How to Reply to GST DRC-01 Notice in India – Step-by-Step Guide

Introduction: Understanding GST DRC-01 Notice

In India’s evolving tax environment, receiving a GST DRC-01 Notice can feel overwhelming—but it’s more common than you think, especially in 2025. This official document, issued by the Goods and Services Tax Department, is a demand notice under Section 73 or 74 of the CGST Act. It informs the taxpayer of tax liability, interest, or penalty due to discrepancies or violations in GST returns or filings.

🔍 What is GST DRC-01 Notice?

The GST DRC-01 is an intimation notice sent by the GST department when it believes you owe unpaid tax or have wrongly claimed Input Tax Credit (ITC). It contains:

Details of the tax demand
Period of default
Relevant sections under which demand is raised
A request for explanation or payment before further proceedings

This notice is not a penalty yet, but a pre-show cause notice (SCN) under the law, giving you a chance to clarify or rectify the issue.

📌 Why Do Taxpayers Receive GST DRC-01?

Taxpayers may receive DRC-01 for several reasons, including:

Mismatch in ITC claimed and GSTR-2A/2B
Non-payment of tax within the due date
Errors in GSTR-3B or GSTR-1
Discrepancy in turnover declaration between Income Tax and GST returns
Improper classification of services or goods

Whether you’re a small business, trader, or consultant, ignoring this notice can escalate into legal trouble, including hefty interest and penalties, or property attachment in serious cases.

⚠️ Importance of Timely and Accurate Reply to DRC-01

The DRC-01 notice is your warning bell. If you fail to reply within the prescribed time, the department may move directly to issuing a Show Cause Notice (DRC-01A), followed by a demand order (DRC-07).

A well-prepared and timely reply to GST DRC-01 can help you:

Avoid unnecessary penalties and prosecution
Correct genuine errors or misreporting
Defend your case with valid documentation
Show your intent of compliance to the authorities

📘 What This Blog Covers

In this complete guide, you’ll learn:

What triggers a GST DRC-01
How to prepare and file a reply
Legal rights and obligations
Sample formats to use
How SSCOIndia can help you navigate GST compliance stress-free

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2. What Triggers a GST DRC-01 Notice?

Understanding the causes behind receiving a GST DRC-01 is the first step to managing it. With increased digital scrutiny, artificial intelligence, and system-based alerts in the GST portal, even small inconsistencies can prompt a notice.

🔄 Common Reasons for Receiving a GST Demand Notice

Here are the top reasons why businesses receive GST DRC-01 notices in 2025:

1. Mismatch in GSTR-3B vs GSTR-1

If your sales figures in GSTR-3B (summary return) don't match with GSTR-1 (detailed outward supply return), the system flags it. This is a common cause of GST DRC-01 for both small businesses and eCommerce sellers.

2. Excess ITC Claimed

Claiming Input Tax Credit higher than what is reflected in your GSTR-2B or GSTR-2A is a red flag. The GST department uses AI to track such mismatches automatically.

3. Non-Filing or Late Filing of Returns

Missed filing monthly or quarterly returns (GSTR-3B/GSTR-1)? The GST system records it. You may be issued DRC-01 for tax shortfall or unpaid interest due to delays.

4. Turnover Mismatch Between GST & ITR

When your Income Tax Return shows a higher turnover compared to your GST returns, it triggers a system alert. This is common among freelancers, service providers, and online sellers.

5. Failure to Pay Tax on Reverse Charge Basis (RCM)

If you are liable under RCM (for import of services, legal services, etc.) but did not pay GST, the department may issue a demand notice.

6. Audit or Assessment Observations

Post-audit assessments often result in DRC-01 if any underreported supply, classification issue, or miscalculation is found.

7. Incorrect HSN or SAC Codes

Improper classification of goods or services using incorrect HSN/SAC codes may cause rate mismatch and draw departmental attention.

🛡️ Importance of Proactive GST Compliance

The best way to avoid receiving a GST DRC-01 notice is by maintaining consistent, transparent, and timely filings. You should:

Reconcile GSTR-1 and GSTR-3B monthly
Match your ITC claims with GSTR-2B
Avoid inflated ITC or incorrect tax payments
Use tools or software to manage GST compliance
Consult experts for error handling and clarification

Ignoring GST notices can snowball into interest @18%, penalties up to 100% of tax, and even cancellation of GST registration in extreme cases.

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Legal Provisions Behind GST DRC-01 Notice

If you’ve received a GST DRC-01 Notice, it’s crucial to understand the legal framework that governs it. The notice is not just an administrative formality—it is backed by statutory law under the Central Goods and Services Tax (CGST) Act, 2017, primarily Section 73 and Section 74, which deal with demand and recovery of tax.

