GST DRC-01 Show Cause Notice: How to Read, Reply in DRC-06, and Avoid a Demand Order

GST DRC-01 Show Cause Notice: How to Read, Reply in DRC-06, and Reduce Your Demand Exposure (2026 Guide)

When Form GST DRC-01 appears in your notices tab, it means the GST department has already quantified what it believes you owe. This is not an informal query. It is the formal show cause notice that precedes a demand order, and the clock starts running the moment it is issued.

The difference between a DRC-01 that ends in closure and one that becomes a confirmed demand in DRC-07 often comes down to two things: how quickly you respond, and how well your reply addresses the specific issues raised. This guide covers the legal framework, the practical steps for drafting and filing your DRC-06 reply, the penalty implications under each section, and the post-order options if the demand is confirmed.

Looking for expert help with GST DRC-01 show cause notice reply DRC-06 Section 73 74 74A penalty India 2026? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant end-to-end: filings, notices, and advisory, all in one place.

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What Is Form GST DRC-01?

DRC-01 is the show cause notice (SCN) issued under Rule 142(1) of the CGST Rules, 2017. It is the formal communication from the proper officer stating:

1. The demand: Tax short-paid, not paid, erroneously refunded, or input tax credit (ITC) wrongly availed or utilized.
2. The legal basis: Whether the notice is under Section 73 (no fraud), Section 74 (fraud, suppression, wilful misstatement), or Section 74A (for FY 2024-25 onwards).
3. The quantification: The exact amount of tax, interest under Section 50, and the applicable penalty.
4. The response window: Typically 30 days from the date of issuance.

The notice is generated and served electronically on the GST portal. You receive it under Services, User Services, View Additional Notices/Orders. An email notification may or may not follow, so relying solely on email is risky.

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DRC-01A: The Pre-Notice Intimation (Your Cheapest Exit)

Before issuing DRC-01, the proper officer may issue a pre-notice intimation in Form DRC-01A under Section 73(5) or Section 74(5). This is a soft communication that tells you: "We have found a discrepancy of Rs X. Pay the tax and interest now, and no show cause notice will be issued."

Why DRC-01A is your best-case scenario:

• No penalty. If you pay the full tax and applicable interest at the DRC-01A stage, the officer closes the matter without issuing a formal SCN. Zero penalty, zero demand, zero adjudication.
• No adjudication record. Unlike a DRC-01 followed by DRC-07, a DRC-01A resolved voluntarily does not create an adverse order on your GSTIN profile.
• Speed. You pay, file DRC-03, and the officer acknowledges closure in DRC-05.

Practical example

Your GSTR-3B for March 2025 shows ITC of Rs 8,00,000, but GSTR-2B reflects only Rs 6,50,000. The officer identifies the Rs 1,50,000 gap and sends DRC-01A.

• Tax payable: Rs 1,50,000
• Interest at 18% (say 12 months): Rs 27,000
• Penalty: Nil (paid at pre-notice stage)
• Total: Rs 1,77,000

If you ignore DRC-01A and the officer escalates to DRC-01 under Section 73, the penalty exposure is 10% of Rs 1,50,000 = Rs 15,000 (or Rs 10,000, whichever is higher). Under Section 74, it could be 100% of tax, Rs 1,50,000.

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Section 73 vs Section 74 vs Section 74A: Which One Applies to Your Notice?

The section under which DRC-01 is issued determines everything: the time limit, the penalty rate, and the reduced-penalty windows. Read this field first when you open the notice.

Comparison

Section 73, 74, and 74A: Key Differences

Applicable provision depends on the nature of the default and the financial year

Parameter	Parameter	Details
Nature of default	Section 73	Non-fraud: tax short-paid or ITC wrongly availed, without any intent to evade. The officer must prove the shortfall, not malicious intent.
Nature of default	Section 74	Fraud, suppression of facts, wilful misstatement, or contravention with intent to evade. The officer must establish mens rea.
Nature of default	Section 74A	Consolidated provision for FY 2024-25 onwards. Covers both fraud and non-fraud defaults in a single section with a unified timeline.
SCN time limit	Section 73	2 years and 9 months from the due date of the annual return (GSTR-9) for the relevant year.
SCN time limit	Section 74	4 years and 6 months from the due date of the annual return for the relevant year.
SCN time limit	Section 74A	42 months (3 years and 6 months) from the due date of the annual return for the relevant year.
Penalty (non-fraud)	Section 73	Nil if tax + interest paid within 30 days of SCN. Otherwise 10% of tax or Rs 10,000, whichever is higher.
Penalty (fraud)	Section 74	15% of tax if paid within 30 days of SCN. 25% within 30 days of order. Otherwise 100% of tax.
Penalty (non-fraud)	Section 74A	Nil if tax + interest paid within 60 days of notice. Otherwise 10% of tax or Rs 10,000, whichever is higher.
Penalty (fraud)	Section 74A	25% of tax if paid within 60 days of notice. 50% within 60 days of order. Otherwise equal to tax.
Applicable FYs	Sections 73/74	FY 2017-18 through FY 2023-24.
Applicable FYs	Section 74A	FY 2024-25 onwards.
Minimum threshold	Section 74A	Notice can only be issued if the amount involved is Rs 1,000 or more.

