Understanding Demand and Notices Under GST: A Comprehensive Guide

Goods and Services Tax (GST) is a major indirect tax reform in India that has simplified the tax structure. However, compliance under GST involves various procedural aspects, including the issuance of demands and notices by tax authorities. These demands and notices are crucial for taxpayers to understand because they affect tax liabilities and legal obligations. This guide explains the concept of demand and notices under GST, their types, procedures, and how taxpayers should respond to them.

GST demand notice document on a wooden table

What is Demand Under GST?

A demand under GST refers to the amount that the tax authorities require a taxpayer to pay when there is a shortfall in tax payment. This shortfall can arise due to various reasons such as:

• Under-reporting of taxable supplies

• Incorrect tax payment

• Non-payment of tax

• Excess input tax credit claimed

  
  

When the tax authorities detect such discrepancies, they issue a demand notice specifying the amount payable along with interest and penalties if applicable.

Legal Basis for Demand

The GST law provides the framework for raising demands under Section 73 and Section 74 of the CGST Act, 2017:

• Section 73 applies when the taxpayer has not paid the tax due to reasons other than fraud or willful misstatement.

• Section 74 applies in cases involving fraud, willful misstatement, or suppression of facts.

  
  

These sections empower authorities to issue a show cause notice and demand tax along with interest and penalties.

Types of Notices Under GST

Notices under GST are formal communications from tax authorities to taxpayers. They serve different purposes, such as seeking information, initiating proceedings, or demanding payment. Common types of GST notices include:

• Notice for Non-filing of Returns: Sent when a taxpayer fails to file GST returns within the prescribed time.

• Notice for Verification: Issued to verify the correctness of returns or claims made by the taxpayer.

• Show Cause Notice (SCN): A detailed notice asking the taxpayer to explain why a demand should not be raised.

• Demand Notice: Specifies the amount payable after considering the taxpayer’s response.

• Notice for Audit or Inspection: Requests documents or access to premises for audit purposes.

  
  

Each notice has a specific timeline and procedure that taxpayers must follow to avoid penalties.

How Demand and Notices Are Issued

The process of issuing demand and notices under GST involves several steps:

1. Detection of Discrepancy: Authorities identify discrepancies through returns, audits, or intelligence.

2. Issuance of Show Cause Notice: The taxpayer receives an SCN explaining the issue and asking for a response.

3. Response by Taxpayer: The taxpayer can submit explanations, documents, or evidence to contest the demand.

4. Final Order: Based on the response, authorities pass a final order confirming or dropping the demand.

5. Demand Notice: If confirmed, a demand notice is issued specifying the amount payable.

6. Recovery: Authorities may initiate recovery proceedings if the demand remains unpaid.

   
   

Example

Suppose a taxpayer files a return showing a tax liability of ₹1,00,000 but the audit reveals a short payment of ₹20,000. The tax officer issues a show cause notice asking for an explanation. If the taxpayer fails to justify, a demand notice for ₹20,000 plus interest and penalty is issued.

Responding to GST Demands and Notices

Timely and proper response to GST notices is essential to avoid escalation. Here are practical steps taxpayers should take:

• Read the Notice Carefully: Understand the issue, the amount demanded, and the deadline for response.

• Gather Relevant Documents: Collect invoices, returns, payment proofs, and other supporting documents.

• Consult a GST Expert: Professional advice can help prepare a strong response.

• Submit Response Online: Use the GST portal to reply within the stipulated time.

• Request for Personal Hearing: If needed, taxpayers can ask for a hearing to present their case.

• Pay Tax if Demand is Valid: To avoid further penalties, pay the demanded amount if the claim is correct.

  
  

Ignoring notices can lead to penalties, interest, and legal action.

Person reviewing GST documents and notices on a desk

Interest and Penalties on GST Demand

When a demand is raised, the taxpayer may have to pay interest and penalties along with the principal tax amount.

• Interest: Charged on the unpaid tax from the due date to the date of payment. The rate is usually 18% per annum.

• Penalty: Can be up to 100% of the tax amount if the demand arises from fraud or willful misstatement.

  
  

The exact amount depends on the nature of the default and the provisions under the GST law.

Important Timelines to Remember

GST law specifies strict timelines for issuing demands and notices:

• For cases without fraud, the demand must be raised within 3 years from the due date of filing the relevant return.

• For cases involving fraud or suppression, the period extends to 5 years.

• Taxpayers usually get 15 to 30 days to respond to notices.

  
  

Missing these deadlines can affect the validity of the demand or the taxpayer’s right to appeal.

Appeals and Revision

If a taxpayer disagrees with the demand or order, they can file an appeal:

• First Appeal: Before the Appellate Authority within 3 months of the order.

• Second Appeal: Before the GST Appellate Tribunal.

• Further Appeal: To High Court or Supreme Court if needed.

  
  

During the appeal process, the taxpayer may request stay of demand or payment in installments.

GST appeal form being filled out on a laptop

Practical Tips for Taxpayers

• Maintain accurate and complete records of all transactions.

• File GST returns on time to avoid notices for non-compliance.

• Regularly reconcile input tax credit claims with supplier data.

• Respond promptly to all GST notices.

• Seek professional help for complex cases or disputes.

  
  

Summary

Understanding demand and notices under GST is vital for every taxpayer. These notices are not just formalities but legal instruments that can affect your tax liability and business operations. By knowing the types of notices, the process of demand issuance, and how to respond effectively, taxpayers can protect their interests and ensure compliance. Stay proactive, keep records organized, and address notices promptly to avoid penalties and legal complications.