🔍 What is Section 73 of CGST Act?

Section 73 covers cases where tax has not been paid or has been short-paid, erroneously refunded, or Input Tax Credit (ITC) has been wrongly availed, but without any intention to defraud or suppress facts.

👉 In simpler terms, this section deals with non-fraudulent tax defaults, such as clerical errors, late filing, or unintentional omissions.

Under Section 73:

A show cause notice (DRC-01) is issued.
The taxpayer has 30 days to respond.
If satisfied, the officer may drop proceedings.
Interest @18% applies.
Penalty of 10% of tax or ₹10,000, whichever is higher, may apply.

⚠️ What is Section 74 of CGST Act?

Section 74, on the other hand, applies to fraudulent cases where tax has been deliberately evaded by means of suppression, misrepresentation, or willful misstatement.

In this case:

The DRC-01 may be accompanied by serious penalties.
Penalty is 100% of tax amount, plus interest.
It can lead to arrest or prosecution in high-value fraud cases.

💡 Note: The DRC-01 will clearly mention under which section (73 or 74) it has been issued. This is important because your reply and legal defense will depend on this classification.

📜 Rights and Obligations of the Taxpayer

As a taxpayer, you have certain rights and responsibilities under GST law when you receive a DRC-01 demand notice.

Your Rights:

Right to be heard before any final order is passed.
Right to access all evidence and calculations used by the department.
Right to file a reply with supporting documentation.
Right to appeal against any unfavorable decision.

Your Obligations:

Must reply within 30 days of receiving the notice.
Submit only truthful and verifiable documents.
Cooperate with the GST department during any inquiry.
Keep records of communication and reply submission.

🔐 Ignoring the notice can lead to DRC-07 (demand order), property attachment, bank account freeze, or even cancellation of your GSTIN.

Step-by-Step Guide to Reply to GST DRC-01 Notice

Responding to a GST DRC-01 notice requires a structured and professional approach. Let’s walk through the step-by-step process to draft and submit your reply.

✅ Step 1: Read and Understand the Notice Carefully

Start by downloading the DRC-01 PDF from the GST portal. Read the entire notice thoroughly.

Focus on:

Tax period involved
Amount of tax, interest, penalty claimed
Section mentioned (73 or 74)
Reason for discrepancy or demand
Deadline to respond

Tip: Make a list of the points raised and match them against your GST returns.

📁 Step 2: Gather Relevant Documents and Data

To support your reply, you’ll need accurate documents and transaction details.

Collect:

GSTR-1, GSTR-3B returns of relevant months
GSTR-2A/2B reconciliation
Purchase and sales registers
E-invoices, if applicable
Challans and payment proofs
Ledger entries and accounting records

Also, prepare a reconciliation sheet if the notice is due to mismatch in data.

🔍 Step 3: Analyze the Discrepancies or Issues Raised

Break down the issues raised by the department point by point.

Ask yourself:

Was ITC wrongly claimed?
Was tax short-paid by mistake?
Was turnover misreported?
Was there a timing difference or technical glitch?

For genuine errors, be upfront and explain. For departmental mistakes, back your explanation with data and screenshots.

📝 Step 4: Draft a Clear and Concise Reply

Now, draft your reply letter in a formal and respectful tone.

Include:

Reference to the notice number and date
GSTIN and taxpayer details
Summary of issues raised
Point-wise explanation and justification
Attachments and annexures (with indexing)

Use clear language and avoid legal jargon unless necessary.

Example:

💻 Step 5: Submit the Reply via GST Portal

Once your reply is ready:

Log in to https://www.gst.gov.in
Go to Services → User Services → View Additional Notices and Orders
Locate the relevant DRC-01
Click on “Reply” button
Upload your PDF reply file and annexures
Submit with DSC or EVC

You will receive an Acknowledgement Reference Number (ARN). Save this for future reference.

📞 Step 6: Follow Up and Keep Records

After submission:

Check the portal regularly for DRC-03 (if payment required) or DRC-04 (acceptance of reply)
Respond quickly if any clarification or hearing is scheduled
Keep all reply copies, ARN, and communication records safe

📢 Pro Tip: If you’re unsure about your reply, consult a tax expert. Errors in your response can weaken your defense.

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Sample Reply to GST DRC-01 Notice

If you've received a GST DRC-01 demand notice, your response must be professional, well-structured, and factually supported. A good reply can potentially resolve the issue without financial penalty, or at least minimize liability.

Below is a sample reply format that you can customize based on the notice details and the nature of discrepancies raised by the GST authorities.

