Receiving a notice from the Goods and Services Tax authorities is an experience that unsettles even the most compliant taxpayers. The language of these communications tends to be formal and unsparing, the amounts demanded are sometimes startling, and the timeframes within which responses are required leave little room for error. For many small and mid-sized businesses in India, the instinct is to either pay up immediately to make the problem go away or to ignore the notice in the hope that it will not be followed up.
Both of these instincts are often wrong, and sometimes costly. The GST law provides a structured framework of rights for taxpayers who receive notices and demand orders, and navigating that framework effectively requires understanding what kind of notice you have received, what legal grounds are available to you, and what procedural steps must be taken within what timeframes.
This article sets out the essential things every GST-registered taxpayer should know about their rights when the department comes calling.
The Landscape of GST Notices
Not every communication from the GST authorities carries the same legal weight. The first distinction to understand is between scrutiny notices, show cause notices, and demand orders, because each calls for a different kind of response.
A scrutiny notice, typically issued in Form ASMT-10, is the department’s way of flagging a discrepancy it has noticed between a taxpayer’s returns and other information available to it. This might be a mismatch between GSTR-1 and GSTR-3B, a discrepancy between the GST returns and the income tax returns of the same entity, or a query about input tax credit claimed. A scrutiny notice is not an accusation; it is a question. Responding accurately and with documentary support is usually sufficient to resolve the matter at this stage.
A show cause notice (SCN) is a different matter. It represents the department’s preliminary conclusion that there is a case to answer, and it invites the taxpayer to explain why the proposed demand should not be confirmed. This is the point at which the stakes rise meaningfully, and it is also the point at which professional legal or tax advisory assistance becomes genuinely important. The reply to a show cause notice must be substantive and accurate. A poorly drafted reply, or no reply at all, significantly weakens the taxpayer’s position in any subsequent proceedings.
A demand order is issued after the show cause stage, when the adjudicating officer has considered the taxpayer’s reply and concluded that a tax demand is warranted. This order creates a legal liability to pay the amount specified, along with interest and, in many cases, a penalty.
The Two Tracks: Section 73 and Section 74
One of the most important distinctions in GST demand law is between proceedings initiated under Section 73 and those initiated under Section 74 of the Central Goods and Services Tax Act, 2017.
Section 73 applies to cases where there is no allegation of fraud, suppression of facts, or wilful misstatement. These are cases of genuine error or omission: a missed return, a computational mistake, an innocent misclassification. The time limit for issuing a notice under Section 73 is three years from the due date of the annual return for the relevant period, and the penalty in such cases is limited.
Section 74 applies to cases involving fraud, suppression of facts, or wilful misstatement with intent to evade tax. The time limit here is five years, and the penalties are substantially higher. A demand under Section 74 is a serious allegation, and the department bears the burden of establishing that the alleged conduct was intentional and not merely erroneous.
Importantly, the 53rd GST Council meeting in June 2024 recommended the insertion of a new Section 74A, which would create a common time limit for demand notices and orders for financial year 2024-25 onwards, regardless of whether fraud is alleged. This harmonisation, once fully operationalised, will reduce the procedural complexity that has existed under the dual-track system.
Recent Developments: The Section 128A Amnesty
The 53rd and 54th GST Council meetings also recommended what amounts to an amnesty scheme for certain older demands. Section 128A of the CGST Act provides for the waiver of interest and penalties on demand notices issued under Section 73 for the financial years 2017-18, 2018-19, and 2019-20, provided the taxpayer pays the full tax demanded by March 31, 2025.
This scheme was significant for businesses that had accumulated disputes from the early years of GST, when the law was still finding its footing and compliance was genuinely complex. If you have unresolved Section 73 demands from those early years, and if you have not already taken steps to avail the waiver, it would be worth reviewing the current state of those proceedings with your tax advisor.
The Right to a Hearing: Natural Justice in GST Proceedings
One of the most important legal principles in all tax proceedings is the principle of natural justice: no person should be condemned without being heard. In the GST context, this means that a demand order cannot validly be passed without giving the taxpayer a meaningful opportunity to respond.
The courts have been firm on this point. High courts across the country have quashed demand orders where notices were served only through the GST portal without any attempt to serve by alternate means, and the taxpayer remained unaware of the proceedings. The Madras High Court has held that sending repeated reminders through the portal, without independent judgment about whether the communication was actually received, amounts to an empty formality and does not constitute valid service. Courts have also set aside orders where the adjudicating authority confirmed a demand without granting a personal hearing, even in cases where notices went unanswered because the taxpayer had no actual knowledge of them.
