GST audits, notices and departmental proceedings
Most GST demands are not a surprise. They start as a mismatch that sat visible in a reconciliation for months, become an intimation nobody replied to, and arrive as a notice with a clock already running. This guide sets out what each stage actually is, how long you have at each one, what the demand provisions look like now that Section 74A governs recent years, and where the appeal route has got to.
It is written for a business without a standing in-house litigation function. A large enterprise with its own indirect tax team will find parts of it too general.
The sequence, and where it can still be stopped
Departmental contact almost always follows the same ladder. The cheapest place to deal with it is near the top.
| Stage | What arrives | Your window |
|---|---|---|
| Mismatch intimation | DRC-01B, where liability declared in GSTR-1 exceeds tax paid in GSTR-3B; DRC-01C, where credit claimed in GSTR-3B exceeds credit available in GSTR-2B | 7 days to pay with interest or explain in Part B |
| Scrutiny of returns, Section 61 | ASMT-10 setting out discrepancies | Up to 30 days, extendable at the officer’s discretion. Reply in ASMT-11 |
| Departmental audit, Section 65 | ADT-01 | 15 working days before the audit begins |
| Pre-notice intimation | DRC-01A Part A | Respond in Part B, or pay |
| Show cause notice | DRC-01, with the notice itself | 60 days for the reduced-penalty settlement, and whatever period the notice allows for reply |
| Order | DRC-07, summary of order | 3 months to appeal, plus one condonable |
The DRC-01B and DRC-01C intimations deserve more attention than they usually get, for a reason that has nothing to do with the tax: failing to reply or pay within seven days blocks the filing of your next GSTR-1. A seven-day administrative task, ignored, becomes a stopped compliance cycle.
Departmental audit and special audit
Audit by the tax authorities under Section 65. You must be given notice in Form ADT-01 not less than fifteen working days before the audit is conducted. The audit is to be completed within three months of commencement, extendable by the Commissioner for recorded reasons by up to a further six months. Commencement means the date the records called for are made available, or the date the audit actually starts at your premises, whichever is later. Findings, along with your rights and obligations, are communicated within thirty days in Form ADT-02.
That definition of commencement is worth using. The three-month clock does not start when the notice arrives. It starts when the records are produced, which gives you a legitimate reason to produce a complete and organised set rather than a hurried partial one.
Special audit under Section 66. An officer not below Assistant Commissioner, with the Commissioner’s prior approval, may direct that your records be audited by a chartered accountant or cost accountant nominated by the Commissioner, in Form ADT-03. The report is due within ninety days, extendable by a further ninety. This can be directed even though your accounts have already been audited under any other law. You must be heard before anything gathered is used against you, and the auditor’s remuneration is paid by the Commissioner, not by you.
Section 74A: one limitation period, two penalty ladders
For financial year 2024-25 onwards, Sections 73 and 74 are replaced by Section 74A, inserted by the Finance (No. 2) Act 2024 and in force from 1 November 2024. Sections 73 and 74 continue to govern every period up to and including financial year 2023-24, so both regimes will run in parallel for years. This is not a transition that has completed.
The limitation change is the substantive one. The old three-year and five-year split between non-fraud and fraud cases is gone. Under Section 74A a notice may be issued within 42 months of the due date for furnishing the annual return for the relevant year, whether or not fraud is alleged, and the order must follow within 12 months of the notice, extendable by the Commissioner by up to six further months where reasons are recorded before expiry. For financial year 2024-25, whose annual return was due 31 December 2025, that puts the outer date for a notice at 30 June 2029. No notice can issue where the amount in a financial year is less than ₹1,000.
The fraud and non-fraud distinction now bites only on the penalty and on the concession ladder:
| When you pay | Non-fraud | Fraud, wilful misstatement or suppression |
|---|---|---|
| Before any notice, informing the officer in writing | Tax and interest. No notice, no penalty | Tax, interest and 15% penalty. No notice |
| Within 60 days of the show cause notice | Tax and interest. No penalty, proceedings concluded | Tax, interest and 25% penalty, proceedings concluded |
| Within 60 days of the order | No concession. The penalty stands at 10% of tax or ₹10,000, whichever is higher | Tax, interest and 50% penalty, proceedings concluded |
| Otherwise | 10% of tax or ₹10,000, whichever is higher | Penalty equal to the tax |
The asymmetry in the third row is the most misstated point in circulation. There is no post-order penalty reduction in a non-fraud case under Section 74A. Comparison tables that show 15%, 25% and 50% across both columns are describing old Section 74, not the current provision.
