GST Notice Reply & SCN Response

Responding to a GST show cause notice (SCN) is governed by Sections 73 and 74 of the CGST Act, 2017 for tax periods up to FY 2023-24, and by the newly inserted Section 74A for tax periods from FY 2024-25 onward — introduced by the Finance (No. 2) Act, 2024, following the 53rd GST Council Meeting held on 22 June 2024.

Section 73 applies to tax short-paid, not paid, erroneously refunded, or input tax credit wrongly availed or utilised, for reasons other than fraud, wilful misstatement, or suppression of facts. Section 74 covers the same fact patterns where fraud, wilful misstatement, or suppression is involved, and carries a longer limitation period and a materially higher penalty. Section 74A consolidates both categories under a single provision for FY 2024-25 onward, while still applying a differentiated penalty scale depending on whether fraud or suppression is established.

Procedurally, proceedings begin with a summary of the SCN in FORM GST DRC-01, and the taxpayer's reply is filed in FORM GST DRC-06 on the common portal, ordinarily within thirty days of issuance (the officer may allow a longer period). Section 73(2) requires the SCN itself to be issued at least three months before the time limit for passing the adjudication order; Section 74(2) requires at least six months' lead time.

A defining feature of both provisions is the reduced-penalty ladder for early payment. Under Section 74: paying the tax and interest in full before the SCN is issued caps the penalty at 15% of the tax (Section 74(5)/(6)); paying within thirty days of the SCN caps it at 25%, with proceedings deemed concluded (Section 74(8)); paying within thirty days of the adjudication order caps it at 50% (Section 74(11)); beyond that, the full penalty (up to 100% of the tax) applies. Under Section 73, no penalty is payable if the tax and interest are paid before the SCN, or within thirty days of it (Section 73(6)/(8)); where a demand order is passed, Section 73(9) fixes the penalty at 10% of the tax or ₹10,000, whichever is higher. Section 74A, per the Finance Act 2024 amendment, extends the post-SCN reduced-penalty payment window from thirty days to sixty days for tax periods from FY 2024-25.

A complete DRC-06 reply — addressing each allegation in the DRC-01 with supporting documents and legal grounds — is central to avoiding an adverse order under Section 73(9), 74(9), or 74A.

A GST notice reply is the written response to a show cause notice (SCN) issued by the department before it adjudicates a demand. The SCN is issued under Section 73 or 74 of the CGST Act 2017 — Section 73 where the demand arises from error, omission or misdeclaration without fraud or wilful misstatement, and Section 74 where the department alleges fraud, wilful misstatement or suppression. The reply is the taxpayer's opportunity, in writing and within the prescribed period, to show why the demand should not be confirmed — and the period in which to do it is the most important deadline in the process.

The SCN is the department's case in one document, and the reply is the business's case in response. The reply must answer each ground of the notice — the tax position, the credit position, the classification, the limitation period — with the records to support it. A reply that meets the grounds on the documents changes the adjudication; a reply that repeats the business's general position does not.

The cost of a missed or perfunctory reply is the confirmation of the demand as proposed: the tax, the interest under Section 50, and the penalty — the lower regime of Section 73 for honest positions or the higher regime of Section 74 for alleged fraud. The reply is the last point before the demand becomes an order, and an order is a far harder thing to undo than a notice is to answer.

This service is for businesses served with SCNs. We read the notice against the records, identify the grounds that can be answered and the documents that answer them, prepare and file the reply within the prescribed period, and where the demand survives the reply, carry the matter through the adjudication and into the appeal under the Act.