📄 Sample Format: Reply Letter to GST DRC-01 Notice

[Your Company Letterhead or Name]
GSTIN: [Your GST Number]
Date: [DD/MM/YYYY]
To
The Jurisdictional Officer
[State/Central GST Office Address]
[City, State, Pincode]

Subject: Reply to Show Cause Notice DRC-01 – Reference No. [Notice Number]

Respected Sir/Madam,

With due respect, this is in reference to the Show Cause Notice in Form DRC-01, bearing reference number [Insert Notice Number], dated [Insert Date], issued under Section 73/74 of the CGST Act, 2017, for the period [Insert Tax Period].

We would like to submit our response to the said notice as follows:

📌 Issue-Wise Reply

Issue 1: Mismatch in Input Tax Credit (ITC) Claimed
Observation: The department has pointed out a mismatch between ITC claimed in GSTR-3B and GSTR-2A.
Reply: Upon reconciling, we noticed that certain invoices uploaded by our suppliers were delayed due to system errors. These have since been rectified in subsequent returns. We are enclosing the reconciliation statement along with corresponding invoices.

Issue 2: Non-payment of Tax on Reverse Charge Mechanism (RCM)
Observation: Liability under RCM for legal and professional services not paid.
Reply: The mentioned service was wrongly accounted under exempt services. Upon internal audit, the error was identified and the liability has been discharged via DRC-03 on [Insert Date]. Proof of challan and tax payment enclosed.

📎 Enclosures

GSTR-3B & GSTR-2A Reconciliation Statement
Purchase Register for the relevant period
Copies of Invoices
Payment Challan (DRC-03)
Summary Table of Discrepancies and Clarifications

We hereby request you to consider the above explanation and drop the proceedings under this show cause notice. We remain committed to full compliance under GST law and assure you that such discrepancies will not occur in future.

Thanking you.

Yours sincerely,
[Name]
[Designation]
[Company Name]
[Contact Number]
[Email ID]

✍️ Key Points to Include in Your GST DRC-01 Reply

When drafting your own reply, make sure to:

Reference the exact notice number and date
Mention tax period and section of the CGST Act
Provide a point-wise explanation to each issue
Attach relevant documents and proofs
Maintain a calm, factual, and respectful tone
Avoid emotional or argumentative language
Sign the letter and include complete contact details

💡 Tone and Language Tips for Professional Reply

Use formal business language
Be concise and direct—don’t beat around the bush
Show willingness to cooperate and correct errors
Express commitment to compliance
Never make false claims—only include what can be substantiated with evidence

Common Mistakes to Avoid When Replying to GST DRC-01 Notice

A careless or delayed reply to a GST notice can trigger serious consequences, including demand orders (DRC-07), property attachment, penalties, and interest. Avoid these common pitfalls:

⏳ 1. Ignoring the Deadline

One of the biggest mistakes is failing to respond within 30 days of receiving the DRC-01 notice.

Even if you plan to contest the notice, a timely acknowledgment or reply must be filed.
GST law allows the department to finalize the demand ex parte if no response is filed on time.

✅ Tip: Set calendar alerts and assign the responsibility to your tax team or consultant.

📉 2. Submitting Incomplete or Incorrect Information

Many taxpayers submit replies with missing documents, vague language, or incorrect data.
This weakens your defense and may lead to unnecessary liability.

✅ Tip: Always verify calculations, attach all invoices, reconciliations, payment challans, and cross-check every figure before submission.

🧑‍💼 3. Not Consulting a Tax Expert or GST Consultant

Self-replying without understanding legal provisions like Section 73/74 can be risky.
If you're not confident or the notice involves large tax amounts or multiple issues, it’s wise to get professional help.

✅ Tip: A qualified GST practitioner or CA can analyze the notice, draft a legally sound response, and even represent you during hearings.

🚫 4. Admitting Liability Without Clarification

Don’t admit tax liability blindly just to “close the matter.”
Once you accept the discrepancy, you may lose the right to appeal.

✅ Tip: First, analyze the notice, consult your books, and verify discrepancies before responding.

📌 5. Not Keeping Records of Submission

Failing to save your reply, ARN, or portal acknowledgment can hamper your case later.

✅ Tip: Download, print, and archive every submission. Keep a digital and physical record of correspondence.

🚨 Bonus Tip: Avoid Copied Replies

Many businesses use copy-paste templates found online, which may not apply to your case. This can backfire if the issues are case-specific.

✅ Always tailor your reply based on the specific grounds raised in your notice.

✅ Conclusion: Craft Your GST DRC-01 Reply Carefully

The GST DRC-01 reply is not just a formality—it’s your first and most crucial line of defense against tax recovery, penalties, and legal action. A well-drafted, professional reply backed with valid documentation can safeguard your business and even resolve the matter without further action.

