How to Deal with GST Show Cause Notices (SCNs) - Practical Guidance for Businesses

Running a business is stressful enough without unexpected letters from the tax department. Yet many entrepreneurs and finance teams find themselves staring at a GST show cause notice (SCN) a formal message from the authorities asking why action shouldn’t be taken against them.

If you’ve received one, you’re not alone. Notices under GST are common, and they don’t always mean you’ve done something wrong. Sometimes it’s a simple mismatch in returns, an input tax credit issue, or even a system error. Still, they can be intimidating, especially if the notice mentions penalty or large amounts due.

This guide is designed to make sense of SCNs. We’ll look at why they happen, what steps to take after receiving one, and how to prepare a strong response under the GST Act and Finance Act 2025 provisions. You’ll also find practical guidance and strategic insights to navigate these notices without panic.

Why Are GST Show Cause Notices Issued?

The GST Act or rules empower tax authorities to issue notices for multiple reasons. Common triggers include:

• Mismatch in GST returns: Differences between GSTR-1, GSTR-3B, or annual filings.
• Wrongful Input Tax Credit (ITC): Availing ITC without proper invoices or vendor compliance.
• E-way bill violations: Transportation of goods without valid documentation.
• Departmental audit findings: Irregularities uncovered during departmental audit or inspection.
• Non-payment or short payment of tax: Demands under sections 73 and 74 of the CGST Act.
• System-generated notices: Automated notices when filings don’t match payment records.

When such discrepancies arise, a notice under GST law is issued to the taxpayer, seeking clarification and justification.

Read More: Refund of GST on Export of Services: A Complete Guide [2025]

Types of Show Cause Notices under GST

Notices under GST are not all the same. Businesses must dissect each category of notice to respond appropriately. Here are the common categories:

Show Cause Notice Under GST – Categories and Sections

• Notice Issued under Section 73
  Relates to cases where tax has not been paid or has been short-paid without fraud or willful misstatement. The notice is issued under section 73 and generally provides an opportunity for voluntary compliance with lower penalties.
• Notice Issued under Section 74
  Applies when tax has not been paid due to fraud, willful misstatement, or suppression of facts. These notices under sections 74 carry heavier penalties under section 74 and demand strong defense strategies.
• Notices under Section 25
  Relating to registration requirements, particularly if a business fails to obtain registration when liable.
• Refund-Related Notices
  Issued when refund claims are considered excessive or unsupported by documents like bank statements.
• E-Way Bill Notices
  Raised for e-way bill violations, such as transporting goods without valid documents.
• Confiscation Notices
  Related to seizure of goods for non-compliance with GST provisions.

Each notice under relevant GST sections has different implications. Understanding the category of notice under GST helps in preparing a targeted reply.

Also Read: Compounding under FEMA: Meaning, Process & 2025 Amendments

What Happens After Receipt of a Show Cause Notice?

The receipt of the show cause notice marks the beginning of the adjudication procedure under section 75 of the CGST Act. The notice specifies:

• The alleged violation
• Sections of the GST Act invoked
• The tax amount demanded
• Applicable interest and penalty provisions
• The timeline for response

Upon receipt, the burden of proof shifts to the taxpayer. Failure to respond can result in best judgment assessment, heavy penalties, and even escalation to the GST appellate tribunal.

How to Respond to a Show Cause Notice Under GST

Dealing with SCNs requires a structured approach. Here are practical steps to handle a show cause notice effectively:

Step 1 – Review the Notice Thoroughly

Check which sections of the GST Act are cited. Identify if the demand arises from errors in GST returns, wrongful ITC, or departmental audit. Confirm whether the notice was issued under section 73 or section 74.

Step 2 – Gather Documents and Evidence

Compile invoices, GST returns, e-way bill notices, and supporting ledgers. If allegations relate to ITC, ensure vendor compliance is checked. Maintain clear bank statements for refund-related matters.

Step 3 – Draft a Proper Reply

Reply drafting is critical. Use reply drafting techniques with illustrative pleadings and references to case law. A well-structured reply should cite relevant sections of the GST Act, provide clarifications, and offer documentary proof.

Step 4 – Seek Clarification and Additional Time

If the notice lacks clarity, request a clarification from GST authorities. You may also seek additional time to prepare a detailed response.

Step 5 – Appear for Personal Hearing

Attend the personal hearing scheduled by the officer. Use this opportunity to explain your stand and provide practical insights. If contradictions exist in the notice, highlight them clearly.

Step 6 – Escalate if Needed

If the adjudication is unfavorable, you can challenge the notice before the first appellate authority or even higher courts. Many businesses succeed in appeal due to weak departmental evidence.

Practical Guidance for Handling GST Show Cause Notices

• Respond to a show cause notice promptly. Delayed replies weaken your defense.
• Always maintain proper GST compliance, including timely filing of GST returns and reconciliations.
• Work with a tax professional or chartered accountant experienced in GST litigation.
• Use model drafts and references from reputed resources like Taxmann’s How to Deal with Show-Cause Notices Under GST.
• Ensure all replies are supported by documents. Unsupported claims are easily rejected.
• Keep track of the latest provisions, clarifications on penalty and interest, and strategic insights issued by the GST Council.

The Role of Finance Act 2025

The Finance Act 2025 introduced new clarifications and procedures around SCNs, especially regarding clarifications on penalty and interest, timelines for adjudication, and treatment of system-generated notices. Businesses must stay updated on these latest provisions to avoid unnecessary disputes.

How Professionals Help with GST Show Cause Notices

When businesses try to handle SCNs on their own, they often miss procedural details. Working with experts ensures:

• Correct classification of the notice
• Strong reply with model drafts and legal backing
• Representation during hearings
• Guidance on adjudication procedure under section 75
• Support during appeal before the GST appellate tribunal

For example, many firms in NCR work with a GST consultant in Gurgaon for compliance and litigation. Established corporates rely on experienced chartered accountant firms in Gurgaon for representation. Even startups often turn to a trusted CA when dealing with complex notices.

Conclusion

Receiving a GST show cause notice might be daunting, but it need not be a disaster. The notices are within the system, and with the proper approach carefully reviewing, preparing evidence, writing a sound response, and taking professional advice you can manage them easily.

Consider it more of an opportunity to clean up your books rather than a punishment. The thing is not to panic but to move fast, remain compliant, and seek the right assistance when necessary. With the Finance Act 2025 changes and constant GST reform, proactive businesses that are well-prepared will always be ahead of the game.