Top Common Mistakes That Lead to GST Notices & How to Avoid Them
Notices under GST are communications by the GST Authorities. A notice so issued, depending upon the purpose or gravity of default or action required from the taxpayer, can be called by different names e.g. Show Cause Notice (SCN), Scrutiny Notice or Demand Notice.
GST authorities act based on any hints collected on scrutinising taxpayer’s GST Returns or based on information received from another Government department/ third parties.
A taxpayer must promptly act or reply to notices within the time limit specified in such notice. Any failure to do so can land the taxpayer in a legal soup. In such eventuality, the authorities can proceed to impose penal provisions, including and not limited to penalty as well as prosecution.
Notices under GST— several reasons can trigger a GST notice, such as:
1. Liable but has failed to obtain GST registration: Failing to obtain GST registration when you are liable is one of the most common reasons for receiving a GST notice.
If a business crosses the threshold limit (Rs.20 lakh / Rs.40 lakh / Rs.10 lakh, depending on state & business type) or is mandatorily required to register but does not do so, the GST department may issue notice asking the taxpayer to either apply for GST registration, or explain why registration is not required.
2. Discrepancies in Returns: Differences between GSTR-3B (summary return) and GSTR-1 (outward supplies).
The GST system is built on auto-reconciliation, so any mismatch between returns or between returns and external data triggers automated alerts.
When the information reported across different GST returns does not match, the GST department assumes possible tax evasion, short payment, excess ITC claim, or misreporting, and therefore issues notices.
For instance, there may be a notice if your GSTR-1 shows sales of INR 10 lakh but your GSTR-3B only shows INR 8 lakh.
3. Delayed Filing: Notices may be issued out for late GST return submissions. This means that you can get a notification if you fail to file GSTR-3B by the deadline of the 20th of the following month.
4. Non-Payment or Short Payment: Failing to pay the proper tax payment amount. A notice will be sent out in the case that your GST liability is INR 5 lakh but you only pay INR 4 lakh.
5. ITC (Input Tax Credit) Issues: Input Tax Credit is one of the main systems of GST. In this, businesses can claim credits if they have paid taxes on their inputs. Businesses should submit all their invoices correctly to claim these credits.
However, when the tax authorities find any mismatches in the invoices submitted, or if they notice that businesses are not eligible for the credits, they have submitted their claims for, they can notices to such businesses.
Claiming too much or ineligible ITC. For example, you will receive a notice if you attempt to claim Input Tax Credit (ITC) on inputs that are prohibited by GST law.
Not reversing ITC for exempt supplies, personal use, or business-non-business expenses will result in Demand for wrongful ITC claim.
6. Not Reporting Reverse Charge (RCM) Liability: Ignoring RCM on freight (GTA), legal services, director services, import of goods/services will result in Demand for missed RCM payment with interest.
7. Wrong Reporting of Place of Supply (POS): Charging CGST+SGST instead of IGST or vice-versa. Incorrect POS in B2B transactions will lead to Notices for wrong tax paid & demand of correct tax.
8. GST Refund wrongly claimed with or without the intent to defraud: Refunds are one of the most closely monitored areas in GST, and incorrect claims result in refund rejection, recovery, interest, and penalties.
Wrongly claiming a GST refund, whether intentionally or unintentionally, almost always leads to a GST notice because refund cases fall under high-risk scrutiny by the GST Department.
9. Inconsistent declaration in GSTR-1 and e-way bill portal: Any inconsistency between GSTR-1 and the e-way bill portal is a major red flag and can lead to a GST notice. This is one of the key triggers used by the GST department during risk-based scrutiny.
When the outward supplies reported in GSTR-1 do not match the supplies reflected in the e-way bill (EWB) system, the GST department suspects possible tax evasion or under-reporting.
How to Avoid GST notices
GST notices are triggered when the system detects mismatches, non-compliance, or irregular data patterns. To stay notice-free, you must follow systematic monthly checks and strong documentation controls.
1. Maintain Consistent and Accurate Return Filing
• File GSTR-1 and GSTR-3B on time every month.
• Ensure invoice values, tax amounts, and HSNs match across returns.
• Avoid filing returns in last-minute rush (causes reporting errors).
2. Reconcile GSTR-1 vs GSTR-3B Every Month
• Do monthly reconciliation of taxable value + tax
• Adjust credit/debit notes properly
• Avoid missing or duplicated invoices
3. Match ITC in Books with GSTR-2B
Wrong ITC claim is the No.1 reason for demand notices. Do monthly checks on below points:
• ITC claimed in 3B = ITC available in 2B
• Blocked credits under Section 17(5) removed
• Supplier filing status verified
• Use ITC only if it appears in GSTR-2B.
4. Reconcile E-Way Bill Data with GSTR-1
Mismatch between e-way bills and GSTR-1 creates suspicion of undisclosed sales & Stock movement without invoices. To avoid this—
• Cancel unused e-way bills
• Ensure inward/outward e-way bill data matches books
• Keep transporter-generated EWBs in track
5. Ensure Correct HSN Codes & Tax Rates
Wrong HSN or incorrect tax rate leads to tax short payment.
• Keep a correct HSN list for all items/services
• Check rate notifications
• Maintain classification documentation
6. Reverse Ineligible ITC on Time
Under Section 17, ITC must be reversed for Exempt supplies, Personal use
Do monthly/annual ITC reversal properly.
7. Comply With RCM (Reverse Charge) Rules
• Keep a monthly RCM checklist
• Pay RCM only in cash
• Claim ITC after payment
8. Ensure Proper Documentation
Maintain the following records:
• Tax invoices & debit/credit notes
• E-way bills & delivery challans
• Purchase register / sales register
• Payment proofs
• Job work records
• Books of accounts matching GST returns
• Keep documents for 6 years.
9. Avoid Excess Refund or Wrong Refund Claims
Refunds are highly scrutinized.
• Match export/SEZ data with SB + BRC/FIRC
• Do not claim ITC ineligible for refund
• Attach correct supporting documents
• Prepare refund working papers
10. Monitor Thresholds and Registration Liability
You will get a notice if you Cross turnover limit but don’t register
• Track turnover monthly
• Check Section 24 compulsory registration rules
11. Track Compliance of Vendors
• If your supplier does not file GSTR-1, your ITC gets blocked.
• Check vendor compliance score/card
• Prefer compliant suppliers
• Follow up for timely return filing
12. Conduct Quarterly Internal GST Audits
This helps identify:
• Mismatches
• Missed liability
• Excess ITC
• RCM errors
• Rate/classification issues
13. Respond to Notices Promptly
Ignoring notices leads to:
• Escalation
• Penalty
• Blocking of ITC
• Suspension of registration
Always reply within the given time & attach documentary evidence. |