Receiving a Show Cause Notice (SCN) under GST can be stressful, particularly when the notice proposes a substantial demand of tax, interest and penalty. However, an SCN is not the final determination of liability. It gives the taxpayer an opportunity to explain the facts and establish why the proposed demand should not be confirmed.
1. Read the Notice Carefully
Before drafting the reply, identify the financial year, tax period, section invoked, tax and interest proposed, penalty and the specific allegation made by the department.
The legal provision is important. For periods up to FY 2023-24, Section 73 generally covers cases other than fraud or suppression, while Section 74 applies where fraud, wilful misstatement or suppression of facts is alleged. For FY 2024-25 onwards, Section 74A provides the relevant framework.
2. Check the Department’s Calculation
Do not automatically accept the figures mentioned in the SCN. Prepare your own reconciliation.
For example, an alleged turnover difference may actually arise because of credit notes, timing differences, exempt supplies, exports, advances, amendments or transactions relating to another GST registration.
Similarly, an ITC mismatch may be due to timing differences between the purchase register, GSTR-3B and GSTR-2B.
3. Reply Issue-by-Issue
Avoid a generic statement that the allegations are denied. Address every allegation separately.
Explain:
* what the department has alleged;
* what the correct factual position is;
* how the figures reconcile;
* which documents support your position; and
* why the applicable GST provisions support your case.
Where Section 74 is invoked, specifically address the allegations of fraud, wilful misstatement or suppression rather than merely disputing the tax amount.
4. Support Your Reply with Evidence
A factual defence should be supported by documents such as GST returns, sales and purchase registers, invoices, credit notes, GSTR-2B, e-invoices, e-way bills, bank statements and reconciliation statements.
Properly indexed annexures make the reply more effective and easier to verify.
5. Address Interest and Penalty Separately
Check the department’s interest calculation independently. Penalty should also be contested separately by examining whether its statutory conditions are actually satisfied.
6. Request a Personal Hearing
Where the matter involves significant tax or complex issues, request an opportunity for personal hearing. The reply should also be filed within the prescribed time and through the applicable GST portal procedure.
Conclusion
A good GST SCN reply is more than a denial of the department’s allegations.
