A GST DRC-01 arriving in your email or courier is one of those moments where most business owners either panic or ignore it. Both reactions cost money. The right move is neither.
DRC-01 is a formal Show Cause Notice (SCN) issued by the GST department when they’ve identified a tax demand — short payment, excess ITC claim, mismatch between returns. You must reply within the time stated in the notice, usually up to 30 days, extended to 60 days for notices under the new Section 74A. Ignoring it means the officer passes a demand order against you by default.
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Quick Summary — DRC-01 at a Glance
| Item | Detail |
| What it is | Show Cause Notice — formal demand for tax, interest, and penalty |
| Applicable section (FY 2023-24 and earlier) | Section 73 (non-fraud) or Section 74 (fraud) |
| Applicable section (FY 2024-25 onward) | Section 74A — replaces both 73 and 74 |
| Time to reply | As stated in notice — up to 30 days under 73/74; 60 days under 74A |
| Reply form | DRC-06 on the GST portal |
| What happens if you pay now (reduced penalty) | Pay within 60 days of Section 74A notice → significantly reduced penalty |
| What happens if you ignore it | Officer issues DRC-07 demand order — 100% penalty + interest |
A Crucial Update: Section 74A Has Changed the Rules for FY 2024-25 Onward
Most older guides still reference Section 73 (non-fraud) and Section 74 (fraud) as the two possible sections cited in a DRC-01. That framework applies only to periods up to FY 2023-24. For any demand relating to FY 2024-25 onward, the Finance Act 2024 introduced Section 74A — a single unified provision that replaces both. If your DRC-01 cites Section 73 or 74 for a FY 2024-25 demand, that’s itself a procedural defect worth raising in your reply.
⚠️ Verify the section cited in your specific notice against the financial year it covers before drafting any reply — citing the wrong section in a response to a Section 74A notice can weaken your argument.
Before DRC-01, There Is Usually DRC-01A
Many businesses only notice the formal SCN and miss the earlier stage. The department often sends a DRC-01A (an intimation, not a formal notice) before escalating to DRC-01. If you received one and paid the amount via DRC-03, or explained the discrepancy and it was accepted, the formal DRC-01 never issues. If you received a DRC-01A and didn’t respond, that’s why the DRC-01 followed. Resolving matters at DRC-01A stage is always faster, cheaper, and less stressful than reaching DRC-01.
The Most Common Reasons DRC-01 Gets Issued
ITC mismatch between GSTR-3B and GSTR-2B. This is the most frequent trigger by volume. The department’s system compares ITC you claimed in GSTR-3B with what suppliers actually reported — any excess shows up as a demand. GSTR-1 vs GSTR-3B mismatch. Your declared sales and your tax paid figures don’t agree. Non-filing or late filing triggers. Persistent filing defaults can eventually result in a formal demand notice rather than just a late fee. Scrutiny assessment findings. An ASMT-10 notice that wasn’t resolved may escalate to DRC-01.
How to Actually Respond
- Read the notice word by word. Note the section cited, the financial year, the specific demand amount, and the deadline.
- Confirm whether the section cited matches the financial year — for FY 2024-25 onward, it should be Section 74A.
- Reconcile your returns against your books. Build a line-by-line reconciliation for every discrepancy alleged, not a general denial.
- Decide your position: if the demand is correct, paying tax plus interest and 25% penalty (under 74A) within 60 days closes the matter. If you dispute it, build your reply with specific figures and documentary support.
- File your reply in Form DRC-06 on the GST portal. Always request a personal hearing — this is your right under Section 75(4) and gives you a second opportunity to present your case.
What Never to Do
Don’t file a vague, general reply. “The demand is incorrect” as your only argument is not a reply — it’s a statement. The officer is looking for specific reconciliation figures, referenced invoices, and a legal basis for your position. Also, don’t miss the deadline assuming the matter will sort itself out. Silence results in a DRC-07 demand order, which is significantly harder to challenge than the original DRC-01.
Frequently Asked Questions
Does Section 74A apply to notices I receive in 2026 for older financial years?
No. The applicable section is determined by the financial year the demand relates to, not the year you receive it. A 2026 notice for FY 2022-23 will still cite Section 73 or 74. A 2026 notice for FY 2024-25 must cite Section 74A.
What is the personal hearing right and how do I exercise it?
Under Section 75(4) of the CGST Act, the officer must give you an opportunity for a personal hearing before passing any adverse order if you request one. State this request explicitly in your DRC-06 reply — don’t assume it will be offered automatically.
Can I appeal the DRC-07 order if I miss the DRC-06 reply deadline?
Yes — an appeal to the First Appellate Authority in Form GST APL-01 is possible within 3 months of the DRC-07 order, with a 10% pre-deposit of the disputed tax. The appeal is harder to win than a well-drafted DRC-06 reply, which is exactly why responding to DRC-01 properly is worth the effort.
What is Section 128A and does it apply to my notice?
Section 128A offered a waiver of interest and penalty for Section 73 demands covering FY 2017-18, 2018-19, and 2019-20, for taxpayers who paid the full principal tax by 31 March 2025. If you missed that deadline, this specific relief is no longer available through the standard path — get specific professional advice before assuming any other route exists.
References
- CGST Act, 2017 — Section 73, 74, and 74A (demand and recovery)
- CGST Act, 2017 — Section 75(4) (personal hearing right)
- Finance (No. 2) Act, 2024 — Section 74A insertion (effective FY 2024-25 onward, 1 November 2024)
Last Updated: 08 July 2026
Reviewed By: TaxKitab Team
⚠️ This post covers the standard process. Every DRC-01 is specific to the taxpayer’s facts and the financial year involved. The section cited in your actual notice determines which framework applies — always verify against the notice document itself.
A DRC-01 often signals underlying reconciliation gaps that are worth fixing permanently, not just defending against notice by notice. Our posts on ITC mismatches between GSTR-2B and books and GST registration cancellation cover what tends to go wrong upstream.
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