Two further sub-sections are worth knowing. If the officer thinks what you paid before notice fell short, a notice issues for the shortfall. And the concessions do not rescue a failure to pay self-assessed tax, or tax collected as tax, within thirty days of the due date: the 10% or ₹10,000 penalty applies regardless.
The DRC forms, and one that quietly costs people their appeal
- DRC-01A is the pre-notice intimation, in Part A, with your response in Part B. The rule says the officer may issue it, following a 2020 amendment that changed “shall” to “may”.
- DRC-01 is the summary of the show cause notice, issued electronically with the notice.
- DRC-03 is the form for voluntary payment, whether before notice, within the 60-day window, or later.
- DRC-03A was introduced in July 2024 to fix a specific and expensive problem. A taxpayer who paid a demand using DRC-03, instead of the portal’s payment-towards-demand route, found the electronic liability register still showed the demand as outstanding. DRC-03A links a DRC-03 to a specific demand order so the register is adjusted. Only payments where the cause was voluntary or other can be adjusted this way.
- DRC-07 is the summary of the order. It creates the liability register entry and is the document against which recovery and appeal run.
The practical warning: a DRC-03 by itself does not discharge the pre-deposit for an appeal. Use the portal’s payment-towards-demand route, or regularise an existing DRC-03 through DRC-03A first. This has cost appellants their filings.
The first appeal, and what it costs to file
An appeal to the Appellate Authority under Section 107 must be filed in Form APL-01 within three months of communication of the order, with a further one month condonable on sufficient cause. The department gets six months.
Pre-deposit. You must pay in full the admitted tax, interest, fine, fee and penalty, plus 10% of the remaining tax in dispute, subject to a maximum of ₹20 crore. The cap was reduced from ₹25 crore by the Finance (No. 2) Act 2024, effective 1 November 2024. The cap applies per enactment, so ₹20 crore central plus ₹20 crore state, or ₹40 crore where the demand is under integrated tax.
Two further pre-deposit rules apply in narrower cases. An appeal against an order under Section 129(3), detention of goods in transit, requires 25% of the penalty. And where the order relates only to a penalty with no tax demand, a proviso inserted by the Finance Act 2025 requires 10% of that penalty. That proviso came into force on 1 October 2025, not on the date the Finance Act received assent, and a number of widely-read articles give 1 April 2025 by conflating the two.
The GST Appellate Tribunal at Hyderabad held in July 2026 that the penalty-only pre-deposit proviso is prospective and does not apply to appeals arising from proceedings begun before 1 October 2025. That is a Tribunal decision, persuasive rather than binding across the country, and worth raising if your matter falls on that line.
The GST Appellate Tribunal: where it has actually got to
For seven years there was no second appellate tier, so a taxpayer who lost a first appeal had no forum below a High Court writ. That gap has closed, and the sequence matters because published material gives at least three different versions of it.
- The GSTAT (Procedure) Rules 2025 were notified on 24 April 2025.
- The e-filing portal opened on 24 September 2025, meeting the Council’s target of accepting appeals before the end of September.
- Hearings began on 16 February 2026, at the Principal Bench in New Delhi and at Cuttack, not in December 2025 as the Council had targeted and as a great deal of commentary still states. Other benches followed through March and April 2026.
- The structure is one Principal Bench in New Delhi and 31 state benches sitting across a number of locations, hearing in hybrid mode. The default is a division bench of one judicial and one technical member.
The backlog deadline, and why it is not the date you have read. The date originally notified for filing appeals against the historical backlog was 30 June 2026. It was superseded on 30 June 2026 itself. The position that actually applied was 31 July 2026, for appeals under Section 112(1) against orders communicated before 1 May 2026, and for departmental applications under Section 112(3) against orders passed before 1 February 2026. Orders after those dates run on the ordinary three-month and six-month periods. The reason given was portal congestion, with roughly 30,000 appeals filed in the final fifteen days.
There is one live consequence as at the date of writing. Under a Tribunal order of 10 July 2026, an appellant who could not complete e-filing could generate a token on the portal on or before 31 July 2026 by submitting minimum details, and an appeal filed within 60 days of token generation is treated as filed in time. If a token was generated at the end of July, the filing window runs into late September 2026.
No further blanket extension has issued since then, so the sixty-day window from token generation is the position that applies. Dates in this area have moved more than once, so anyone relying on that window should check the Tribunal portal directly rather than any published summary, including this one.
