GST Notices: Types, Complexity & How to handle with CA expertise

Understanding GST Notices: Overview

Goods and Services Tax (GST) notices are formal communications from the tax authorities to taxpayers. These communications are important regarding discrepancies, defaults, or compliance issues under the GST regime. If you receive a GST Notice that means the government authorities are under the view that there’s something wrong with your GST Return Filing or other compliances. If you fail to reply to GST Notices, your business is in danger and you might need to pay hefty penalties. GST Notices can be handled easily without any fear with the right guidance and information.

Why Might You Receive a GST Notice?

There can be any number of reasons for the government to send you GST Notices. However, the most probable causes are:

#. Mismatch in Returns: If there’s any mismatch or errors in your filed GST Returns, you can encounter GST Notices.

#. Non-filing of Returns: If you fail to do GST Return Filing on time, you will receive GST Notice. Continued failure can further increase the problem.

#. Excess Input Tax Credit (ITC) Claim: If you claim more ITC than you're eligible for, it will be .flagged and you will get a GST Notice.

#. Inconsistencies in e-Way Bills: If e-Way bills do not match invoices or GST returns, a notice might be issued requiring an explanation from you.

#. Suspected Tax Evasion or Fraud: The GST department can issue a notice if there is suspicion of underreporting of sales, circular trading, or fake invoicing.

#. Scrutiny or Audit: You can also receive a notice as part of a routine audit or scrutiny of returns.

#. Registration Issues: If your GST registration is found to be obtained by fraud or suppressed information, or if it needs cancellation, you will surely get a GST Notice.

Type of GST Notices Based on Complexity

GST notices vary widely in terms of complexity. While some are routine and easy to manage, others require in-depth analysis, reconciliation, or even legal intervention.

#. Failure to update Bank Details on GST portal

This GST Notice is issued when a taxpayer does not update their bank account details on the GST portal. It is a critical requirement to update bank account details to process refunds and ensure smooth GST compliance. Taxpayers should promptly update these details to avoid complications during refund claims or audits.

#. Failure to furnish returns for a continuous period of six months

If GST returns (such as GSTR-3B or GSTR-1) are not filed for six consecutive months, this GST notice is served. Furthermore, this GST notice can also lead to suspension or cancellation of GST registration. Immediate filing of pending returns helps in restoring compliance status.

#. Filing of NIL GST return for the last 6 Months

Frequent NIL return filings can also trigger a GST Notice, especially if the taxpayer is expected to have business activity or stock. The authorities may suspect that the registration is inactive or misused. So you will need to justify continued NIL filings or cancel the registration voluntarily.

#. Registered person has not commenced business within six months

A taxpayer who has not commenced business within six months of obtaining GST registration may receive a GST Notice for inactivity. As per GST rules, such cases can lead to GST cancellation if the taxpayer fails to provide valid justification or evidence of business operations.

#. Failure to enable / generate eInvoice

GST-registered businesses crossing the specified turnover threshold must comply with eInvoicing provisions. Failure to generate eInvoices results in a GST Notice and disallowance of input tax credit to recipients. Businesses will need to activate eInvoice generation and ensure compliance to avoid penalties.

#. Business not found in the registered Principal place of business

When tax authorities do not find the business at its declared principal place of business during physical verification, a GST Notice is issued. This can raise concerns about the legitimacy of the GST registration. Thus, you must timely do address updates on the GST Portal.

#. Registration obtained through fraud, misstatement, or suppression

GST Notices under this category are issued when registration is suspected to have been obtained by fraud, false information on documents, or suppression of facts. This is a serious violation under GST law. The penalties are severe and may lead to cancellation, recovery proceedings, or even prosecution. A well-supported response with the help of legal experts is critical in such cases.

#. Notice Regarding Monetary Penalty under general penalty provisions

This GST Notice is issued for breaches not specifically covered under any section but still falling under general non-compliance. The notice may carry financial penalties and demands an in-depth explanation or rectification. It typically involves complex legal interpretation and thorough document review.

