GST Scrutiny Notice Explained: Reasons, Process, and How to Respond

Getting a GST scrutiny notice can be unsettling. Knowing the process and how to respond can make it easier to manage the situation.

In this simple guide, we help you understand what a GST scrutiny notice is, why you might receive one, and exactly how to respond. We also share some best practices that help you avoid future notices. 

What is a GST Scrutiny Notice? 

GST scrutiny is a process where the tax department (either Central or State GST) reviews your GST returns to ensure everything is accurate and in order. 

If the authorities find discrepancies, inconsistencies, unusual patterns, or potential errors in your GST filings, you may receive a GST Scrutiny Notice. 

The notice is usually issued under Section 61 of the CGST Act, 2017. It requires you to provide clarification or supporting documents for the period in question.

Consequences of Ignoring a GST Scrutiny Notice 

Ignoring a GST Scrutiny Notice can lead to serious consequences for your business. Here’s what you need to know:

• Penalties and Interest: If you don’t respond within the given time (usually 30 days), the tax officer may issue a demand notice. You may be liable to pay penalties and interest.
• Show Cause Notice: If no proper reply is received within 30 days, the officer may issue a show-cause notice under Section 73 (non-fraud) or Section 74 (fraud), asking for unpaid tax, interest, and penalties. 
• Input Tax Credit (ITC) Reversal:  If ITC claims are found to be incorrect, they may be disallowed or reversed. This can impact your cash flow and increase your overall tax burden.
• Audit or Investigation: Ignoring the notice may prompt a formal GST audit or even an investigation, especially if fraud is suspected. These processes are time-consuming and can disrupt regular business operations.
• Legal Action: In cases of suspected tax evasion, authorities may initiate prosecution. This can involve hefty fines and, in severe cases, imprisonment of responsible persons.
• Suspension or Cancellation of GST Registration: Ongoing non-compliance can lead to suspension or cancellation of your GST registration, which legally prevents you from continuing business.
• Reputational Damage: Non-compliance can harm your reputation with customers, financial institutions, and business partners.
• Increased Future Scrutiny: Ignoring a notice marks your business as high-risk, leading to more frequent audits and inspections in the future.

Why Did You Receive a GST Scrutiny Notice: Common Errors

A GST scrutiny notice usually means the tax department spotted a problem in your GST returns. Here are the common errors that can trigger a GST scrutiny notice:

1. Mismatch Between GSTR-3B and GSTR-1/GSTR-2B

This means the tax details filed don’t match with sales or ITC data, leading to compliance issues.

Reasons: 

• Underreporting sales or output tax in GSTR-3B compared to GSTR-1
• Claiming higher Input Tax Credit (ITC) in GSTR-3B than available in GSTR-2B
• Suppliers not filing GSTR-1, causing missing invoices in GSTR-2B
• Errors or delays in data entry or reconciliation

2. Errors in Input Tax Credit (ITC) Claims

These occur when businesses wrongly claim credit, leading to potential tax demands and penalties.

Reasons:

• Claiming ITC on blocked or ineligible items
• Availing ITC on goods/services used for exempt or non-taxable supplies
• Using fake, invalid, or unreported invoices
• Claiming the same ITC more than once (duplicate claims)
• Claiming ITC after the allowed time limit (time-barred)

3. Underreporting Output Tax Liability

Errors or deliberate actions in GST reporting can lead to underpayment of tax and non-compliance with GST laws, leading to scrutiny

Reasons:

• Suppressing sales by omitting invoices or underreporting revenue
• Charging GST at incorrect (lower) rates
• Using wrong HSN/SAC codes to misclassify goods or services
• Not paying GST on advances received when required
• Ignoring GST payment under Reverse Charge Mechanism (RCM) for applicable services or supplies

4. Data Inconsistencies Across Returns

Data inconsistencies across GST returns can lead to mismatches, scrutiny, and potential denial of credit or penalties.

Reasons:

• Invoice-level mismatches in value, number, GSTIN, or tax between GSTR-1 and recipient’s GSTR-2A/2B
• Inconsistent HSN/SAC codes for the same goods or services
• Incorrect declaration of place of supply, affecting IGST vs. CGST/SGST
• Mismatches between e-way bill details and GSTR return data

5. High-Value Transactions or Unusual Patterns

High-value transactions or unusual reporting patterns can trigger red flags in GST audits and scrutiny.

These include

• Sudden, unexplained spikes or drops in turnover, ITC, or tax liability
• Disproportionately high ITC claims compared to output tax
• Large cash transactions that may indicate unreported income
• Frequent dealings with non-compliant or deregistered supplier

6. Filing and Compliance Issues

Filing and compliance issues can also lead to scrutiny:

These can be: 

• Late or non-filing of GSTR-1, GSTR-3B, or annual returns (GSTR-9/GSTR-9C)
• Running a business without obtaining mandatory GST registration

7. Export and Refund Discrepancies

Export and refund discrepancies can also raise red flags and be a ground for scrutiny. 

