GST Demand & SCN FAQs — DRC-01, Procedure & Penalty
7 expert answers on GST Demand & Show-Cause Notice (Sections 73–75) under GST — eligibility, restrictions, reversals, and recent legal positions.
These questions are drawn from real GST compliance scenarios, litigation, and common queries from practitioners. Answers reflect the law as amended up to Finance Act 2024.
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A GST Show-Cause Notice for demand of tax is issued in <strong>Form GST DRC-01</strong> under Rule 142 of the CGST Rules, 2017. The notice must specify: the tax period involved, the amount of tax short-paid or ITC wrongly availed, the interest calculated under Section 50, the proposed penalty, and the grounds for the demand. A summary of the SCN in DRC-01A is also required under the CGST Rules. A notice that fails to specify the grounds or amounts with adequate particularity is liable to be challenged as vague.
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The CGST Rules require the taxpayer to file a reply to the SCN (in Form GST DRC-06) within 30 days of the date of service of the notice for Section 73 proceedings, and within 30 days for Section 74 proceedings. The proper officer may grant an extension of time for filing the reply. Beyond the reply period, the officer may pass an ex-parte order — which courts have repeatedly held must still comply with natural justice principles and cannot be a rubber-stamp of the SCN.
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No. Section 75(7) of the CGST Act expressly prohibits the proper officer from passing an order determining tax that is in excess of the amount specified in the notice. The SCN amount is the outer ceiling of the demand. Courts have consistently held that any enhancement beyond the SCN amount is without jurisdiction and liable to be quashed. This is a critical taxpayer protection that practitioners must assert whenever an order exceeds the noticed amount.
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Under Section 75(10), the proper officer must pass the adjudication order within 3 years from the due date of the annual return (Section 73 cases) or 5 years (Section 74 cases). If no order is passed within this period, the demand lapses and cannot be revived. Several High Courts have held that the time limit for the order — not just the SCN — is mandatory and the expiry renders the proceedings void. This is a complete defence available on limitation.
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Yes. Section 50 of the CGST Act mandates interest at 18% per annum on the net tax liability that is paid late (after the due date for filing GSTR-3B). Interest cannot be waived — it is a statutory charge, not a penalty. However, the Supreme Court in <em>Union of India v. Bharti Airtel</em> (2021) held that interest under Section 50(1) applies only on the net cash liability — not on ITC balance in the Electronic Credit Ledger. This ruling significantly reduced interest demands on taxpayers who had sufficient ITC but delayed cash payment.
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Under Section 78 of the CGST Act, if the demand amount is not paid within 3 months of the date of the adjudication order, the proper officer is empowered to initiate recovery proceedings under Section 79. Recovery can include: attachment of bank accounts (Section 79(1)(c)), attachment of movable or immovable property, deduction from payments due from the government, and distress and sale of movable property. Filing an appeal under Section 107 stays recovery — but only after deposit of 25% of the penalty (pre-deposit).
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Yes, through the reduced-penalty settlement windows. For Section 73 cases: pay tax + interest before SCN → no penalty; pay within 30 days of SCN → penalty waived; pay within 30 days of order → 10% penalty. For Section 74 cases: pay before SCN → 15% penalty; within 30 days of SCN → 25%; within 30 days of order → 50%. Additionally, the GST Amnesty Scheme (notified periodically under Section 128A) provides an opportunity to settle pre-SCN dues with reduced or nil penalties for specific periods.