The principle cuts both ways: if you have received a notice and failed to respond in time, you cannot later claim that you were not heard. The obligation to respond is yours, and failure to meet it is treated as a waiver of your right to be heard at that stage.
Additionally, courts have consistently held that a demand order cannot travel beyond the scope of the show cause notice that preceded it. If the SCN raises an issue about one specific transaction, the demand order cannot expand to cover entirely different transactions that were not part of the original allegation. The Calcutta High Court has held that issuance of only summary forms without setting out facts or reasons, without narrating the basis of the demand, violates the requirements of Section 75 of the CGST Act.
Input Tax Credit Disputes: A Recurring Problem
A substantial proportion of GST litigation today involves disputes over input tax credit (ITC). These arise most commonly in two situations: when a supplier has failed to file their returns and upload the relevant invoices, and when the supplier’s registration has been cancelled, often retrospectively.
The legal position on ITC denial has been evolving through judicial decisions. Several high courts have held that a recipient taxpayer who has genuinely received goods or services, holds valid invoices, and has paid the supplier cannot be denied ITC merely because the supplier subsequently defaults on their tax obligations. The department’s approach of fastening liability on the recipient for the conduct of the supplier has been repeatedly questioned.
If you are facing an ITC demand on these grounds, the strongest defences typically involve demonstrating that you have the requisite invoices, that payment was made through banking channels, that the goods or services were actually received, and that you could not have known about the supplier’s subsequent default. The courts have generally been receptive to these arguments, though the position is still not fully settled.
Appeals: The Proper Remedy
If you have received a demand order that you believe is wrong in law or in fact, the prescribed remedy is an appeal to the GST Appellate Authority, and the time limit for filing that appeal is three months from the date of the order, with a possible extension of one month for sufficient cause.
There is a pre-deposit requirement for appeals: a taxpayer must typically deposit a portion of the disputed tax before the appeal is admitted. This requirement has been a practical obstacle for some taxpayers, particularly those facing very large demands, but it is a condition that the courts have upheld as valid.
High Courts have jurisdiction to entertain writ petitions against GST orders in exceptional circumstances, specifically where there is a breach of fundamental rights, a violation of natural justice, an excess of jurisdiction, or a challenge to the validity of the statute or delegated legislation. However, courts have been clear that a writ petition is not a substitute for the statutory appeal process, and petitions filed without first exhausting the appeal remedy have been dismissed. The Orissa High Court has explicitly held that a writ petition challenging a demand order filed beyond the outer limit under Section 107(4) of the GST Act is not entertainable.
In practice, this means that missing the appeal deadline can be fatal to your case. If you have received a demand order, the appeal window must be tracked with great care.
Dealing with Provisional Attachment
In some cases, particularly where the department suspects that a taxpayer may attempt to dispose of assets or dissipate funds before a demand is finalised, it may provisionally attach bank accounts, receivables, or other property under Section 83 of the CGST Act. Provisional attachment is a significant intrusion and can severely disrupt business operations.
Courts have held that provisional attachment under Section 83 automatically lapses after one year if a final order is not passed within that period. If you are facing provisional attachment, tracking this timeline is important. The courts have also held that provisional attachment must be proportionate and cannot be resorted to casually; there must be a genuine apprehension that the taxpayer will alienate assets to defeat the revenue’s interest.
Practical Steps When You Receive a Notice
The first thing to do upon receiving any GST communication is to determine its nature and the deadline for response. Under the current framework, timelines are generally tight and are not easily extended. Missing a deadline weakens your legal position at every subsequent stage.
The second step is to gather the relevant documents: the returns for the period in question, invoices, payment records, correspondence with suppliers, and any other material that bears on the issue raised in the notice. A well-documented response is far more persuasive than a generic denial.
The third step is to engage a qualified tax consultant or legal professional, particularly if the notice is a show cause notice or a demand order for a significant amount. The language and framing of a reply to an SCN matters, as does the decision about whether to opt for early payment to avail reduced penalty, to challenge the demand legally, or to explore settlement.
Finally, it is worth remembering that the GST system continues to evolve through Council recommendations, judicial decisions, and CBIC circulars. Positions that seemed settled may be revisited, and new reliefs may become available. Staying informed and taking timely professional advice is the best available protection against the kind of unpleasant surprises that GST litigation can produce.