These can be: 

• Mismatch between export details in GSTR-1 and ICEGATE or shipping bills
• Incorrect or fraudulent GST refund claims without proper documentation

8. Other Red Flags

Apart from the ones listed above, some other grounds for scrutiny are: 

• Incomplete/ Missing Documentation: Not maintaining or producing records when requested to support ITC claims, sales, or expenses.

• Mathematical & Calculation Errors: Errors in basic calculations or applying the wrong GST rate
• Anti-Profiteering Issues: Not reducing product prices after a GST rate cut and continuing to charge customers the higher rate.

Sections of a GST Scrutiny Notice

A GST Scrutiny Notice clearly communicates the tax officer’s concerns and requirements.  Here are the key sections you’ll find, along with what each means for your business:

Header & Identification Details

• Your Business Info: Your legal name, GSTIN, and address.
• Notice Reference: Unique notice number, date of issue, and DIN (Document Identification Number).
• Tax Authority: Issuing officer’s name, designation, and jurisdiction (Central/State GST).
• Relevant Law: Cites Section 61 of the CGST/SGST Act (scrutiny provision).

Subject & Purpose

• Clearly states: “Notice for Scrutiny of Return” under Section 61
• Specifies the return type (e.g., GSTR-3B) and tax period(s) under review (e.g., April 2024 – June 2024).

Basis of Discrepancy/Reason for Scrutiny

• Explains why the notice was issued.
• Lists specific discrepancies identified through GSTN system analytics, such as, “High ITC claimed compared to output tax liability” or “Mismatch between GSTR-1 and GSTR-3B”

Specific Queries / Information Required

A point-by-point list of questions or explanations needed from you.

Examples:

“Explain the difference of ₹X in output tax between GSTR-1 and GSTR-3B for June 2024.”

“Justify ITC claimed on invoices not appearing in GSTR-2B.”

Documents Required

A checklist of supporting evidence to submit with your reply.

Common requests:

• Invoices (sales/purchases) related to the discrepancy
• Payment proofs (bank statements, receipts)
• Purchase/sales registers, ledgers, or books of accounts
• Contracts, delivery challans, or e-way bills
• Reconciliation statements

Response Deadline & Submission Instructions

• Clear Due Date: Typically 30 days from notice receipt.
• Mode of Submission: Usually via the GST Portal (“Online Response” section under “Notices and Orders”).

Consequences of Non-Response

Explicitly warns that failure to reply may lead to:

• Ex-parte assessment (tax demand without your input).
• Tax, interest, and penalties.
• Further legal action (audit, investigation).

Contact Information & Officer’s Signature/ Seal

Includes the assessing officer’s contact details and the official signature/seal for authenticity

GST Scrutiny Notice Process Explained

The GST Scrutiny process is initiated when discrepancies are found in a taxpayer’s GST returns. Here’s what happens

Step 1: Notice Initiation

 When a discrepancy is detected, the tax officer issues a notice in Form ASMT-10 through the GST portal. 

This notice comes with a Document Identification Number (DIN) and outlines the specific issues. 

You must respond within 30 days from the date of receipt.

Step 2: Your Response

Carefully review the notice to understand the tax periods involved and the exact nature of discrepancies. 

Prepare a point-wise reply supported by relevant documents such as invoices, bank statements, ledgers, and reconciliation reports. 

Submit your response online via the GST portal under the “Reply to Notice” section.

Step 3: Officer’s Review

If the officer is satisfied with your explanation, the matter is closed. If not, further actions may include:

• A request for more documents (with a shorter deadline)
• Suggestion to pay the differential tax with interest
• Initiation of an audit (Section 65) or investigation (Section 67)
• Issuance of a Show Cause Notice (SCN) under Section 73/74 for tax demands and penalties

Step 4: Escalation (If Applicable)

If an SCN is issued, you have 30 days to respond.

Based on your reply, the officer may pass an adjudication order with final tax/penalty demand.

If you disagree, you can file an appeal with the Appellate Authority within three months.

How to Respond to a GST Scrutiny Notice?

Receiving a scrutiny notice under GST can seem daunting, but responding thoroughly and on time is critical. Here’s what to do:

1. Immediate Actions

• Check the Type: Most scrutiny notices are issued in Form ASMT-10.
• Understand the Issues: Identify the tax period, nature of discrepancies, and specific information/documents requested.
• Verify Authenticity: Confirm the Document Identification Number (DIN) on the GST Portal.
• Alert Your CA or GST Practitioner: Inform your tax advisor immediately to begin preparing an appropriate and timely response.

2. Gather Required Documents

Collect all documents relevant to the issues raised:

• Tax invoices
• Purchase registers and ledgers
• GSTR-1, GSTR-3B, and GSTR-2B extracts
• Reconciliation statements
• Bank statements and payment proofs

3. Draft a Clear, Factual Reply (Form ASMT-11)

• Point-by-Point Reply: Address each query individually (e.g., “Query 1: ITC mismatch of ₹1,50,000…”).
• Explain Discrepancies: If due to system delays or vendor filings, explain clearly (e.g., supplier filed GSTR-1 late).
• Accepting Errors: If you identify a genuine error, admit it and make the payment voluntarily using Form DRC-03. Include payment details in your reply.
• Use a Professional Format: Begin with a cover letter, followed by numbered annexures.

