I Got a GST Audit Notice. What Do I Do Now?

The notice arrived, and now your stomach is in knots

You opened your email or logged into the GST portal and saw it: a notice from the GST department. Your first instinct was probably to close the tab and deal with it later. Maybe it's a mistake. Maybe it'll resolve itself.

It won't.

GST notices are not automatically resolved by ignoring them. What begins as a standard enquiry can become an ex-parte assessment with penalties if you leave it unaddressed past the response window. The good news is that most GST notices are manageable when you respond correctly and on time.

Here is what you need to know.

Not all GST notices are the same

Receiving a GST notice does not mean you are under criminal investigation. The GST system generates notices for a range of reasons, and the type of notice tells you exactly what the department is asking for.

The three you are most likely to encounter:

ASMT-10 (Scrutiny Notice)

This is a routine scrutiny notice. The department has noticed a discrepancy in your returns and wants an explanation. It is not a demand for payment. Think of it as the department asking "can you explain this?" You have an opportunity to respond and clarify before anything is decided.

DRC-01 (Show Cause Notice for Demand)

This one comes after the department has formed a view that tax is owed. It gives you an opportunity to show cause why the proposed demand should not be confirmed. If you don't respond, the demand gets confirmed automatically.

Show Cause Notice for Penalty or Cancellation

These are issued for specific violations, including consistent non-filing, fraud, or irregularities in ITC claims. These require careful handling and almost always need a CA or tax consultant involved from the start.

What typically triggers a GST audit notice

The GST system runs automated matching across returns, and it flags discrepancies. The most common triggers:

A mismatch between your GSTR-1 (sales returns) and GSTR-3B (summary return). If the figures don't match, the system notices.
ITC (Input Tax Credit) claims in your GSTR-3B that don't match what appears in your GSTR-2B (auto-generated ITC statement). Claiming more ITC than your suppliers have reported is the single most common trigger.
High refund claims, especially for zero-rated supplies or inverted duty structures.
Turnover crossing the 2 crore threshold, which makes you eligible for GST audit under Section 35(5).
Persistent late filing or non-filing history.

If any of these apply to your business, a notice is the department's way of initiating a conversation. It does not mean you have done something fraudulent.

What to do in the first 48 hours

Do not panic. Do not ignore it. Do these things:

Read the notice carefully. Identify the notice type (ASMT-10, DRC-01, or other), the assessment period it covers, and the specific discrepancy or issue cited. This tells you the scope of what you need to address.

Check the response deadline. Most scrutiny notices give you 30 days to respond. DRC-01 notices typically give 30 days as well, though some have shorter windows. The deadline is usually printed clearly on the notice. Missing it turns a manageable situation into a much harder one.

Pull your GST returns for the period under scrutiny. Download your GSTR-1, GSTR-3B, and GSTR-2B for every month in the period mentioned in the notice. These are available on the GST portal.

Do not respond immediately without reviewing the facts. A hasty response that concedes a discrepancy you could have explained is harder to walk back later. Take the time to understand what is actually being flagged before you reply.

Call your CA. Even if you plan to handle it internally, your CA should know a notice has arrived. They can tell you within a few minutes whether this is routine or serious.

How to prepare your response

For an ASMT-10 scrutiny notice, your response goes through the GST portal, in the reply field linked to the notice. You will need:

A clear explanation of the discrepancy cited, backed by supporting data
Copies of invoices, e-way bills, or contracts that support your position
A reconciliation statement showing how the numbers were arrived at
Any amended returns filed since the period in question, if relevant

The department is looking for an explanation that is coherent and supported by documents. Vague responses without documentation carry far less weight than a well-structured reply with a clear reconciliation attached.

For a DRC-01, the stakes are higher. Your response here determines whether a demand is confirmed or dropped. Engage a CA or GST advocate before drafting anything.

What happens if you ignore the notice

The department does not close the matter because you didn't respond. The process moves forward without you.

For an ASMT-10 that goes unanswered, the officer can pass an assessment order based on their own determination, which is called an ex-parte assessment. Their estimates are almost always less favourable than your actual position.

For a DRC-01 that goes unanswered, the demand is confirmed. You then owe the tax demanded plus interest at 18% per annum and a penalty that can go up to 100% of the tax amount in cases of fraud, or 10% in standard cases.

After that, recovery proceedings can begin, which includes attachment of bank accounts.

Common mistakes founders make

Ignoring the notice and hoping it resolves itself. It does not. The response window is real. Missing it forfeits your right to explain your position.

Responding without reconciling first. The most common error is submitting a response before verifying whether the discrepancy is real or a data entry issue. Run the reconciliation before you write a single word.

Not engaging a CA early enough. Some founders try to handle scrutiny notices themselves to save fees. For routine ASMT-10 notices with a clear explanation, that can work. For anything involving a DRC-01, a large disputed amount, or ITC reversals, a qualified CA is not optional.

Assuming the notice is about more than it says. Read what is actually being asked. The scope of a notice is limited to what it mentions. Don't volunteer information about other periods or issues not cited in the notice.

Key Takeaways

ASMT-10 is a scrutiny notice asking for an explanation, not a demand for payment. DRC-01 is a show cause notice for a proposed demand, and it carries higher stakes.
Common triggers include GSTR-1 vs GSTR-3B mismatches, ITC claims that don't match GSTR-2B, high refund claims, and turnover above 2 crore.
You typically have 30 days to respond. Missing the deadline means the assessment proceeds without your input.
Gather your GST returns for the relevant period, reconcile the discrepancy, and respond with documentation.
Ignoring a DRC-01 leads to confirmed demand, interest at 18% per annum, penalties, and potentially bank account attachment.
Engage a CA before responding to anything involving a DRC-01 or a disputed ITC reversal.