Takeaway: Check the section invoked in your DRC-01 first. It determines the penalty rate, the reduced-penalty window, and the time limit for the officer to issue the notice. Section 74A gives you 60 days instead of 30 to pay and reduce the penalty.

Why Section 74A matters for FY 2024-25 and beyond

Section 74A consolidates Sections 73 and 74 into a single provision for financial years starting from April 2024. The key changes:

• Longer response window for reduced penalty: 60 days instead of 30 days to pay and eliminate or reduce the penalty.
• Unified timeline: 42 months from the due date of the annual return, regardless of whether fraud is involved.
• Minimum threshold of Rs 1,000: No notice can be issued for trivial amounts below this floor.
• Fraud penalty capped at 100% of tax (equal to tax), not above it.

If your notice relates to FY 2024-25 or later, Section 74A applies. For earlier years, the officer must invoke Section 73 or 74 depending on whether fraud is alleged.

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Common Grounds for Issuing DRC-01

Not every DRC-01 is about fraud. Most show cause notices arise from data mismatches that the system flags automatically. Here are the six most common triggers.

Step-by-Step Guide

Most Common Reasons for DRC-01 Issuance

These discrepancies trigger the demand process

1

ITC claimed but not in GSTR-2B

You claimed ITC in GSTR-3B that does not appear in GSTR-2B (auto-populated from supplier filings). The system treats the gap as ITC wrongly availed. This is the single most frequent trigger for DRC-01 notices.

ITC Mismatch

2

GSTR-3B vs GSTR-1 turnover mismatch

Outward supplies declared in GSTR-1 exceed the tax reported in GSTR-3B. The officer treats the difference as tax short-paid and issues a demand for the gap.

Turnover Gap

3

Wrong classification or rate applied

Goods or services classified under a lower GST slab (e.g., 5% instead of 18%). The difference between the correct rate and the rate applied becomes the short-paid tax.

Classification

4

Rule 42/43 ITC reversal missing

If you make both taxable and exempt supplies, ITC on common inputs must be proportionally reversed under Rule 42 (inputs) and Rule 43 (capital goods). Failure to reverse triggers a demand for the ITC wrongly utilized.

Reversal

5

Erroneous refund

Refund granted under Section 54 that the officer later determines was incorrect. The excess refund plus interest is demanded back via DRC-01.

Refund

6

Tax short-paid on advances or RCM

Tax not discharged on advances received for services, or reverse charge liability not paid on imports of services or notified supplies under Section 9(3)/9(4).

RCM/Advances

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How to Read Your DRC-01 Notice

When you open the DRC-01 on the GST portal, focus on these five sections in order.

1. Section invoked (73, 74, or 74A). This tells you the penalty rate and whether the officer is alleging fraud. If it says Section 74, the officer is claiming suppression or wilful misstatement, and you should challenge this characterization if the facts do not support it.

2. Tax period. Which months or financial year the demand covers. Sometimes a single DRC-01 covers multiple tax periods.

3. Demand breakup. The notice specifies the tax amount (CGST, SGST/UTGST, IGST, Cess separately), the interest computed under Section 50 at 18% per annum (24% for ITC wrongly availed under certain cases), and the penalty applicable.

4. Grounds. The specific reason for the demand: ITC mismatch, turnover difference, classification dispute, etc. Read this paragraph carefully because your DRC-06 reply must address each ground individually.

5. Response deadline. The notice will state the date by which you must file your reply. The standard period is 30 days from the date of service.

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Filing Your Reply in Form DRC-06: Step-by-Step

Form DRC-06 is the prescribed reply to a DRC-01 show cause notice. It is filed electronically on the GST portal and must address every issue raised in the notice with supporting documents.

