GST DRC-01 Demand Notice? What to Do Before You Pay (DRC-03)

Who this guide is for

This guide is for GST-registered traders, manufacturers, service providers, and small businesses in India who have received a Form DRC-01 show-cause notice on the GST portal proposing a demand of tax, interest or penalty. It is also useful for:

• Business owners who got a portal alert, SMS or email saying a notice has been issued under the demand provisions of the GST law.
• Those who earlier received a scrutiny notice in Form ASMT-10 and have now received a DRC-01 because the department was not satisfied with the reply.
• Taxpayers being asked, formally or informally, to "just pay through DRC-03 and close it" without first checking whether the demand is right.
• Anyone whose demand involves an input tax credit mismatch, a GSTR-1 versus GSTR-3B difference, or an alleged short payment of tax.

A DRC-01 is the formal start of an adjudication. It is the document that turns a query into a proposed demand. Handled well at this stage, many demands are reduced or dropped. Handled badly — or ignored — a modest issue can become a confirmed order with interest and penalty, followed by recovery action.

If your notice is actually an earlier-stage scrutiny notice rather than a demand, start with our companion guide on the GST ASMT-10 scrutiny notice reply first, because resolving it there can prevent a DRC-01 altogether.

What you can do this weekend

Friday evening

Log in to gst.gov.in with your GSTIN credentials. Go to Services > User Services > View Notices and Orders. Find the DRC-01 and download the notice along with every annexure. Save it all as a PDF in a clearly named folder for this case.

Read the notice slowly and write down four things: the tax period involved, the amount of tax, interest and penalty proposed, the grounds the department is relying on, and the reply due date and personal hearing date. Put both dates in your calendar with a reminder a few days before each.

Do not, on this first night, rush to pay anything. A DRC-01 is a proposal you can answer, not a settled bill. Your job this weekend is to understand it, not to clear it.

Saturday

Open your books and your filed returns for the period in the notice. Download your GSTR-1, GSTR-3B and GSTR-2B from the portal. Lay the department's figures next to your own and identify exactly where they differ.

Common triggers for a DRC-01 include an ITC claim that does not match GSTR-2B, a difference between turnover declared in GSTR-1 and tax paid in GSTR-3B, a short payment of tax, or a dispute over the rate or classification of a supply. Identify which of these applies to you, ground by ground.

For each disputed figure, pull the supporting evidence: tax invoices, e-way bills, delivery proof, bank payment records, and any contracts. If part of the demand is genuinely your error, note it honestly — knowing what you owe is as important as knowing what you do not.

If your ITC has separately been frozen on the portal, read our guide on a GST ITC block under Rule 86A, because that is a different restriction with its own process and should not be confused with this demand.

Sunday

Draft your reply using the template in this guide as a starting point. Structure it ground by ground, attaching your reconciliation statement and numbered annexures. Where you accept part of the demand, say so clearly and separate it from the part you contest.

Decide your payment position. If you accept some or all of the demand, plan to pay through Form DRC-03 on the portal — but only after you are sure. If you contest it, do not pay; explain why instead. Where the amount is large or fraud or suppression is alleged, line up a Chartered Accountant or GST practitioner for a paid review before Monday.

Get your evidence bundle ready for upload. Save scanned copies in the order your reply refers to them, so that filing on the portal on Monday is quick and error-free.

Documents and evidence checklist

Step-by-step action plan

Step 1 — Download and read the full DRC-01 and its annexures

Log in to the GST portal and go to Services > User Services > View Notices and Orders. Download the DRC-01 with every annexure and save it as a PDF. Note the tax period, the proposed tax, interest and penalty, the grounds alleged, the reply due date, and the personal hearing date. These details drive everything that follows, so read them carefully rather than skimming.

Step 2 — Understand what a DRC-01 is (and is not)

A DRC-01 is a show-cause notice issued as part of demand proceedings under the GST law. It tells you the tax the department proposes to demand and why, and it asks you to show cause why that demand should not be confirmed. It is the start of an adjudication, not a final order. You have a right to file a reply and to a personal hearing before any demand is finalised.

This matters because many business owners panic and assume the figure in the notice is a settled liability. It is not. Demand proceedings broadly fall into non-fraud cases and cases alleging fraud, suppression or wilful misstatement, and the interest and penalty exposure differs between them. The notice should state the basis on which it has been issued. Understanding that basis shapes both your reply and your decision on whether to pay.

Step 3 — Identify the exact issue and the period

Work out precisely what the notice alleges. Is it an ITC mismatch against GSTR-2B? A difference between turnover in GSTR-1 and tax in GSTR-3B? A short payment of tax? A classification or rate dispute? Pin down the specific return periods involved. List each ground separately, because your reply must answer each one rather than offering a single vague denial.

If this DRC-01 follows an earlier scrutiny notice, compare it with what you already explained. Our guide on the GST ASMT-10 scrutiny notice reply sets out the reconciliation discipline that also applies here.

Step 4 — Reconcile your returns and gather evidence

Download your GSTR-1, GSTR-3B and GSTR-2B for the period and reconcile them against the figures in the notice. Prepare a clear statement that shows, line by line, where the department's numbers and your records differ and why. Support each disputed figure with tax invoices, e-way bills, delivery proof, and bank payment records. A reconciled, evidence-backed reply carries far more weight than assertions.

Step 5 — Decide your position before you decide to pay

Now decide: is the demand wrong in full, wrong in part, or correct? This is the most important step, and it must come before any payment. If part of the demand is your genuine error, you may choose to pay that part and contest the rest. If the whole demand is mistaken, you contest all of it and pay nothing. Where the amount is significant, or fraud or suppression is alleged, take advice from a Chartered Accountant or GST practitioner before you commit. Paying can be read as accepting liability, so this decision has consequences.

