Common GST Notices and Their Solutions

Receiving a Goods and Services Tax (GST) notice can be unsettling, but it's a common part of the compliance landscape. These notices are issued by tax authorities to address discrepancies, seek clarification, demand payment, or initiate audits. Understanding the different types of notices and how to respond is crucial for GST-registered businesses in India.

Key Principles for Responding to Any GST Notice:

Don't Panic, Act Promptly: Read the notice thoroughly to understand the issue, the relevant section, and the deadline for response. Ignoring a notice can lead to penalties, higher tax demands, and even legal action.

Verify Genuineness: Always check the authenticity of the notice. Most GST notices are issued online through the GST portal. Look for a Document Identification Number (DIN) and verify it on the official GST website.

Understand the Core Issue: Identify the specific discrepancy or non-compliance the notice is addressing. Is it a mismatch in returns, a delayed filing, an ITC claim issue, or something else?

Gather All Supporting Documents: Collect all relevant invoices (sales, purchase), GST returns (GSTR-1, GSTR-3B, GSTR-2A/2B), e-way bills, bank statements, ledger accounts, payment challans, and any other evidence that supports your position.

Draft a Clear and Factual Response: Prepare a detailed, point-by-point reply. Be precise, provide accurate data, and refer to relevant sections of the GST law if applicable. Avoid emotional language.

Submit Online: Most GST notice responses are submitted digitally through the GST portal. Navigate to "Services" > "User Services" > "View Additional Notices/Orders" or "e-Proceedings."

Adhere to Deadlines: Strict adherence to the response deadline is vital. If you need more time, you may request an extension from the concerned officer with a valid reason, but this is not always granted.

Keep Records: Maintain copies of the notice, your response, all submitted documents, and any acknowledgments for future reference.

Consider Professional Help: For complex notices, particularly those involving significant tax demands, audits, or fraud allegations, it is highly advisable to consult a GST professional, Chartered Accountant (CA), or tax advocate.

Common GST Notices and Their Solutions:

Here's a breakdown of common GST notices and how to address them:

1. GSTR-3A (Notice for Non-Filing of Returns)

What it is: Issued when a registered person fails to file a GSTR-1, GSTR-3B, GSTR-4 (for composition dealers), or GSTR-8 (for TCS collectors) within the due date.

Reasons: Overlooked deadline, technical glitches, or genuine non-compliance.

Solution:

• File the pending return(s) immediately: Even if delayed, file the return(s) along with applicable late fees and interest.
• Pay late fees and interest: Calculate and pay the late fees (as per rules) and interest (18% p.a. for delayed tax payment) through Form DRC-03.
• Inform the department: Once filed, the notice will automatically be closed on the portal, but it's good practice to ensure it reflects as complied.

Consequence of non-compliance: If you don't file after this notice, the proper officer may proceed to assess your tax liability based on available information (Best Judgment Assessment) and impose penalties.

2. GST ASMT-10 (Scrutiny Notice for Discrepancies in Returns)

What it is: Issued when the GST officer finds discrepancies in your filed GST returns (GSTR-1, GSTR-3B, GSTR-2A/2B, GSTR-9, GSTR-9C). Common mismatches include:

• GSTR-1 (sales declared) vs. GSTR-3B (tax paid) discrepancies.
• GSTR-3B (ITC claimed) vs. GSTR-2A/2B (ITC available) mismatches.
• Discrepancies with e-way bills.
• Differences between GST returns and Income Tax Returns/financial statements.

Reasons: Errors in data entry, incorrect reporting, omission of transactions, genuine mismatches with supplier data, or intentional misreporting.

Solution:

• Analyze the discrepancies: Carefully review the notice and pinpoint the exact mismatches or issues highlighted.
• Reconcile your records: Compare your books of accounts, invoices, and other documents with the data reported in your GST returns and the data available with the department (2A/2B).
• Prepare a detailed explanation:
• If the discrepancy is genuine (e.g., timing difference, credit note issue, supplier didn't upload invoice), provide a clear, factual explanation with supporting documents.
• If an error on your part is identified (e.g., under-reported sales, over-claimed ITC), accept the discrepancy and pay the differential tax, interest, and penalty (if applicable) through Form DRC-03.
• Submit response in ASMT-11: Upload your explanation and supporting documents on the GST portal within the specified time (usually 30 days).

Consequence of non-compliance: If no satisfactory explanation or payment is made, the officer may proceed with formal demand proceedings (issuing a Show Cause Notice).

3. GST DRC-01 (Show Cause Notice - SCN)

What it is: This is a serious notice, indicating that the department believes you have committed an offense under GST law (e.g., non-payment or short payment of tax, wrong ITC claim, fraudulent activities). It seeks your "show cause" (explanation) as to why a demand for tax, interest, and penalty should not be raised against you. It typically precedes a formal demand order.

