Common Issues Triggering GST Notices

Under the Goods and Services Tax (GST) regime, the department issues notices for various reasons — ranging from procedural lapses to suspected tax evasion. These notices are typically issued under various sections of the CGST Act, 2017 and corresponding rules.

Below is a comprehensive overview of common issues for which notices are issued and how taxpayers should respond:

1. Mismatch Between GSTR-1 and GSTR-3B

Issue:

Difference between outward supplies declared in GSTR-1 and tax liability paid in GSTR-3B.

Often arises due to reporting errors or timing differences.

Notice Type:

Notice under Section 61 (Scrutiny of Returns)

ASMT-10 issued by the tax officer.

Suggested Response:

Reconcile the differences.

File a detailed explanation with reconciliation statements.

If mistake is genuine, file a corrective GSTR-1 or GSTR-3B (if allowed).

If tax was underpaid, pay tax along with interest using Form DRC-03 and submit proof.

2. Mismatch Between GSTR-2A/2B and ITC Claimed in GSTR-3B

Issue:

Input Tax Credit (ITC) claimed exceeds the amount available in GSTR-2A/2B. Could be due to:

o Vendor non-filing of returns.

o Claiming ITC on ineligible goods/services.

o Incorrect invoice details.

Notice Type:

Section 61 / ASMT-10

Or Section 73/74 SCN for ITC reversal and penalty.

Suggested Response:

Perform vendor-wise reconciliation.

Show proof of tax invoices and payment to vendors.

If ITC is found to be ineligible or unsupported, reverse it voluntarily using DRC-03 to avoid penalty.

In cases where vendor default is the issue, submit correspondence as evidence and request department to pursue vendor.

3. Non-Payment or Short Payment of GST

Issue:

Detected through audits, inspections, or return scrutiny.

Includes cases where tax collected but not deposited.

Notice Type:

SCN under Section 73 (non-fraud cases) or Section 74 (fraud/suppression).

Suggested Response:

Respond within prescribed time limit (30 days or as mentioned in the notice).

Prepare a point-wise rebuttal.

Pay tax and interest voluntarily using Form DRC-03 before SCN finalization to reduce penalty to 15%

(Section 74).

Maintain detailed records and tax workings.

4. Delay in Filing GST Returns

Issue:

Delay or non-filing of GSTR-1, GSTR-3B, or annual returns (GSTR-9/9C).

Triggers late fee and interest.

Notice Type:

Notice to file returns (e.g., CMP-05 for Composition taxpayers, GSTR-3A for regular).

Failure may lead to best judgment assessment under Section 62.

Suggested Response:

File pending returns immediately.

Pay applicable late fee and interest.

If assessed under Section 62, file the return within 30 days of the order to get it withdrawn.

5. Ineligible or Excess Refund Claims

Issue:

Refund claimed under exports, inverted duty structure, etc., is higher than eligible.

Wrong declaration or mismatch in invoices.

Notice Type:

Deficiency Memo (RFD-03)

SCN under Rule 92(3) of CGST Rules.

Suggested Response:

Provide invoice-wise reconciliation.

Submit documents such as shipping bills, FIRC/BRC, LUT, etc.

Modify claim if required; accept voluntary reduction to avoid penalty.

6. E-Way Bill Related Violations

Issue:

Goods in movement without proper e-way bill, expired e-way bill, or mismatch.

Transport without valid documents.

Notice Type:

MOV-07 (detention notice)

Leads to seizure under Section 129.

Suggested Response:

Submit proper documentation.

Pay applicable tax and penalty (200% in case of tax evasion).

File appeal if detention/seizure is unreasonable.

7. Anti-Profiteering Allegations

Issue:

Not passing on the benefit of input tax credit or GST rate reduction to customers.

Complaint by consumer or suo motu investigation.

Notice Type:

From Director General of Anti-profiteering (DGAP) or National Anti-Profiteering Authority (NAA).

Suggested Response:

Provide detailed cost sheets and pricing records.

Demonstrate that prices are consistent or justified.

Cooperate with investigation; legal assistance is recommended.

8. Incorrect HSN/SAC Classification or Rate

Issue:

Wrong classification of goods/services leading to lower GST rate.

Notice Type:

SCN under Section 73/74.

Suggested Response:

Provide relevant HSN explanatory notes, CBIC clarifications, advance rulings (if applicable).

If mistake is genuine, pay differential tax with interest.

9. Non-Registration Despite Liability

Issue:

Businesses operating without GST registration though liable under Section 22 or 24.

Notice Type:

Notice under Section 63 (Assessment of unregistered persons).

Suggested Response:

Register immediately.

Provide explanation on why registration was not taken.

Cooperate with assessment and request leniency if bona fide.

10. Miscellaneous Notices

These include:

Notice Type Purpose Response

DRC-01A Intimation of liability before issuing SCN Can pay tax or reply explaining position

DRC-01 Show Cause Notice Detailed reply with documents

DRC-07 Summary of Order Appeal or pay as applicable

DRC-13/14 Recovery from third parties Challenge if recovery is incorrect

Best Practices for Responding to GST Notices

1. Timely Acknowledgment: Never ignore or delay a response to any notice.

2. Documentation: Maintain proper invoices, ledgers, return filings, and reconciliations.

3. Professional Advice: Take help from a Chartered Accountant or tax consultant.

4. Voluntary Compliance: If mistake is identified, consider correcting and paying dues early to reduce penalties.

5. Use of DRC-03: For voluntary payment of tax, interest, or penalty.

Conclusion

GST notices are a crucial part of tax administration and compliance enforcement. Most disputes and penalties arise due to mismatches, non-compliance, or procedural errors, not necessarily fraud. With timely action, accurate records, and a proactive approach, businesses can mitigate risks and resolve notices efficiently.