Step 6 — If you agree, pay correctly through DRC-03

Form DRC-03 is the route for a voluntary payment, including payment in response to a show-cause notice. If you accept part or all of the demand, make the payment through DRC-03 on the portal, then save the challan and the acknowledgement. Intimate the payment to the officer in writing and state clearly whether it is full settlement of a ground or payment under protest. Do not pay through DRC-03 blindly or because someone told you it will "close the file" — a payment that is not properly recorded against the right demand and period can create fresh problems.

Step 7 — File a written reply within the deadline

Submit your reply on the portal before the due date stated in the notice. Address each ground in turn, attach your reconciliation and documents as numbered annexures, and refer to any payment you have made. If you cannot file in time, request an adjournment in writing before the deadline rather than letting it lapse. A missed deadline can lead to an order being passed on the record as it stands, so never let the date pass in silence.

Step 8 — Attend the personal hearing

Attend the personal hearing on the listed date, either yourself or through an authorised representative such as your CA or GST practitioner. Carry the originals of your evidence and a copy of your filed reply with the acknowledgement. If you make any further points, put them in writing and get them on the record. The hearing is your chance to explain the reconciliation face to face.

Step 9 — If the order goes against you, consider an appeal

If the adjudicating officer passes a demand order confirming all or part of the demand, you can file an appeal to the appellate authority within the prescribed time limit. An appeal usually requires depositing a part of the disputed tax as a pre-deposit. The exact timeline and pre-deposit percentage are fixed by law and can change, so verify the current position on the portal or with a GST practitioner before filing. For department records you need for the appeal, RTI can help — see the RTI section below.

Escalation ladder

Copy-paste reply template

Replace the text in square brackets with your own details before submitting. Have a CA or GST practitioner review it where the amount is significant.

When RTI can help

The Right to Information Act, 2005 applies to public authorities, which includes the Central Board of Indirect Taxes and Customs (CBIC) and the State GST departments. In a DRC-01 dispute, RTI can be a useful support tool in specific situations:

• Getting documents the notice relies on: If the DRC-01 refers to a report, inspection finding or third-party data that has not been shared with you, you can file an RTI with the Central Public Information Officer (CPIO) of your jurisdictional Commissionerate asking for a copy of the documents relied upon, to the extent they relate to you and are not exempt.
• Obtaining a clean copy of the order: If a demand order is passed and the portal copy is incomplete or unclear, RTI can be used to seek a certified copy of the order and the file noting, which is helpful when you prepare an appeal.
• Checking procedure was followed: RTI can help you confirm whether procedural requirements — such as a recorded hearing or the authority of the officer — were met, which can matter at the appeal stage.

To file an RTI online, use our step-by-step RTI filing guide. The CPIO must respond within the statutory period. If the reply is denied or delayed, see our guide on filing a first appeal under RTI Section 19. For advanced strategies on using RTI in regulatory disputes, The RTI Playbook is a useful resource, and our overview of CPGRAMS and RTI together covers grievance escalation.

When RTI will not help

RTI has clear limits in a GST demand dispute:

• RTI is not a defence to the demand: RTI gives you access to information; it cannot reduce, drop or set aside the demand. Only your reply to the notice, the adjudication, and any appeal can do that. Treat RTI as a way to gather records, not as your answer to the DRC-01.
• It does not extend your reply deadline: Filing an RTI does not pause the time you have to reply to the DRC-01 or to file an appeal. You must meet those statutory deadlines independently; if you need more time, request an adjournment from the officer.
• Private parties are out of reach: If part of your problem is a supplier who has not filed returns, RTI does not reach that private supplier's records. You must pursue compliance directly with the supplier or through your reconciliation.

Common mistakes to avoid

• Paying through DRC-03 before checking the demand: This is the single biggest mistake. A DRC-01 is a proposal you can answer. Paying immediately can be read as accepting liability and may waive arguments you could have raised. Decide your position first, then pay only what you genuinely owe.
• Treating the notice as a final bill: A DRC-01 is a show-cause notice, not a demand order. Panicking and clearing the full amount without reply forfeits your right to be heard and your chance to reduce the demand.
• Missing the reply or hearing date: If you let the deadline pass without filing a reply or seeking an adjournment, an order can be passed on the existing record — usually confirming the proposed amount with interest and penalty.
• Filing a vague, one-line reply: A reply that simply says "the demand is wrong" carries no weight. Answer each ground with reconciliation and numbered annexures so the officer can verify your position.
• Not separating accepted and contested amounts: If part of the demand is genuinely your error, say so and pay that part, while clearly contesting the rest. Mixing the two confuses the record and weakens your case.
• Ignoring an earlier ASMT-10: If a scrutiny notice preceded this DRC-01, your reply should build on what you already explained. Contradicting your earlier reply damages credibility.
• Going it alone on a large or fraud-tagged demand: Where the amount is significant or fraud or suppression is alleged, the penalty exposure is serious. A Chartered Accountant or GST practitioner is not a luxury here — the cost of advice is small against the amount at risk.
• Stopping your regular GST filings: Keep filing GSTR-1 and GSTR-3B on time while the demand is being contested. A taxpayer who is defaulting on current returns loses standing at every forum.

For the underlying filing and reconciliation discipline that prevents many of these notices, see our guide on filing GST returns in 2026. If your demand grew out of an ITC mismatch, the GST ITC mismatch and CBIC complaint guide covers the reconciliation strategy in more depth.