When it comes to GST compliance, one of the most significant and often intimidating communications a taxpayer can receive is a Show Cause Notice (SCN). This comprehensive guide explains what an SCN is, why it is issued, how to respond effectively, and how the GST Appellate Tribunal (GSTAT) can help resolve such disputes.
Introduction to GST Show Cause Notices
A Show Cause Notice (SCN) under GST is a formal legal notice issued by the GST Department. It requires the taxpayer to explain or justify why a specific legal action should not be initiated against them under GST law.
The SCN is usually issued before the department takes actions such as:
- Demand for tax, interest, or penalties
- Cancellation of GST registration
- Rejection of refund claims
- Denial of Input Tax Credit (ITC)
Reasons for Issuance of an SCN
Common situations where a taxpayer might receive an SCN include:
- Incorrect or excess claim of ITC
- Mismatch in GSTR-1 and GSTR-3B filings
- Non-payment or underpayment of GST
- Suspicion of fraudulent transactions or bogus invoicing
- Non-filing of GST returns for extended periods
- Registration obtained by misrepresentation or fraud
Key Components of a GST SCN
A valid SCN issued under GST law should include:
- Name and GSTIN of the taxpayer
- Reference to the relevant legal provision (e.g., Section 73 or 74)
- Details of the alleged default or non-compliance
- Tax period under question
- Amount of tax, interest, and penalty involved
- Due date for reply and personal hearing (if applicable)
Important: Always verify that the SCN is digitally signed and issued by a proper officer.
Section 73 vs. Section 74: Understanding the Difference
| Section | Nature of Default | Penalty | Time Limit |
| Section 73 | No fraud or willful misstatement | 10% of tax or ₹10,000 | 3 years |
| Section 74 | Fraud, suppression, or misrepresentation | 100% of tax | 5 years |
Understanding the basis of the notice helps determine the right legal strategy.
Step-by-Step Guide to Responding to an SCN
Step 1: Stay Calm, Take Action
Ignoring an SCN can lead to adverse orders and recovery actions. Immediate attention is crucial.
Step 2: Analyze the Notice
Read the SCN thoroughly to understand the allegations, legal provisions, timelines, and your rights.
Step 3: Gather Supporting Documents
Collect relevant records such as invoices, GSTR returns, reconciliations, and contracts to substantiate your case.
Step 4: Draft a Legal Reply
Your reply should be clear, fact-based, and supported by evidence. Legal language and GST precedents may be used for impact.
Step 5: Attend the Personal Hearing
Appear in person or through a qualified representative to present your side.
Step 6: Seek Professional Assistance
Engaging a GST expert can improve your chances of resolving the matter efficiently and minimizing penalties.
Case Study: ITC Dispute and Resolution
A contractor received a Section 74 notice alleging wrongful Input Tax Credit claim of ₹62 lakhs over three years. After reviewing the notice, it was found that vendor non-filing caused most mismatches. A professionally drafted legal reply, supported by reconciliations and affidavits, helped reduce the liability significantly.
Overview of the GST Appellate Tribunal (GSTAT)
The GST Appellate Tribunal (GSTAT) is a quasi-judicial body established under the Central Goods and Services Tax (CGST) Act, 2017. It hears appeals against orders passed by the Commissioner (Appeals) and serves as the final fact-finding authority before approaching the High Court.
Legal Provisions:
- Constituted under Section 109 of the CGST Act
- Appeals filed under Section 112 of the CGST Act
When Can a Taxpayer Appeal to the GSTAT?
You may appeal to the GSTAT if:
- Tax demand or penalty is disputed
- Refund claims are rejected
- Input Tax Credit is denied
- GST registration is cancelled
- There is a dispute over GST rate or classification
Timeline: Appeals must be filed within 3 months of receiving the appellate order.
Structure and Functioning of the Tribunal
Principal Bench
- Located in New Delhi
- Handles cases of national importance
State Benches
- Located across various states
- Handle state-specific GST matters
Each Bench Includes:
- One Judicial Member
- One Technical Member (Centre)
- One Technical Member (State)
Benefits of Filing an Appeal with GSTAT
- Independent and specialized platform for GST disputes
- Faster resolution compared to civil courts
- Reduces burden on High Courts
- Helps businesses protect legal and financial interests
Consequences of Not Filing an Appeal
- The demand order becomes final and enforceable
- Penalties and recovery actions may follow
- GST registration can be blocked
- Input Tax Credit may be permanently disallowed
How to File an Appeal Before the GSTAT
Required Steps:
- File Form GST APL-05 on the GST portal
- Attach the order passed by Commissioner (Appeals)
- Submit relevant documents: invoices, GSTR returns, reconciliation statements
- Pay the mandatory pre-deposit:
- 100% of admitted tax amount
- 10% of disputed tax amount (capped at ₹25 crore)