Reasons: Significant discrepancies, audits revealing issues, intelligence inputs, or non-response to prior notices.

Solution:

• Understand the allegations: Read the SCN thoroughly to grasp the specific charges, the amount of demand, and the legal sections invoked.
• Gather evidence: Collect all documentary evidence that refutes the allegations or provides a valid explanation for the perceived non-compliance. This could include invoices, bank statements, ledger extracts, contracts, legal opinions, etc.
• Draft a strong, legally sound reply (DRC-06): This is crucial. Your reply should:
• Address each allegation separately.
• Provide factual explanations with supporting evidence.
• Cite relevant GST law provisions, rules, circulars, or even court judgments if applicable.
• Clearly state why the demand should not be confirmed or why a lower penalty should be imposed.
• Request a personal hearing if you believe it's necessary.
• Pre-deposit (if applicable): In some cases, to mitigate interest and penalty, or to get certain benefits in appeals, you might consider making a pre-deposit of the disputed tax amount (or a portion thereof). Pay through DRC-03.
• Submit on GST Portal: File your detailed reply (DRC-06) and all annexures online within the prescribed time (usually 30 days).
• Attend personal hearing: If granted, attend the hearing with your documents and representative (if any) and explain your case.

Consequence of non-compliance: If you fail to reply or provide a satisfactory response, the officer may pass a Demand Order (DRC-07) confirming the demand, interest, and penalty.

4. GST DRC-07 (Demand Order)

What it is: This is the final order issued by the GST officer after considering your reply to an SCN (DRC-01) or if no reply was submitted. It confirms the tax, interest, and penalty payable by you.

Reasons: Unsatisfactory reply to SCN, no reply to SCN, or confirmation of demand based on audit/investigation findings.

Solution:

• Review the order: Carefully examine the order to understand the confirmed demand and the reasoning provided by the officer.
• If you agree: Pay the full amount of tax, interest, and penalty within the specified time (usually 30 days) through the GST portal.
• If you disagree: You have the right to appeal.
• Appeal to the First Appellate Authority (Commissioner Appeals): File an appeal in Form GST APL-01 within three months from the date of communication of the order. You generally need to pre-deposit a certain percentage of the disputed tax (usually 10% of the disputed tax, subject to a maximum).
• Further appeals: If still aggrieved, you can appeal to the Goods and Services Tax Appellate Tribunal (GSTAT) (once constituted) and then to the High Court/Supreme Court.

Consequence of non-compliance: If the demand is not paid or appealed, the department will initiate recovery proceedings (e.g., freezing bank accounts, attaching property).

5. REG-17 (Show Cause Notice for Cancellation of GST Registration)

What it is: Issued when the proper officer intends to cancel your GST registration. Common reasons include:

• Non-filing of returns for a specified period (e.g., 6 consecutive months for regular taxpayers).
• Non-commencement of business within 6 months of registration.
• Fraudulent means of obtaining registration.
• Violation of anti-profiteering provisions.
• Mismatch between ITC claims and tax paid.

Solution:

• Identify the reason: Understand why the department wants to cancel your registration.File pending returns/comply: If the reason is non-filing of returns, file all pending returns and pay any outstanding dues.
• Provide explanation in REG-18: Submit a detailed reply explaining why your registration should not be canceled, along with supporting documents, within 7 working days.
• Attend personal hearing (if called): Present your case clearly.

Consequence of non-compliance: If no satisfactory reply is received, the officer will issue an order for cancellation of registration (REG-19). This means you cannot collect GST, claim ITC, or issue tax invoices, and will face further penalties.

6. REG-23 (Show Cause Notice for Rejection of Revocation of Cancellation)

What it is: Issued if you applied for revocation of your canceled GST registration (REG-21), but the officer intends to reject your application.

 Solution:

• Understand reasons for rejection: The notice will state the reasons why your revocation application is likely to be rejected.
• Submit clarification in REG-24: Provide a detailed explanation, clarification, and any additional documents to address the officer's concerns within 7 working days.
• Attend personal hearing (if called).

Consequence of non-compliance: If the clarification is not satisfactory, your application for revocation will be rejected, and your registration will remain canceled.

7. ADT-01 (Notice for Conduct of Audit)

What it is: Issued to inform you that your business records will be audited by the GST authorities under Section 65.

Solution:

• Cooperate fully: Provide all requested books of accounts, documents, and information to the audit team.
• Be prepared: Ensure your records are well-maintained, reconciled, and easily accessible.
• Clarify doubts: Engage constructively with the audit team to clarify any questions they may have.

Consequence of non-compliance: Non-cooperation can lead to best judgment assessment and severe penalties. Audit findings can lead to demand notices (DRC-01/07).

Always remember that accurate record-keeping and timely compliance are the best ways to avoid GST notices in the first place.