4. Attach Supporting Evidence

Upload scanned and legible copies of all supporting documents:

• Invoices and debit/credit notes
• GSTR filings (GSTR-1, 3B, 2B)
• Reconciliation reports
• Proof of payments or DRC-03 challan

5. Submit the Reply on the GST Portal

• Log in: Go to Services > User Services > View Additional Notices and Orders.
• Select the Notice: Open the ASMT-10 notice.
• Submit Form ASMT-11: Fill in your reply, attach documents, and submit using EVC or DSC.
• Save Acknowledgment: Download and retain the confirmation receipt.

6. Respect the Deadline

• Replies must be submitted within 30 days of receiving the notice.
• If you need more time, request an extension in writing before the deadline. Officers may allow an additional 15–30 days.

7. After Submission

• Track Status: Monitor your GST portal for updates.
• Officer’s Review:
  • If satisfied, the officer will issue Form ASMT-12, closing the matter.
  • If not, further action may be taken, including:
    • Additional information requests
    • Proposal for voluntary tax payment
    • Audit (Section 65) or Investigation (Section 67)
    • Show Cause Notice (SCN) under Section 73/74 for tax demand and penalties

9. If an SCN is Issued

• You’ll receive 30 days to respond.
• An adjudication order may follow.
• If you disagree, you can file an appeal with the Appellate Authority within 3 months

Remember: You cannot appeal the GRC Scrutiny notice itself, but you can appeal against any final order passed after scrutiny.

How Can PKC Help With GST Scrutiny Notices?

✅PKC’s expert CAs handle complex GST scrutiny responses

✅30-day notice deadline met with strategic precision

✅Comprehensive ASMT-10 form analysis and compliance review

✅End-to-end solutions for refunds and claims management

✅Expert advisory on discrepancy resolution strategies

✅Industry-specific expertise across multiple business sectors

✅Detailed documentation preparation for department responses

✅Risk assessment and mitigation for ongoing compliance

✅Stress-free compliance management during scrutiny periods

Best Practices to Avoid GST Scrutiny Notices

Here’s what you can do proactively to avoid scrutiny notices: 

1. Monthly Reconciliation: Reconcile GSTR‑1 (sales), GSTR‑2B (ITC), GSTR‑3B (summary), and your books monthly. Catch mismatches and fix them promptly to stay compliant.

2. Validate Suppliers Before Claiming ITC: Check suppliers’ GSTIN status on the GST portal, ensuring they’re registered and filing consistently. Avoid claiming ITC from canceled/suspended GSTINs, composition dealers, or non-filers.

3. File Returns Accurately & On Time: Set reminders for timely filing to avoid automated red flags. Double-check HSN/SAC codes, updated tax rates, place of supply, and invoice-level details to prevent downstream errors.

4. Claim Only Eligible ITC: Know and exclude blocked credits. Reverse ITC for goods/services partly used for exempt or personal purposes. Document high-value claims thoroughly.

5. Reconcile E‑Way Bills with Invoices: Ensure values and quantities on e‑way bills match GSTR‑1 and physical invoices. Significant discrepancies can invite scrutiny, so keep your transport and tax records aligned.

7. Maintain Meticulous Records: Retain all records for at least six years. Both physical and digital backups ensure swift audit responses.

8. Conduct Quarterly Internal Audits: Every quarter, cross-check ITC eligibility, GSTR‑1 vs. sales, and GSTR‑2B vs. purchases, including tax computations. Fix errors via amendments or adjustments in upcoming returns to reduce risk.

9. Use GST‑Compliant Accounting Software: Leverage software that automates HSN validation, return prep, and reconciliations. This minimizes manual errors and provides built-in audit trails and compliance efficiency.

10. Engage Qualified Professionals: Consult experts like PKC Management Consulting for complex issues. They can represent you confidently during scrutiny and help avoid penalties.

FAQs about GST Scrutiny Notice 

1. What is a GST scrutiny notice?

A GST scrutiny notice is a letter from the tax department asking you to explain mismatches or errors in your GST returns. It is issued under Section 61 of the CGST Act to verify your tax compliance.

2. How do I reply to a GST scrutiny notice?

You must reply through Form ASMT-11 on the GST portal within the specified timeline. Attach supporting documents and explain any errors clearly.

3. How long do I have to reply to a GST scrutiny notice?

 A taxpayer should respond to such notice within 30 days from the date of issue, or request for an extension, not more than 15 days.

4. Can I ignore a GST scrutiny notice?

Never ignore a scrutiny notice. If you fail to reply, the officer may issue a show cause notice, levy penalties, or even cancel your GST registration.

5. What happens if my reply is not accepted?

If the GST officer rejects your explanation, they may issue a show cause notice. That means you might face additional tax demands, penalties, or audits.