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At SSCOIndia, we specialize in:

DRC-01 & DRC-03 assistance
GST audit representation
GST litigation and appeals

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How SSCOIndia Can Help You Respond to GST Notices

If you’ve received a GST DRC-01 notice, the next steps you take are critical. A poorly drafted reply or missed deadline can lead to penalties, interest, or even property attachment. That’s where SSCOIndia.com comes in — your trusted partner for professional GST notice assistance in India.

🧾 What Services Does SSCOIndia Offer for GST DRC-01?

At SSCOIndia, we specialize in end-to-end GST notice handling services, including:

✅ Notice Analysis: We review your GST DRC-01 notice issued under Section 73 or 74 and identify the exact discrepancy or default.
✅ Reconciliation Support: We assist in GSTR-3B vs GSTR-2A mismatches, ITC reversals, and outward supply mismatches.
✅ Reply Drafting: Our experts draft a professionally worded reply with supporting documentation.
✅ Portal Filing Assistance: We handle the filing of reply on GST Portal, along with attachments in prescribed formats.
✅ Representation: If required, our experts represent you during personal hearings or correspondence with GST officers.
✅ DRC-03 Filing: We prepare and file voluntary payments using GST DRC-03 in case of minor errors to avoid further litigation.
✅ Appeal Assistance: If the demand order is issued unfairly, we guide you through appeals before GST Appellate Authority.

🧠 Why Choose Expert Help for GST Notice Reply?

Handling GST notices is not just about replying to a letter—it involves understanding the legal provisions of the CGST Act, reconciling data across multiple returns, and strategically responding to safeguard your interests.

Here’s why hiring SSCOIndia’s GST experts can make a difference:

✅ Accuracy & Legal Compliance

Avoid mistakes and draft replies that align with the latest GST rules, circulars, and case laws.

✅ Save Time and Resources

Let our team handle the entire compliance burden, so you can focus on your business operations.

✅ Minimize Tax Liability

An expert reply can help you reduce or eliminate penalties, especially if the issue was due to clerical errors or system glitches.

✅ Avoid Litigation

Timely and professionally managed replies can close the case at the notice level, avoiding time-consuming hearings or appeals.

✅ Personalized Service

We offer dedicated support, document verification, and custom drafting for your unique case—not just templated responses.

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Don't risk penalties or compliance hassles. Let the professionals handle it.

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📞 Or call us at +91-8622086220 and get expert GST support from India’s most trusted tax advisors.

Whether it’s your first GST notice or an ongoing case, SSCOIndia is here to guide you every step of the way.

FAQs on GST DRC-01 Notice

Still confused about how to handle a GST notice? Here are answers to some frequently asked questions related to GST DRC-01 compliance:

❓ Can I file a reply to GST DRC-01 after the deadline?

Technically no—you must respond within 30 days from the date of issue of the DRC-01 notice under Section 73 or 74. However, in special cases, you may file a condonation request or submit a reply with justification if there was a genuine delay.

✅ Tip: Always consult a GST expert to explore legal remedies if the deadline has passed.

❓ What happens if I ignore the GST DRC-01 notice?

Ignoring a GST DRC-01 notice can lead to serious consequences:

Final demand order in DRC-07
Levy of interest and penalty
Recovery actions like bank attachment or property seizure
Loss of right to appeal if no timely reply is submitted

✅ Always acknowledge and act on any GST communication to avoid escalations.

❓ How do I know if the DRC-01 notice is genuine?

Here’s how you can verify if the DRC-01 notice is authentic:

Check the notice on the GST portal under “View Notices and Orders”.
It will bear an ARN number and be digitally signed by the GST officer.
The sender's email will be from the gov.in domain or official department.

If you're unsure, reach out to SSCOIndia, and we’ll validate the notice for you for FREE.

9. Internal Links: Read More on GST Notices & Filing Mistakes

Strengthen your understanding of GST compliance and protect your business with these must-read guides:

🔗 Avoid GST Notices – Common Red Flags in Returns 2025
Understand which filing mistakes often trigger GST DRC-01 notices and how to avoid them.

🔗 Respond to GST Notice: Step-by-Step Guide
This blog walks you through every stage of replying to various GST notices, including DRC-01 and DRC-03.

✅ Final Thoughts

GST DRC-01 notices are more common than you think—but they’re also manageable if addressed correctly. Whether you need to understand the legal language, draft a bulletproof reply, or simply want peace of mind, SSCOIndia has your back.

📞 Call us now or book your consultation online and let India’s top GST experts handle the rest.
💼 Trusted by hundreds of SMEs, startups, exporters, and e-commerce sellers across Delhi and NCR.