What is a GST show cause notice in DRC-01?

What is Form GST DRC-01?

Form GST DRC-01 is the show cause notice that carries a GST demand. When a proper officer proposes to recover tax that was not paid, was short paid, was erroneously refunded, or where input tax credit was wrongly availed, the demand is served in DRC-01 under section 73 or section 74 of the CGST Act, through rule 142 of the CGST Rules.

The notice sets out the tax, interest, and proposed penalty and asks why the amount should not be recovered. It is the start of adjudication, not the end, so you have a right to reply before any order is passed.

How do section 73 and 74 differ?

The dividing line is fraud. Section 73 applies where tax was not paid or credit was wrongly availed for any reason other than fraud, wilful misstatement, or suppression of facts. Section 74 applies where those defaults were caused by fraud, wilful misstatement, or suppression, and it carries a heavier penalty and a longer time limit.

How do I reply to a DRC-01?

You reply in Form GST DRC-06 by the date set in the notice, taking each head of demand in turn. For every point either contest it with the figure and the record behind it, or accept it and pay through Form GST DRC-03.

1. Identify whether the notice cites section 73 or section 74.
2. Check the notice was issued within the statutory time limit.
3. Reconcile the demand against your returns, GSTR-2B, and books for the period.
4. File the reply in DRC-06 with supporting documents by the reply date.
5. Where you accept part of it, pay through DRC-03 within the window that reduces the penalty.

How does early payment cut the penalty?

The penalty falls the earlier you pay. Under section 73, paying the tax and interest before the notice, or within 30 days of it, means no penalty at all. Under section 74, paying before the notice caps the penalty at 15%, paying within 30 days of the notice caps it at 25%, and paying within 30 days of the order caps it at 50%.

This is why the section on the notice and the payment date matter so much. A section 74 demand paid within 30 days of the notice costs a quarter of the penalty a contested-and-lost demand would.

How does the case end?

After considering the DRC-06 reply, the proper officer determines the tax, interest, and penalty and issues the order. The summary of the order is served in Form GST DRC-07, which enters the demand in the electronic liability register and becomes recoverable.

If you disagree with the DRC-07 order, the route is appeal, not a fresh reply. The adjudication is closed once the order issues, so the contest moves to the appellate authority.

How do I confirm the notice is valid?

1. Confirm the notice is in Form GST DRC-01 and names section 73 or 74.
2. Check it was issued within the statutory time limit tied to the annual return due date for that year.
3. Match the tax periods and amounts to your own records.
4. Note the reply date and the reduced-penalty windows that apply.
5. Keep every DRC-03 payment challan and the final DRC-07 order.

Why do DRC-01 replies fail?

• Not checking whether the notice cites section 73 or 74 before replying.
• Missing the 30-day payment window that would have cut the penalty.
• Filing a reply in prose without the figures and records behind each head.
• Treating a DRC-01 like a scrutiny ASMT-10 and under-responding.
• Missing the reply date in DRC-06 so the order issues unopposed.

Where are demand rules published?

The demand framework sits in sections 73 and 74 of the CGST Act and rule 142 of the CGST Rules, and CBIC issues circulars and instructions on how officers run adjudication. For the scrutiny stage that often precedes a demand, read our GST scrutiny notice ASMT-10 guide. Complied AI keeps CBIC / GST updates in one feed so you can open the circular behind a demand drive and read section 73 next to it.