GST Show Cause Notice 2026: Sections 73, 74, 74A and Reply Guide

Last reviewed: 30 October 2026. A GST show cause notice (SCN) is where most GST disputes begin, and where most of them are won or lost. The reply window is short, the section under which the notice is issued decides the limitation period and the penalty, and the portal shows only a summary form. This guide follows a notice from the first intimation to the appeal: which section applies, how to check limitation, what each DRC form means, how penalty can be avoided, how to build the reply, and how the 10% pre-deposit and the GST Appellate Tribunal (GSTAT) work.

1. Which section applies to your notice

Finance (No. 2) Act, 2024 inserted Section 74A into the CGST Act. From FY 2024-25 onwards, notices and orders for tax not paid, short paid, erroneously refunded or wrongly availed or utilised ITC are issued under Section 74A, whether or not fraud is alleged. Sections 73 (non-fraud) and 74 (fraud, wilful misstatement or suppression) continue for FY 2023-24 and earlier years. The first step on any notice is therefore to read the financial year and the section quoted.

Annual return due dates for some years were extended by notification, so always compute from the date actually applicable for that year, not the standard 31 December. For FY 2017-18 to FY 2019-20, separate extension notifications under Section 168A also apply, so those years need a case-by-case check. Tax self-assessed in your own return but not paid can be recovered without a notice (Section 75(12)); that is a recovery route, not an adjudication, and it needs a different response.

2. Time limits and how to check them

Limitation is the cheapest defence to test and the one most often missed. The test has three steps: find the annual return due date for the year, add the statutory period, and compare with the date on which the notice or order was issued, not the date you saw it on the portal.

A recent reported decision adds a practical point. In M/s Aparna Collection v. Union of India (2026:DHC:8603-DB), reported in early October 2026, a Division Bench of the Delhi High Court held that DRC-01 and DRC-07 are electronic summaries of the substantive notice and order and are not substitutes for them, and that limitation attaches to the substantive notice and order. The Court also left the question whether fraud or suppression was properly alleged to the appellate authority. Read the judgment before citing it, and always download the full notice and the full order from the Additional Notices tab, because the date on the summary form may differ from the date of the document that counts.

3. The notice lifecycle and the DRC forms

4. Penalty and early-payment options

The penalty and the cost of settling early differ by section. In a non-fraud case under Section 73 or 74A, the penalty is 10% of the tax or Rs 10,000, whichever is higher. In a fraud case it is an amount equal to the tax. Interest is separate: 18% a year on short-paid tax and 24% a year where ITC was wrongly availed and utilised (Section 50).

Under the older Section 73 the early-payment window after the notice is 30 days, and under Section 74 the corresponding rates are 15%, 25% and 50% with 30-day windows. Check the section on the notice before counting days. Section 74A also provides that no notice is issued where the tax involved is below Rs 1,000; confirm the current wording before relying on that for a small demand.

5. Reading the notice first

Before any reply is drafted, read the notice for six things.

• Section and year. The wrong section for the year is a defect worth recording.
• Grounds. A notice must state the ground and the working. A generic reference to a mismatch or to a scrutiny finding is open to challenge.
• Amount. Under Section 75(7) the demand in the order cannot exceed the amount in the notice or rest on grounds not stated in it.
• Fraud allegation. If fraud, wilful misstatement or suppression is alleged, see whether any facts support it. Where they do not, the extended limitation and the higher penalty fall.
• Reply date and hearing date. Both are in the notice. Put both in the compliance calendar on the day the notice is received.
• Period split. Many notices combine several months or issues. Treat each issue separately in the reply.

6. Drafting the reply and the hearing

The reply is filed in DRC-06 on the portal, with a covering letter and annexures uploaded as documents. Courts and appellate authorities look first at whether the reply dealt with each ground and what evidence was placed before the officer. A bare denial is weak; a ground-by-ground table with a reconciliation attached is strong.

1. Reconcile first. Prepare a month-wise reconciliation of GSTR-1, GSTR-3B, GSTR-2B, books and, if the notice rests on it, the annual return. Link it to your earlier work on GSTR-3B ITC reconciliation where the gap is on credit.
2. Answer by ground. One heading per ground: facts, law, evidence, relief sought.
3. Take the legal points once, clearly. Limitation, jurisdiction, defective notice, no opportunity of hearing, and the quantum limit under Section 75(7).
4. Ask for a personal hearing in writing. Under Section 75(4) a hearing must be given where requested or where an adverse decision is contemplated, and Section 75(5) allows no more than three adjournments.
5. Attend and record. Hand over a short written note at the hearing and keep an acknowledged copy.