Portal path

Login to GST Portal, then go to Services, User Services, View Additional Notices/Orders. Locate the DRC-01 under the "Notices" tab, and click "Reply." The system opens Form DRC-06.

Step-by-Step Guide

Filing DRC-06 on the GST Portal

Step-by-step process for filing your reply

1

Download and study the full DRC-01

Before replying, download the complete notice including all annexures. The annexure typically contains the computation sheet showing how the officer arrived at the demand figure.

Prepare

2

Prepare your reconciliation

For each ground raised, prepare a point-by-point reconciliation. If the issue is an ITC mismatch, run a GSTR-2B vs GSTR-3B comparison for the relevant period. If it is a turnover gap, reconcile GSTR-1 with GSTR-3B line by line.

Reconcile

3

Draft your reply

Write a structured reply that addresses each ground with specific references: invoice numbers, GSTR-3B table references, computation workings, and legal provisions that support your position.

Draft

4

Attach supporting documents

Upload the reconciliation statements, relevant invoices, purchase registers, payment proofs, GSTR-2B screenshots, credit notes, or any other evidence. The portal allows PDF, Excel, and image uploads.

Attach

5

Submit DRC-06 with DSC or EVC

File the reply using your Digital Signature Certificate (DSC) or Electronic Verification Code (EVC). Once filed, the system generates an acknowledgement. Save this for your records.

Submit

6

Request a personal hearing

In your DRC-06, explicitly request an opportunity for a personal hearing under Section 75(4). The officer must grant this before passing any adverse order.

Hearing

What to include in your DRC-06 reply

Your reply must be specific to the grounds raised. Here is what to cover for the most common scenarios:

For ITC mismatch (GSTR-2B vs GSTR-3B):

• Reconciliation showing which invoices were claimed but not yet reflected in GSTR-2B because the supplier filed late
• Proof that the supplier has since filed and the ITC now appears in a later GSTR-2B period
• Any debit notes, credit notes, or amendments that explain the difference
• If ITC was wrongly claimed, acknowledge the specific amount and offer to reverse it with interest

For turnover mismatch (GSTR-1 vs GSTR-3B):

• Period-wise reconciliation of Table 3.1 of GSTR-3B with the summary of GSTR-1
• Credit notes issued but not reflected in GSTR-1 amendments
• Advances received and adjusted, where the tax was paid in GSTR-3B but the invoice was reported in a different GSTR-1 period

For classification disputes:

• HSN code justification with reference to the Customs Tariff Act headings
• Any advance rulings, circulars, or trade notices supporting your classification
• Industry practice evidence if available

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Time Limits: When Must You Reply and When Does the Officer Lose the Right to Issue DRC-01?

Deadline Timeline

Key Deadlines in the DRC-01 Process

Missing any of these changes your penalty exposure

1. Day 0

   DRC-01 issued on the GST portal

   The show cause notice is served electronically. The response clock starts.

2. Day 30

   Standard reply deadline in DRC-06

   You must file your reply within 30 days. Failure to reply lets the officer proceed to pass a final order.

3. Day 30 (Section 73)

   Reduced penalty window (Section 73)

   If you pay the full tax and interest within 30 days of the SCN, the penalty is nil. This window closes on day 30.

4. Day 30 (Section 74)

   Reduced penalty window (Section 74)

   If you pay the full tax and interest within 30 days of the SCN, the penalty is reduced to 15% of tax.

5. Day 60 (Section 74A)

   Reduced penalty window (Section 74A)

   Section 74A gives a longer 60-day window. Pay tax and interest within 60 days of the SCN and the penalty is nil (non-fraud) or 25% (fraud).

6. Within 3 years

   Order must be passed (Section 73)

   Under Section 73, the final order in DRC-07 must be passed within 3 years from the due date of the annual return for the relevant FY.

7. Within 5 years

   Order must be passed (Section 74)

   Under Section 74, the final order must be passed within 5 years from the due date of the annual return.

8. Within 48 months

   Order must be passed (Section 74A)

   Under Section 74A, the final order must be passed within 48 months from the due date of the annual return.

Can the officer extend the reply deadline?

Yes. Under Section 73(8) and Section 74(8), the officer may extend the time to reply on sufficient cause shown. If you need more time to compile documents, file a written request for extension before the original deadline lapses. There is no guarantee the extension will be granted, but requesting it on record is far better than filing a late reply without explanation.

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What Happens After You File DRC-06?

The DRC-01 to DRC-07 lifecycle follows a predictable sequence. Knowing where you stand in this process helps you prepare for each stage.

