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

You've received a DRC-01 notice on the GST portal. Your first reaction is probably panic — but don't worry. DRC-01 is not a penalty order. It's a Show Cause Notice (SCN) — the department is asking you to explain why they shouldn't demand the tax amount mentioned. You have 30 days and a clear process to respond.

This guide walks you through exactly what DRC-01 means, why you got it, and how to draft and file your reply step-by-step.

What is DRC-01?

Form GST DRC-01 is a Statement of Demand issued by the proper officer under Section 73 (non-fraud) or Section 74 (fraud/willful misstatement) of the CGST Act. It contains:

• The tax period(s) in question
• The specific ground(s) — ITC mismatch, short payment, wrong rate, etc.
• The exact amount of tax demand, interest, and proposed penalty
• References to GSTR-1, GSTR-3B, GSTR-2B data used by the officer

Section 73 vs Section 74 — Key Difference

Common Reasons for DRC-01

1. ITC mismatch: GSTR-3B claims exceed GSTR-2B auto-populated amounts
2. Output tax short payment: GSTR-1 outward supply exceeds GSTR-3B tax paid
3. Wrong tax rate applied: 12% charged where 18% should apply
4. ITC on ineligible items: Claiming ITC on blocked credits (Section 17(5))
5. ITC reversal not done: Rule 42/43 proportional reversal missing
6. Non-payment of RCM: Reverse charge liability not discharged

Step-by-Step: How to Reply to DRC-01

Step 1: Read the Notice Carefully

Download the DRC-01 from the GST portal. Note down:

• Which section (73 or 74) it's issued under
• The specific tax periods in dispute
• The exact demand amount (tax + interest + penalty)
• The grounds/reasons mentioned by the officer
• The deadline date (30 days from date of service)

Step 2: Gather Supporting Documents

Depending on the ground, prepare:

• ITC mismatch: Purchase invoices, GSTR-2B reconciliation, vendor confirmations
• Short payment: GSTR-3B filed copies, challans showing tax paid, credit/debit notes
• Wrong rate: HSN notification, advance ruling (if any), industry precedents
• RCM: RCM payment challans, GSTR-3B Table 3.1(d) data

Step 3: Draft Your Reply (DRC-06)

Your reply should include:

1. Heading: Reference the DRC-01 number, date, and section
2. Point-by-point rebuttal: Address each ground raised in the SCN
3. Supporting evidence: Reference attached documents for each point
4. Legal citations: Relevant CGST Act sections, rules, circulars, or case law
5. Prayer: Request to drop the proceedings / reduce the demand
6. Personal hearing request: Always request one — it gives you another chance to explain

Step 4: File on the GST Portal

1. Login → Services → User Services → View Additional Notices/Orders
2. Find the DRC-01 notice → Click "Reply"
3. Upload your DRC-06 response document (PDF)
4. Attach supporting documents (invoices, reconciliation sheets)
5. Check "Request for Personal Hearing" if applicable
6. Submit with DSC or EVC

Step 5: Follow Up

After filing DRC-06, the officer may issue DRC-01A (modification of demand) or schedule a personal hearing. Attend the hearing with all original documents. If the demand is confirmed, you'll receive DRC-07 — which can be appealed within 3 months.

Option: Pay and Close the Case

If the demand is genuine (you actually owe the tax), it's often cheaper to pay early rather than fight:

• Section 73: Pay tax + interest before order → zero penalty
• Section 74: Pay tax + interest + 15% penalty within 30 days of SCN → case closed

Use Form DRC-03 on the GST portal to make voluntary payment. The officer will then issue DRC-05 (closure order) instead of DRC-07 (demand order).

Sample Reply Format

Important Deadlines

Pro Tips

• Always request a personal hearing — even if your written reply is strong. Officers often settle for partial amounts during hearings.
• Reconcile before replying. Run a complete GSTR-2B vs GSTR-3B reconciliation for the disputed period. Often the mismatch is due to timing differences.
• Check if your supplier filed. If ITC is denied because supplier didn't file GSTR-1, get them to file it — the mismatch auto-resolves.
• Don't ignore partial validity. If 3 out of 5 grounds in the DRC-01 are valid, accept those and contest the rest. Partial acceptance with DRC-03 payment reduces overall penalty.
• Keep copies of everything. Save the DRC-06 acknowledgment, all uploaded documents, and portal screenshots.