Pre-deposit at the Tribunal is a further 10% of the remaining disputed tax, capped at ₹20 crore per enactment, on top of what was paid at the first appeal, so cumulative exposure across both tiers is around 20% of the tax in dispute. On payment, recovery of the balance is deemed stayed automatically until the appeal is disposed of, without a separate stay application. Limitation is three months from communication of the first appellate order, six months for the department, with three further months condonable.
A separate relaxation, extended in May 2026 to run until 31 December 2026, allows the registry to overlook certain procedural defects in appeals already filed, such as soft copies in place of certified ones. It is a defect-curing indulgence for filings already made. It is not an extension of any filing deadline, and at least one widely shared article presents it as though it were.
Search, summons and detention
Inspection, search and seizure under Section 67 require authorisation by an officer not below Joint Commissioner, on recorded reasons to believe, in Form INS-01. Seizure is ordered in INS-02, or where seizure is impracticable a prohibition order issues in INS-03. Provisional release against bond and security is available in INS-04. Documents not relied on for a notice must be returned within thirty days of the notice, and if no notice issues within six months of seizure, extendable by a further six, the goods must be returned.
Summons under Section 70. An inquiry under this section is deemed a judicial proceeding. Central Board guidelines issued in 2022 require prior written permission from a senior officer, discourage summoning senior management at the first instance, and require reasons to be recorded. Those guidelines are worth citing where a summons goes straight to a managing director on a routine reconciliation question.
Detention of goods in transit under Section 129 has been a penalty-only regime since 1 January 2022, and the pre-2022 structure of tax plus penalty is gone. Where the owner comes forward, the penalty on taxable goods is 200% of the tax payable; where the owner does not, it is the higher of 50% of the value of the goods or 200% of the tax. For exempted goods it is capped at 2% or 5% of value or ₹25,000, whichever is less. The clock is short: notice within seven days of detention, order within seven days of the notice, payment within fifteen days of the order. A conveyance is released on payment of the penalty or ₹1 lakh, whichever is less. Confiscation under Section 130 was de-linked from Section 129 at the same time and now stands as an independent proceeding.
Prosecution under Section 132. The monetary tiers set by the Finance Act 2023, effective 1 October 2023, run in three steps. ₹1 crore is the threshold for prosecuting a fake-invoice offence, meaning an invoice issued without an actual supply. ₹2 crore is the general threshold for prosecuting any other offence. ₹5 crore is the point at which the offence becomes cognizable and non-bailable, meaning an arrest can be made without a warrant and bail is not a matter of right. The maximum term is five years.
Two windows that have closed, and are still being advertised as open
The Section 128A amnesty. It waived interest and penalty on Section 73 demands for financial years 2017-18, 2018-19 and 2019-20 on payment of the full tax. Tax had to be paid by 31 March 2025 and the application filed by 30 June 2025. Neither date was extended, despite representations. What remains live is only the tail: appeals against a rejection order in SPL-07, and consequential proceedings.
Anti-profiteering. New applications under Section 171 have not been accepted since 1 April 2025. Cases filed before that date moved to the Principal Bench of the Tribunal, which took over the function from the Competition Commission on 1 October 2024. Material describing the Competition Commission as the forum is two years out of date.
A third item is now operating, and is worth checking if it touches your goods. The track and trace mechanism under Section 148A, with penalties under Section 122B, has been on the statute book since 1 October 2025, and has been activated for pan masala and tobacco products. A manufacturer of those goods must register its packing machines with the department and file the special monthly tracking returns that go with the mechanism.
What an engagement on this looks like
Before anything arrives
A pre-audit health check on the years still open under Section 74A, so that what the department would find is known, quantified and, where it makes sense, settled before notice under the no-penalty route.
Replying, and being represented
Replies to ASMT-10, DRC-01B and DRC-01C within their windows, replies to show cause notices, and representation through audit, assessment and departmental proceedings.
Appeals
First appeals under Section 107 with the pre-deposit routed correctly, and Tribunal appeals under Section 112, including advising on whether the token route or condonation is available where a deadline has passed.
Send an enquiry
Tell us what has arrived and when. An intimation, a scrutiny notice, an audit notice, a show cause notice or an order, and the date on it, is enough to start. A partner replies within one business day.
This page is general information, not professional advice. Indian GST law changed substantially between 2024 and 2026, several changes are enacted but not yet notified into force, and how any of this applies depends on your own facts, your state and your sector. Take professional advice before acting on anything on this page. We are happy to be that adviser, but we do not act on a web page, ours or anyone else's, without one.