Deadline Timeline

The Full DRC-01 Lifecycle

From show cause notice to final order or closure

1. Stage 1

   DRC-01A: Pre-notice intimation

   Officer communicates the ascertained liability. You can pay tax + interest at this stage with zero penalty.

2. Stage 2

   DRC-01: Show cause notice issued

   Formal notice specifying the demand, the section invoked, and the grounds. Your reply window begins.

3. Stage 3

   DRC-06: Your reply filed

   You submit your reconciliation, supporting documents, and legal arguments through the portal.

4. Stage 4

   Personal hearing under Section 75(4)

   The officer grants you a hearing before passing any adverse order. You can appear in person or through an authorised representative.

5. Stage 5a

   Closure: officer drops the demand

   If your reply is accepted, the officer issues an order dropping the proceedings.

6. Stage 5b

   DRC-07: Summary of final order

   If the officer confirms the demand (in full or part), the order summary is uploaded in DRC-07. The demand becomes enforceable.

7. Stage 6

   APL-01: Appeal within 3 months

   If you disagree with DRC-07, file an appeal in APL-01 within 3 months with a 10% pre-deposit of disputed tax.

If you do not reply to DRC-01

The officer is not required to wait indefinitely. If no DRC-06 is filed and the 30-day window lapses, the officer can proceed to pass the order under Section 73(10) or Section 74(10) on the basis of the material already available. This means:

• The demand is confirmed without your version of events being heard
• The full penalty applies (no reduced-penalty benefit, since you did not pay within the window)
• The order is uploaded in DRC-07 and becomes enforceable

You can still appeal under Section 107, but you are now contesting a confirmed order rather than explaining during the notice stage. The cost, complexity, and risk increase significantly.

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Penalty Rates: A Worked Example Under Each Section

Understanding the financial impact of timing is critical. Let us work through a single demand of Rs 5,00,000 tax under each section.

Section 73 (Non-fraud, FY 2023-24 or earlier)

Section 74 (Fraud/suppression, FY 2023-24 or earlier)

Section 74A (FY 2024-25 onwards, non-fraud)

Section 74A (FY 2024-25 onwards, fraud)

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Strategies to Strengthen Your DRC-06 Reply

Filing DRC-06 is not just about submitting documents. The quality of your reply determines whether the officer drops the demand, reduces it, or confirms it in full. Here are proven strategies.

1. Challenge the invocation of Section 74 when facts support Section 73

If the notice is under Section 74 (fraud/suppression), but your shortfall was due to a genuine error, interpretation difference, or late supplier filing, challenge the characterization. The burden of proving fraud or suppression is on the department (Supreme Court in Pushpam Pharmaceuticals Company vs CCE, 1995). If the officer cannot establish wilful intent, the demand should be under Section 73, which means a drastically lower penalty.

2. Check whether the SCN is time-barred

Count backwards from the date the DRC-01 was issued:

• Section 73: Was it issued within 2 years and 9 months from the due date of GSTR-9 for that year?
• Section 74: Was it issued within 4 years and 6 months?
• Section 74A: Was it issued within 42 months?

If the notice is beyond the time limit, raise this as your primary defence. A time-barred SCN is void and cannot result in a valid order.

3. Reconcile thoroughly, but do not over-concede

Present your reconciliation in a structured format: a table listing each discrepancy from the notice, your explanation, the supporting document, and the resulting difference. If you agree with part of the demand, pay that portion with interest using DRC-03 and contest only the balance. Partial payment demonstrates cooperation without surrendering your full defence.

4. Request cross-examination if the demand relies on third-party statements

Under Section 75(4), you have the right to be heard. If the demand relies on statements from suppliers, buyers, or third parties, request cross-examination. Reliance on untested statements without allowing cross-examination is a violation of natural justice (Delhi High Court in multiple GST matters).

5. Cite relevant circulars and advance rulings

If CBIC circulars or advance rulings support your position (e.g., on classification or ITC eligibility), include specific references. The officer is bound to follow CBIC circulars issued under Section 168, even if the officer's personal view differs.

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GSTR-1 Filing Block: A Practical Consequence of Ignoring DRC-01

A less discussed but operationally damaging consequence: under recent portal updates, if you have an outstanding demand on your GSTIN (including a demand arising from DRC-01 that you did not reply to), your GSTR-1 filing can be blocked within 7 days. This means:

• Your outward supply return cannot be filed
• Your customers cannot see your invoices in their GSTR-2B
• Their ITC gets impacted, which strains your business relationships

This operational disruption, beyond the penalty exposure, makes a timely DRC-06 reply a business necessity.

