Got a GST notice as an online seller? Here's why marketplace data sparks so many disputes, which defences hold up, and how the GST appeal process works in 2026.
Say you sell home décor on two marketplaces. Your returns go in on time every month and life is fine. Then a notice shows up on the GST portal. The marketplace has reported ₹14 lakh more in sales than you did for last year.
Your first thought is probably that someone made a mistake. Often, someone did. But the notice still needs a proper reply, and the clock started the day it was issued.
This is happening to a lot of online sellers. Marketplaces report every sale they process, and the department's system matches it with your returns automatically. Gaps nobody noticed for years are now turning into notices.
We see these cases often at DSRV India, a CA firm in Gurgaon, and most can be settled at the first stage if the reply is done well. Here's what we've learnt about the common disputes, the defences that hold up, and the appeal route.
In plain words, it's any formal dispute with the GST department over tax, input tax credit (ITC), interest or penalty.
It rarely starts big. There's usually a scrutiny notice about a mismatch. If the officer doesn't buy your explanation, a show cause notice follows, then an order, then appeals.
What sellers underestimate is the first reply. Whatever you put on record early gets carried forward, and a sloppy reply is hard to fix later, even in appeal.
The biggest reason is that the marketplace reports on you. Under Section 52 of the CGST Act, every e-commerce operator collects tax at source (TCS) on your net taxable sales and files the details each month in Form GSTR-8. The rate has been 0.5% since July 2024, down from 1%. The department lines this up with your GSTR-1 and GSTR-3B, and any difference shows up straight away.
Then there's the paperwork. Settlement reports, return data and commission invoices all sit on different dashboards. If your accountant works only from your sales register, your numbers can quietly drift from the platform's.
And if you keep stock in fulfilment centres in other states, you've added registration, place of supply and e-way bill questions to the mix.
Read More: How to Reply for GST Notice
This one tops the list. The platform's TCS data shows higher sales than you declared, so the officer assumes you under-reported.
When we dig in, the cause is usually boring. Returns netted off in one place but not the other. A 31 March sale the platform counted in March and you counted in April. A month-by-month reconciliation explains the gap almost every time.
You can claim input tax credit only on invoices that appear in your GSTR-2B and meet the other conditions in Section 16. If a supplier files late or quotes the wrong GSTIN, your credit gets questioned even though you paid for the goods. Courier bills, packing material, marketplace commission and ad spend are the usual suspects.
Every warehouse holding your stock must be on your GST registration, and one in another state needs a registration there. Moving goods between your own registrations in different states counts as a supply, so you need a tax invoice and an e-way bill.
Miss this and goods can be held in transit under Section 129, with a penalty. Some High Courts have let sellers off for a paperwork slip. Others haven't. We wouldn't bet on it.
Charge CGST plus SGST where IGST was due (or the reverse) and the department can demand the correct tax, even though the customer paid in full. You end up paying again and chasing a refund later. Our guide on place of supply rules under GST covers how to get it right.
RTO parcels, returns and platform-funded discounts all change your taxable value. But a post-sale discount counts only if Section 15(3) conditions are met, and credit notes under Section 34 have a time limit. Thin records here usually end in a valuation dispute.
Stop filing returns for a few months and your registration can be suspended or cancelled. For an online seller, that can mean your listings go dark overnight.
Very small sellers get one relief. Since 1 October 2023, some suppliers of goods can sell through marketplaces with just an enrolment number, as long as they stay within one state and under the turnover threshold. Ship across a state line and you need registration.
A GST show cause notice is the department's version of the story, not a final decision. Here's what we check first.
The time limit. Demands for FY 2023-24 and earlier fall under Section 73 or 74. From FY 2024-25, Section 74A applies: the notice must come within 42 months of the annual return due date, and the order within 12 months after that (extendable by six). For FY 2024-25, that means a notice by 30 June 2029. A late notice can fall on this ground alone.
Next, the notice itself. It should clearly state the charge, the amount and the section. If it's vague or doesn't quantify the demand, you can challenge it.
Then build the reconciliation. Honestly, in TCS cases this does more work than any legal argument. One file tying settlement reports to GSTR-8, GSTR-1 and GSTR-3B, month by month, answers most questions before they're asked.
For credit disputes, gather invoices, bank proof of payment, e-way bills and your supplier's GST status to show the purchase was real.
Ask for a personal hearing. Section 75(4) gives you that right before any adverse order is passed, and orders made without one, or that ignore your written reply, are often set aside.
Finally, don't accept a fraud label without a fight. Under Section 74A, a non-fraud case carries a penalty of 10% of the tax or ₹10,000, whichever is higher. Fraud means a penalty equal to the full tax. The officer has to prove intent, and an honest reporting error isn't intent.
Also Read: Understanding and Resolving Inflated GST Tax Demands
If the order goes against you anyway, this is the route.
A few practical points from our side.
The pre-deposit matters more than people think. Once it's paid, recovery of the rest is stayed while your appeal is pending, so your bank account stays safe. And since 1 October 2025, even penalty-only orders need a 10% deposit at the tribunal.
The special GSTAT window for older first-appeal orders closed on 31 July 2026. For orders from 1 April 2026 onwards, the normal three-month limit applies, so don't leave it to the last week.
And do the maths first. If part of the demand is correct, pay that part with interest and contest the rest. In non-fraud cases under Section 74A, paying tax and interest within 60 days of the notice wipes out the penalty. Sometimes that's the cheapest way out.
Already waiting on the tribunal? Our blog on what to do while your GSTAT appeal is pending walks you through what comes next.
Most notices we see could have been avoided with a bit of monthly discipline:
Yes, GSTR-8 data can be used as evidence. But the officer still has to issue a notice, read your reply and pass a reasoned order. A good reconciliation can knock the numbers down.
The officer passes an order on whatever is on file, usually with interest and penalty. It doesn't go away. It just gets costlier.
No. Sellers mostly fight over tax on sales, ITC and TCS credit. Marketplaces deal with TCS collection and reporting under Section 52, and pay tax directly on certain services under Section 9(5), such as restaurant food delivery and ride-hailing.
DSRV India has handled tax disputes for businesses since 1987. We're an ICAI-registered, peer-reviewed CA firm in Gurgaon, and our GST team works with online sellers from the first scrutiny notice up to tribunal appeals. Send us your notice. We'll tell you honestly how strong your position is and what it'll take to fix.
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