#. Notice for ITC Mismatch for a particular month or quarter

Discrepancies between the ITC claimed in GSTR-3B and the auto-populated data in GSTR-2A or GSTR-2B can trigger a GST Notice. Businesses encounter this GST Notice commonly and it is common during monthly or quarterly filings. It also requires reconciliation of purchase records and supplier returns to justify credit claims.

#. Notice for ITC Mismatch for a whole financial year

When mismatches in Input Tax Credit are detected across the entire financial year, the GST Department may issue a detailed notice. They will demand tax reversal with interest and penalty. The taxpayer will then need to conduct a comprehensive ITC audit and then respond with reconciliations and supporting invoices.

#. Notice in Form GST DRC-01

Form DRC-01 is a demand notice issued when a tax officer determines tax shortfall, interest, or penalty under Sections 73 or 74. Furthermore, this GST Notice initiates adjudication and requires the taxpayer to respond within a stipulated time frame, failing which recovery proceedings may commence.

#. Order for Determination of Tax - Need to File Appeal

This notice is received post-adjudication when the department confirms liability. The taxpayer must either comply with the demand or appeal before the appropriate appellate authority. It involves critical timelines and legal grounds, making professional guidance essential.

#. Notice for mismatch in sales liability

When outward supplies reported in GSTR-1 and GSTR-3B differ, the department issues a GST Notice. This GST Notice highlights under-reported sales or tax evasion. The business must reconcile sales data, amend returns if needed, and provide documentary proof to avoid penal consequences.

#. Notice regarding discrepancies in tax payment by composition taxpayer

Composition scheme taxpayers may receive a GST Notice if their tax payments do not align with declared turnover or are found to be inconsistent. Ensuring that tax is paid as per the prescribed percentage on aggregate turnover is necessary to stay compliant under this simplified scheme.

#. Notice for non-filing of ITC-03 at the time of opting for composition scheme

When switching to the composition scheme, filing of Form ITC-03 to reverse previously availed input tax credit is mandatory. Non-compliance of this requirement will result in a GST Notice, and the taxpayer must complete the process with accurate stock and capital goods declaration.

#. Notice for RCM liability not paid

Liability under the Reverse Charge Mechanism (RCM) arises on specific goods/services or when dealing with unregistered suppliers. If not discharged properly, the taxpayer receives a GST Notice. Businesses will need to pay demanding tax along with interest. Reviewing liability applicability and ensuring timely payments is crucial in this case.

#. Notice for incorrect tax rate used

Using an incorrect GST rate while invoicing leads to underpayment of tax. It then triggers a GST Notice. Businesses must classify goods/services accurately under the correct HSN/SAC codes. Then they will need to pay the differential tax along with applicable interest to rectify the issue.

Common Reasons Behind GST Notices

GST notices are generally triggered by discrepancies, delays, or red flags in your tax filings. One of the most common reasons is the failure to file GST returns on time. Another is a mismatch between returns—such as differences between GSTR-1 (outward supply), GSTR-3B (summary return), and GSTR-2A/2B (supplier filings). Claiming ineligible or excess input tax credit is another major cause, as it directly impacts government revenue. Tax authorities may also flag suspicious activities such as undervaluation of sales, fake invoicing, or misuse of the composition scheme. Delays in updating or cancelling a GST registration when circumstances demand it can also prompt a notice.

How to Respond to GST Notices Effectively

Responding to a GST notice will mean you need to adhere to a legal understanding of its content and a systematic approach. The notice will highlight the timeline and the reasons. It's important for businesses to reconcile any differences and prepare an accurate response. For complex notices involving SCNs or audits, it is highly advisable to consult a GST professional or legal expert from our team to draft a detailed, legally sound response. Our experts are here to assist you, save your time and money so that you don’t stress out or make mistakes in replying to GST Notices.

Penalties for Ignoring GST Notices

Ignoring GST Notices not only leads to significant penalties but can also result in financial and legal consequences.

1. Late Filing Penalties (Late Fees):

- For GSTR-3B (monthly/quarterly return):

50 per day ( 25 under CGST + 25 under SGST) for delayed filing.

For Nil returns, it's 20 per day ( 10 under CGST + 10 under SGST).

Maximum late fees can range from 2,000 to 10,000 depending on turnover.

