Circular No. 258/04/2026-GST: CBIC Guidelines for Show Cause Notices, Adjudication and Appeals

The CBIC has issued Circular No. 258/04/2026-GST dated 26 October 2026 under Section 168(1) of the CGST Act. It gives officers a uniform framework for drafting show cause notices (SCNs), conducting personal hearings, passing adjudication orders, rectifying orders and deciding first appeals.

The Board notes that some orders were vague, non-speaking or ignored the taxpayer’s reply, which led to avoidable litigation and remands. For taxpayers, the circular is a clear list of what a valid notice and a valid order must contain.

1. Pre-SCN Intimation in DRC-01A

Under Rule 142(1A), the tax payable under Sections 73, 74 or 74A may first be intimated in Part A of FORM GST DRC-01A. The circular says this intimation should be issued wherever feasible, because it gives the taxpayer a chance to explain or pay before a formal notice (para 2).

2. What a Valid Show Cause Notice Must Contain

A summary of the notice must be uploaded on the portal in FORM GST DRC-01 (or DRC-02 for a statement) (para 3.2). The circular lists the parts of a well-drafted SCN (para 4):

The circular relies on M/s Nice Enterprises v. Deputy Commissioner ST [(2024) 21 Centax 554 (Telangana)]: a notice that only reproduces the law without facts and grounds violates natural justice. It also cites the Supreme Court in G.R. Infra Project Ltd. v. State of Madhya Pradesh [(2026) 45 Centax 331 (SC)]: a defect in the SCN cannot be cured later.

3. Fraud, Wilful Misstatement or Suppression — Section 74 / 74A(5)(ii)

This is the most important part of the circular for taxpayers (paras 5 to 6 and 13).

• Specific basis required: The notice must set out the facts and material that led the officer to allege fraud, wilful misstatement or suppression. Merely repeating these words is not enough (G.R. Infra Project).
• Intent to evade is essential: An incorrect statement is not wilful misstatement unless it was knowingly false. Omission is not suppression where the facts were known to both sides (Sriba Nirman Company, Andhra Pradesh HC).
• Not for mere non-payment: Section 74 or 74A(5)(ii) cannot be invoked only because GST was not paid. It should not be used in scrutiny cases merely because a discrepancy was found (para 5.3).
• Second notice on the same facts: A later notice for a subsequent period, on the same facts, alleging fraud or suppression is generally not valid unless new and independent grounds exist. Such later notices should normally be under Section 73 or 74A(5)(i) (para 5.5).
• Mixed notices: Where a notice proposes demands under both Sections 73 and 74, it must give separate reasons and separate amounts. For FY 2024-25 onwards (Section 74A, with a single 42-month time limit), fraud and non-fraud demands must still be shown separately (para 6).
• At the adjudication stage: If there is no clear evidence of intent to evade, the authority must record this and restrict the demand to Section 73 or 74A(5)(i) (para 13).

4. No Parallel Proceedings by Centre and State

Under Section 6, if a State officer has already started proceedings on a subject matter, a Central officer cannot start proceedings on the same matter, and the reverse also applies. The circular asks officers to follow the guidelines in para 97 of the Supreme Court judgment in Armour Security (India) Ltd. v. Commissioner, CGST, Delhi East [(2025) 33 Centax 222 (SC)] (para 7).

5. Timely Issue and Proper Service

• Notices should be issued well before the time limit, not at the last minute, so the taxpayer has enough time to reply (para 8).
• Service must be made by a mode under Section 169, and the summary must be uploaded in DRC-01 (para 9).

6. Personal Hearing

Under Section 75(4), a hearing must be given where the taxpayer requests it in writing or where an adverse decision is contemplated (para 10.1).

• Up to three adjournments are allowed under Section 75(5). In effect, up to four hearing opportunities, and reasons must be recorded if an adjournment is refused.
• An authorised representative under Section 116 can appear. Keep the authority letter or vakalatnama ready.
• A virtual hearing may be offered.
• The date, time and attendees of each hearing must be recorded in the order.
• The order should preferably be issued within one month of the hearing.
• If the adjudicating officer is transferred, the new officer must give a fresh hearing.

7. What a Valid Adjudication Order Must Contain

The order must be a speaking order, with its summary uploaded in FORM GST DRC-07 (para 11).

• Every submission must be dealt with: The reply in DRC-06 and points made at the hearing must be examined, with reasons for accepting or rejecting each. Generic lines like “reply has been considered” are to be avoided (para 11.5).
• Nothing beyond the notice: Under Section 75(7), the order cannot confirm an amount higher than the notice, or confirm a demand on grounds not in the notice. A new issue needs a separate SCN (para 11.6).
• Case laws must be discussed: Judgments cited by the taxpayer must be considered. If a judgment is held not applicable, the reasons must be recorded (para 11.7).
• AI tools need human checking: Anything taken from AI tools must be independently verified. The officer remains responsible for the order (para 11.7.1).
• Clear quantification: Tax, interest and penalty must be shown issue-wise and financial year-wise, separately under CGST, SGST, IGST and UTGST, preferably in a table. Amounts already paid must be adjusted, and dropped amounts shown (paras 11.9 to 11.9.3).
• Reasoned penalty: Penalty cannot be imposed mechanically. The default and the provision must be established, keeping Section 126 in mind (para 11.10).

8. Rectification under Section 161

• An application can be filed within three months of the order. The rectification order should be passed within six months, but this limit does not apply to purely clerical or arithmetical errors (para 14).
• Only the officer who passed the order can rectify it. A senior officer cannot (para 14.1).
• Only an error apparent on the face of the record can be rectified. An error of law, or anything needing argument or fresh analysis, must be taken up in appeal (paras 14.2 to 14.2.2).
• Rectification is done in FORM GST DRC-08 (para 14.2.3).

9. First Appeal under Section 107

The rules on hearings, speaking orders and extended period (paras 10, 11 and 13) also apply to Appellate Authorities (para 16). The summary of the appellate order is issued in FORM GST APL-04.

How Taxpayers Can Use This Circular

When you receive a show cause notice

• Check that the summary is uploaded in DRC-01 on the portal.
• If Section 74 or 74A(5)(ii) is invoked, check whether the notice states the specific facts showing intent to evade. If it does not, raise this in the reply.
• Check whether the demand is split year-wise, and whether the basis of each amount is given.
• Check whether a State or Central officer is already proceeding on the same subject matter.
• Ask for a personal hearing in writing, and attach the judgments you rely on.

When you receive the order

• Check whether each point of your reply is answered with reasons.
• Check that no amount or ground goes beyond the notice.
• For a calculation or clerical mistake, apply for rectification under Section 161 within 3 months. For a wrong finding on facts or law, file an appeal within 3 months.

Note: Para 17 says these guidelines are illustrative and must not be cited by officers in notices or orders. They are instructions to officers, so they do not replace the Act and Rules. Rely on the statutory provisions and the judgments cited, with the circular as support.

Related

• GST Notice Reply Draft Generator
• GST Notices Explained: ASMT-10, DRC-01A, DRC-01 and SCN
• Circular 254/11/2025-GST: Proper Officer under Sections 74A, 75(2) and 122
• Circular 224/18/2024-GST: Demand Recovery and Appeal Pre-Deposit

Reference: Circular No. 258/04/2026-GST dated 26.10.2026, CBIC (F. No. CBIC-20001/2/2026-GST). The official PDF is attached below. This page is for general information only.