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After DRC-07: The Appeal Route

If your DRC-06 reply is not accepted and the officer passes a demand order (uploaded as DRC-07), you still have options.

First Appeal: Form APL-01

• Filed with the Appellate Authority within 3 months of the date of communication of the order
• Pre-deposit: 10% of disputed tax (mandatory, non-refundable deposit)
• Once the pre-deposit is made, recovery of the balance is stayed

Second Appeal: GST Appellate Tribunal

• Filed within 3 months of the first appellate order
• Additional pre-deposit of 10% of disputed tax (total cap of 20% across both stages)

Writ petition (High Court)

• Available in exceptional cases where the order is passed without jurisdiction, without following principles of natural justice, or in violation of CBIC circulars

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Checklist Before You Respond to DRC-01

Use this as a working checklist before filing your DRC-06:

• Identify the section invoked (73, 74, or 74A) and note the corresponding penalty rates
• Verify the tax period and confirm it matches your records
• Check whether the notice is within the statutory time limit
• Download all annexures including the officer's computation sheet
• Run a reconciliation for each discrepancy: GSTR-2B vs GSTR-3B, GSTR-1 vs GSTR-3B, Rule 42/43 workings
• Identify the portion of the demand you agree with (if any) and pay it via DRC-03
• Prepare a structured reply addressing each ground individually
• Attach all supporting documents: invoices, credit notes, reconciliation sheets, bank statements
• Request a personal hearing explicitly in your DRC-06
• File within the 30-day (or 60-day under Section 74A) window
• Save the DRC-06 acknowledgement for your records

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Frequently Asked Questions

What is Form GST DRC-01?

DRC-01 is the show cause notice issued by the proper officer under Rule 142(1) of the CGST Rules before confirming a GST demand. It is issued under Section 73 (non-fraud cases), Section 74 (fraud or suppression), or Section 74A (for FY 2024-25 onwards). The notice quantifies the tax short-paid, ITC wrongly claimed, or erroneous refund, along with applicable interest and penalty. You must reply in Form DRC-06 within 30 days.

How do I reply to a DRC-01 show cause notice?

File your reply in Form DRC-06 on the GST portal. Navigate to Services, then User Services, then View Additional Notices/Orders. Locate the DRC-01 and click Reply. Upload your reconciliation statements, supporting invoices, GSTR-3B and GSTR-1 data, and any legal arguments. Submit using your DSC or EVC. Request a personal hearing in the same reply.

What is the time limit to reply to DRC-01?

The standard time limit is 30 days from the date the notice is served on the GST portal. Under Section 74A (applicable from FY 2024-25), the reduced-penalty payment window is 60 days. You can request an extension from the officer, but there is no guarantee it will be granted. File your request before the original deadline.

What happens if I do not reply to DRC-01?

If you do not file DRC-06 within the prescribed time, the proper officer can pass a final order confirming the full demand based on available records. The order is uploaded in DRC-07, and the demand, including the maximum applicable penalty, becomes enforceable. You lose the reduced-penalty benefit and may face GSTR-1 filing blocks.

What is the difference between DRC-01 and DRC-01A?

DRC-01A is a pre-notice intimation sent before the formal show cause notice. If you pay the tax and interest at the DRC-01A stage, no penalty applies and no formal SCN is issued. DRC-01 is the formal show cause notice that starts the adjudication process, with penalty implications based on the section invoked.

Can a DRC-01 be issued under both Section 73 and Section 74 for the same period?

No. For a given tax period and a given set of facts, the officer must choose either Section 73 (non-fraud) or Section 74 (fraud). However, different issues within the same period could theoretically attract different sections if one issue involves suppression and another does not. For FY 2024-25 onwards, Section 74A consolidates both into a single provision.

What is the minimum amount for issuing a DRC-01 under Section 74A?

Under Section 74A, a show cause notice can only be issued if the amount of tax involved is Rs 1,000 or more. This threshold does not apply to notices under Section 73 or Section 74 for earlier financial years.

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This guide is based on Sections 73, 74, 74A, 75, and 107 of the CGST Act, 2017, Rules 142 and 143 of the CGST Rules, 2017, and the Finance (No. 2) Act, 2024 (which introduced Section 74A). Penalty rates, time limits, and portal procedures are subject to amendments through notifications and circulars issued by the CBIC. Always verify the current provisions on cbic.gov.in and the GST portal before acting. For case-specific advice, consult a qualified GST practitioner or chartered accountant.