- For GSTR-1 (monthly/quarterly return): Currently, the GST portal generally does not charge late fees for delayed GSTR-1, but the late fee for GSTR-3B still applies.

-For Annual Returns (GSTR-9/9A/9C):

200 per day ( 100 for CGST + 100 for SGST).

Maximum late fee is capped at 0.50% (0.25% under CGST + 0.25% under SGST) of the turnover in the state or union territory.

- For Final Return (GSTR-10): 200 per day ( 100 for CGST + 100 for SGST) with a maximum of 10,000.

- Blocking of Subsequent Returns: If you fail to file a GST return, subsequent returns (e.g., GSTR-1) may be blocked, creating a cascading effect of non-compliance.

2. Interest Charges:

- Late Payment of Tax: If GST is not paid by the due date, interest is charged at 18% per annum on the unpaid tax amount, calculated from the day after the due date until the actual payment date.

- Excess Input Tax Credit (ITC) Claims or Excess Reduction in Output Tax Liability: A higher interest rate of 24% per annum is charged on the amount of ITC wrongly availed and utilized or output tax liability wrongly reduced.

3. Monetary Penalties for Non-Compliance:

Ignoring certain GST Notices also escalates the situation. For example:

- General Penalty (without intent of fraud/evasion): For many offenses where there's no intention of fraud or tax evasion, the penalty is 10% of the tax unpaid or short-paid, subject to a minimum of 10,000. This applies if tax is unpaid, short-paid, or ITC is wrongly availed/utilized or refund erroneously made.

- Penalty for Fraud/Tax Evasion (with intent of fraud/evasion): If the tax evasion is intentional (fraud, willful misstatement, suppression of facts), the penalty is 100% of the tax evaded.

- Penalty for Aiding and Abetting Fraud: Individuals or entities aiding in GST fraud, whether registered or unregistered, face a fixed penalty of 25,000.

- Penalty for Specific Offences (Section 122(3)): A penalty up to 25,000 can be imposed on persons who aid or abet specific offenses, deal with confiscated goods, fail to appear before authorities, or fail to issue invoices, among others.

- General Penalty (Section 125): For any contravention of the Act or rules for which no separate penalty is prescribed, a penalty extending to 25,000 can be imposed.

4. Best Judgment Assessment:

- If a taxpayer fails to respond to a notice (e.g., a scrutiny notice in ASMT-10 or a notice for non-filing in GSTR-3A), the GST officer can proceed with a "best judgment assessment" based on available information. This often results in a higher tax demand, along with applicable interest and penalties.

5. Demand Notices and Recovery Proceedings:

- If you ignore initial notices, the department will issue Demand Notices (e.g., in DRC-01) for unpaid taxes, interest, and penalties.

- Failure to pay the demanded amount will lead to recovery proceedings. These are:

Attachment of bank accounts: The authorities can freeze and debit funds from your bank accounts.

Attachment/Seizure of assets: Your business assets (property, machinery, stock) can be attached and sold to recover the dues.

Garnishment of debts: Amounts owed to you by your debtors can be directly collected by the GST authorities.

6. Cancellation of GST Registration:

- Consistent non-filing of returns or non-compliance can lead to the cancellation of your GST registration (notice in REG-17). This would mean you can no longer operate as a registered taxpayer and conduct your business.

7. Prosecution and Imprisonment:

For serious offenses involving tax evasion, especially those involving fraud, the GST Act also prescribes prosecution leading to imprisonment and substantial fines. The severity of the punishment depends on the amount of tax evaded:

- 1 crore to 2 crore: Imprisonment up to 1 year and fine.

- 2 crore to 5 crore: Imprisonment up to 3 years and fine.

- Above 5 crore (or repeat offense): Imprisonment up to 5 years and fine.

How can E-Startup Help you in responding to GST Notices?

Answering GST Compliances is complex. E-Startup makes it simple and convenient. Our experts with more than decade of experience in taxation, help you understand the specific nature of the notice you've received. E-Startup has a team of CA, CS and Lawyers who can do GST Notice reply on your behalf and save your time and money. Working with us ensures you get personalized attention, timely and correct online submission of your reply, and within the deadline. With E-Startup you do not need to worry. Contact us right now!