is a named owner who checks the portal for every GSTIN on a fixed weekly cadence and diarises what appears.

• Diarise the reply date printed on the notice and work backwards from it. Scrutiny replies are contemplated within the period stated in the intimation, commonly thirty days, with extension at the officer's discretion.
• Seek an adjournment in writing before the period expires, not after. The Act limits the number of adjournments that may be granted, so confirm the current position before assuming a further date will follow.
• An appeal to the Appellate Authority under Section 107 must be filed within three months of communication of the order, with a further period condonable on sufficient cause shown, and is subject to payment in full of the amount admitted by the appellant, together with a percentage of the remaining tax in dispute, under Section 107(6). The percentage and the monetary cap have been amended, so verify against the current CBIC notification rather than a remembered figure.
• Interest under Section 50 and penalties under Sections 73, 74, 74A (for periods from the financial year 2024-25) and 122 turn on what is alleged and when you pay. Compute them from the current notification, and take advice before relying on any concessional window.

When to escalate to a professional

A reconciliation query with clean documents can usually be answered in-house. Escalate to a chartered accountant, cost accountant or GST counsel when any of the following appears, because the record you create at notice stage is the record the appellate authorities will read.

• The notice alleges fraud, wilful misstatement or suppression of facts under Section 74, or is issued under Section 74A for later periods.
• The dispute is about classification, valuation, or place of supply rather than arithmetic.
• The electronic credit ledger has been blocked under Rule 86A of the CGST Rules, 2017, or recovery or provisional attachment steps have begun.
• Exposure spans multiple years or multiple States, or involves refunds, exports, supplies to or from a special economic zone, or cross-charge between distinct persons.
• A summons has been issued under Section 70, or a statement is to be recorded from any of your personnel.

Engaging a professional at notice stage is generally far cheaper than doing so at appeal, because facts not placed before the adjudicating authority are difficult to introduce later. The reply is where the record is fixed.

Where software helps, and where it does not

Software is most useful on the mechanical half of this work: watching for what is due, holding the evidence, and finding the contractual position quickly. LexVio's compliance module monitors SEBI, RBI, MCA/ROC and GST, maintains an automated filing calendar with 14-day pre-deadline alerts, and provides a regulatory change feed so that amendments do not arrive as a surprise inside a notice. Its Tax AI covers income tax, TDS and GST computation, alongside IFRS versus IndAS comparison and cross-border tax impact. Vault is one of the five unified modules alongside Legal, Compliance, Tax and Workflows, and Nexus supports portfolio-wide search and clause benchmarking, so questions such as which vendor contracts carry a GST indemnity or a right to withhold payment on supplier non-compliance can be answered across the whole contract estate rather than one file at a time. Where a supplier contract needs amending, tracked-change redlines export to Word.

What software does not do is decide whether to contest, sign the reply, or carry responsibility for the position taken. AI accelerates the mechanical work of reconciliation, retrieval and drafting; the judgment about what to concede, what to defend and how to characterise the facts remains with the professional whose name is on the response.

A working checklist

• Record the provision and form number on the notice, and the reply date, on the day it is received.
• Reconcile books, summary return and auto-drafted statement per GSTIN per period, with a reason code for every difference.
• Build an annexure set that proves each disputed line: invoice, receipt, payment, ledger entry.
• Write to defaulting suppliers and keep the correspondence and any certificates on file.
• Pay and disclose the portion you accept; dispute the rest with reasons and provisions.
• Request a personal hearing in writing, and check that any order stays within the grounds alleged.
• Verify every rate, threshold, limitation period and pre-deposit figure against the current CBIC notification before relying on it.

The businesses that handle GST notices well are rarely the ones with the cleverest legal arguments. They are the ones whose documents are retrievable, whose reconciliations are current, and whose reply reaches the officer before the date printed on the notice.