C.K. Gupta
A GST DRC-01 is a formal show-cause notice demanding tax, interest and penalty. Reply in Form DRC-06 within 30 days of service, or the officer can confirm the full demand ex parte in Form DRC-07. First check whether it is issued under Section 73 (genuine error, lower penalty) or Section 74 (fraud or suppression, penalty up to 100% of the tax) — that one distinction drives your entire reply. Verified October 2026 · TaxGST.in
Picture this: you open the GST portal on a routine morning and find a demand notice for ₹4,80,000 of tax, plus interest and penalty, for a year you thought was closed. Your first instinct may be to panic or to ignore it and hope it goes away. Neither helps. A DRC-01 is serious, but it is also answerable — and in many cases the demand shrinks dramatically once you reply with the right documents.
This guide walks through exactly what a DRC-01 is, the 30-day clock, the Section 73 vs Section 74 trap, and a reply checklist you can follow. For the wider compliance picture, keep the GST hub and the compliance calendar hub bookmarked alongside this article.
What a DRC-01 actually is
Form DRC-01 is the show-cause notice (SCN) under Section 73 or Section 74 of the CGST Act, 2017. It is issued when the department believes tax has not been paid, has been short-paid, has been erroneously refunded, or input tax credit (ITC) has been wrongly availed or utilised. Before the formal notice, you may receive a pre-SCN intimation in Form DRC-01A — reply to that in Form DRC-01B, because paying an undisputed amount at that stage can stop the formal notice entirely.
A DRC-01 is not the same as a scrutiny notice (ASMT-10, answered in ASMT-11) or a cancellation notice (REG-17, answered in REG-18 within 7 working days). If your problem is a cancelled registration rather than a demand, read our suo-moto GST cancellation guide instead — the forms and deadlines are completely different.
Section 73 vs Section 74: check this first
Here is the catch: the section printed on your notice decides your penalty exposure.
| Factor | Section 73 (non-fraud) | Section 74 (fraud / suppression) |
|---|---|---|
| When it applies | Genuine error, oversight, interpretation difference | Fraud, wilful misstatement, suppression of facts |
| Time limit for the department | 3 years from the due date of the annual return | 5 years from the due date of the annual return |
| Penalty if paid before the SCN | No penalty | 15% of the tax |
| Penalty if paid within 30 days of the SCN | Sharply reduced — see note below | 25% of the tax |
| Penalty if paid within 30 days of the order | 10% of the tax (minimum ₹10,000) | 50% of the tax |
| Penalty otherwise | 10% of the tax (minimum ₹10,000) | 100% of the tax |
In practice, Section 73 penalties are far gentler, and early payment can eliminate or minimise them. If you believe Section 74 was wrongly invoked — no fraud, only a clerical error — say so explicitly in your reply and back it with records.
The 30-day reply: step by step
- Day 0 — download and diarise. Open the notice on the GST portal under Services > User Services > View Additional Notices and Orders. Note the date of service, the tax period, the section invoked, and the exact reply date printed on it. The 30-day clock runs from service, not from when you happen to read it.
- Days 1–3 — break the demand apart. Split it into tax, interest and penalty, and match each line to your returns: GSTR-1, GSTR-3B, GSTR-9 and your books. Most DRC-01 demands rest on one of four things: ITC mismatch with GSTR-2B, turnover difference between returns and books, rate or classification errors, or supplies reported in the wrong period.
- Days 4–10 — gather proof. Invoices, e-way bills, payment proofs, reconciliation statements and credit notes. A reply that reconciles the officer’s figure to your books line by line is what gets demands dropped.
- Pay what is genuinely due. If part of the demand is correct, pay that tax and interest through Form DRC-03 voluntarily. Paying the admitted portion strengthens your credibility on the disputed portion and stops interest from running further.
- Draft DRC-06 properly. Reply in Form DRC-06 on the portal: para-wise replies to each allegation, the legal ground for each, and every document attached. Ask for a personal hearing in the reply — it is your right, and hearings regularly resolve what paper alone cannot.
- File before the deadline. If you genuinely need more time, ask the officer in writing before the deadline. Extensions are discretionary, but a written request made early beats a late reply with no explanation.
Worked example: how a ₹4,80,000 demand can shrink
Say a trader receives a Section 73 DRC-01 demanding ₹4,80,000 tax for ITC claimed on purchases the officer says do not appear in GSTR-2B. On checking, ₹3,00,000 of that ITC relates to invoices the supplier reported late — the credit is genuine and now visible in a later 2B. ₹1,00,000 relates to an invoice wrongly entered twice. ₹80,000 is genuinely ineligible (blocked credit on a personal expense).
The right reply: pay ₹80,000 plus interest via DRC-03, attach the supplier’s GSTR-1 and the corrected 2B for the ₹3,00,000, and concede the ₹1,00,000 duplication with a corrected computation. The contested demand falls from ₹4,80,000 to ₹80,000 — and because it is Section 73, the penalty on the admitted part stays at the lower slab. This is why the reply matters more than the notice.
What happens if you ignore it
If you do not reply, the officer can pass an ex-parte order in Form DRC-07 confirming the full demand with interest and penalty, and recovery can follow — including bank attachment. You can still appeal under Section 107 within 3 months of the order (one further month may be condoned for sufficient cause), with a pre-deposit of 10% of the disputed tax. But appealing an ex-parte order is far harder than replying to the notice in the first place.
One change coming: the ₹10,000 threshold
As per the 57th GST Council press release of 8 October 2026, show-cause notices will no longer be issued for demands below ₹10,000 (CGST + SGST + IGST + cess combined). That change needs amendments to the GST Acts and is targeted for 1 April 2027, as part of the phased rollout that begins 1 November 2026 — it does not help a notice already in your inbox today. Read our GST reforms rollout guide for what changes on 1 November 2026 versus 1 April 2027.
DRC-01 reply checklist
- Notice downloaded from the portal; date of service and reply deadline diarised
- Section 73 or 74 identified; penalty exposure computed
- Demand split into tax, interest and penalty and reconciled to returns
- Admitted portion paid via DRC-03; challan attached
- DRC-06 filed para-wise with documents and a personal-hearing request
- ARN and acknowledgement saved; hearing date tracked
FAQs
Q. How many days do I get to reply to a DRC-01?
30 days from the date of service, as stated on the notice. Ask for an extension in writing before the deadline if you need more time.
Q. Can I reply to a DRC-01 after the deadline?
A late reply risks an ex-parte order in DRC-07. File a reply with a written explanation for the delay and consult a CA immediately; an appeal under Section 107 remains available for 3 months from the order.
Q. Does paying part of the demand mean I accept the whole notice?
No. Pay the admitted portion through DRC-03 and contest the rest in DRC-06. Partial payment is standard practice and is viewed positively.
Q. Is a personal hearing automatic?
No — request it expressly in your DRC-06 reply. If granted, attend with your documents and computation sheets.
Sources
CGST Act, 2017 — Sections 73 (determination of tax for reasons other than fraud) and 74 (fraud or wilful misstatement), Section 107 (appeals to Appellate Authority), and Rule 142 of the CGST Rules (Forms DRC-01, DRC-01A, DRC-01B, DRC-03, DRC-06, DRC-07), as published by the Central Board of Indirect Taxes and Customs (CBIC). 57th GST Council press release, 8 October 2026 — ₹10,000 minimum threshold for show-cause notices and phased rollout from 1 November 2026, with Act amendments targeted for 1 April 2027. Penalty slabs as per Sections 73 and 74 of the CGST Act, 2017.
Discover more from TaxGst.in
Subscribe to get the latest posts sent to your email.