For the narrower scrutiny stage that precedes many notices, see the separate guide to the ASMT-10 scrutiny notice, which has its own reply form and timelines.

7. Common grounds of defence

Where the dispute is on timing of credit, the same documents help under the time limit rules explained in our note on the 30 November 2026 ITC deadline, and where the credit is on a blocked category, see Section 17(5) blocked ITC.

8. After the order

The order is passed in a speaking form and a DRC-07 summary creates the demand in your electronic liability register. From that day three things run together: the appeal clock, the interest on the unpaid tax, and the department's ability to recover. Read the order for any change from the notice, check the arithmetic of tax, interest and penalty, and note the date of communication. If an error is apparent on the face of the order, a rectification application under Section 161 can be filed, but it does not stop the appeal clock, so the appeal should not wait for it.

9. Appeal: Section 107 and GSTAT

The caps were reduced and the GSTAT percentage cut from 20% to 10% with effect from 1 November 2024. GSTAT has been operational since September 2025. A transitional window for older orders ran to 30 June 2026, so orders communicated on or after 1 April 2026 follow the ordinary three-month limit. Confirm the filing mechanics on the GSTAT portal before filing, because procedural orders have been issued in stages.

A writ petition to the High Court is not a substitute for appeal in ordinary cases. It is considered where the notice is plainly without jurisdiction, natural justice has been breached or the notice is time-barred on its face, and even then courts frequently direct the assessee to the appellate route, so the appeal time should be protected in parallel.

10. Section 128A waiver: now closed

Section 128A, in force from 1 November 2024, waived interest and penalty on Section 73 demands for FY 2017-18, 2018-19 and 2019-20 where the full tax was paid by 31 March 2025, and applications were filed in SPL-01 or SPL-02 (CBIC Circular 238/32/2024-GST dated 15 October 2024). Section 74 demands and later periods were outside it. The window has closed, so a notice for those years now has to be handled on merits, with the Section 16(5) and 16(6) relief for credit denied only on time-limit grounds. If a fresh scheme is announced, it will be through a Council recommendation and a notification, and we will update this note.

11. Reply-pack checklist

• Full notice PDF, DRC-01 summary and any DRC-01A, with receipt date.
• Calculation of the limitation period for the year, with the annual return acknowledgement.
• Month-wise reconciliation: GSTR-1, GSTR-3B, GSTR-2B, books, e-invoice and e-way bill data where relevant.
• Supplier-wise ITC schedule with invoice, GSTR-2B month, payment date and the 180-day payment check.
• DRC-03 payments already made, with challans and ledger extracts.
• Board resolution or authorisation letter for the representative (Form GST APL-01 or the authorisation on the portal as applicable).
• Ground-by-ground reply with annexure index and pagination.
• Hearing request in writing and a short hearing note.
• Diary of dates: reply, hearing, order limit, appeal limit.
• Proof of upload and an acknowledged copy of everything filed.

The annual-return data that many notices rest on is covered in the guide to GSTR-9 and GSTR-9C, and the monthly credit lock that now drives mismatches is explained in the note on IMS and GSTR-3B hard-locking.

12. Common mistakes

• Treating the DRC-01 summary as the notice and missing the full document in the Additional Notices tab.
• Counting limitation from the date the notice was noticed on the portal, not the date of issue.
• Replying to the money and ignoring the section, the year and the limitation.
• Paying under protest without stating the cause in DRC-03, which can later be read as an admission.
• Missing the hearing because the date was in the notice and not in the calendar.
• Waiting for rectification or a re-reply while the three-month appeal limit runs.
• Appealing without the pre-deposit challan or with the admitted tax unpaid, which makes the appeal defective.
• Giving the department a new case by an inconsistent explanation in the reply and later in appeal.

Frequently asked questions

This note is for general information and is not legal advice. It reflects the law and reported decisions as we understood them on 30 October 2026; time limits depend on the notified annual return due date for each year, and the outcome of any notice depends on its facts. Verify the current notifications and the full judgment text before relying on a specific position.