GST show cause notices, adjudication and appeals: what Circular No. 258/04/2026-GST requires of officers

CBIC has issued Circular No. 258/04/2026-GST dated 26 October 2026, under section 168(1) of the Central Goods and Services Tax Act, 2017 (CGST Act), with guidelines for officers who issue show cause notices, adjudicate them and hear first appeals. The Board records that orders had been vague, non-speaking or silent on the noticee’s submissions, and ended in remand or reversal. The guidelines that follow are written for officers, but most of them set a standard a noticee can measure a notice or an order against.

Before the notice

Rule 142(1A) of the CGST Rules, 2017 allows the tax payable under sections 73, 74 or 74A to be intimated in Part A of FORM GST DRC-01A before a notice issues. The circular asks that this pre-SCN intimation be issued “wherever feasible” (para 2). It is not made mandatory. The Board’s reasoning is that it lets the taxpayer clarify before formal proceedings and can make a notice unnecessary, so a reply to DRC-01A deserves the same care as a reply to a notice.

What the notice must contain

Of the drafting standards in para 4, three stand out:

• Evidence is to be discussed in neutral terms such as “it appears that”. Words like “determined”, which read as a prejudged outcome, are to be avoided (para 4.2).
• Unrelated sections are not to be invoked together unless each applies on its own, and where there are several noticees the role of each is to be set out separately (para 4.3).
• A demand spanning several years is to be split year-wise, and the basis of quantification stated (para 4.5).

The circular relies on G.R Infra Project Ltd. v. State of Madhya Pradesh (2026) 45 Centax 331 (S.C.), dated 19 August 2026, where the Supreme Court held that whatever is needed to sustain a notice must be in the notice itself, and a deficiency cannot be cured later. It also cites M/s Nice Enterprises v. Deputy Commissioner ST [(2024) 21 Centax 554 (Telangana)]: a notice that only reproduces the statute, without grounds and factual particulars, violates natural justice. A reply to a thin notice should take this point before the merits.

Fraud, wilful misstatement and suppression

Paras 5 to 5.5 are the most useful part for taxpayers:

• The notice must disclose the basis for invoking section 74(1) or section 74A(5)(ii). Quoting G.R Infra, a “mechanical use of the words ‘fraud, willful misstatement or suppression of facts’” without the material behind the inference does not suffice.
• These charges require intent to evade tax. An omission is not suppression unless deliberate; where the facts are known to both sides, an omission is not suppression at all; an incorrect statement is wilful misstatement only if made knowing it to be false. The circular cites Sriba Nirman Company v. Commissioner (Appeals) (2025) 29 Centax 206 (A.P.), and states that the view has been affirmed by the Supreme Court.
• Section 74(1) or section 74A(5)(ii) cannot be invoked merely because GST was not paid, nor in a scrutiny case solely because a discrepancy was noticed (para 5.3).
• A second notice on the same facts for a later period, again alleging fraud or suppression, is generally not valid unless there are new and independent grounds. Later statements should ordinarily go under section 73 or section 74A(5)(i) (para 5.5).

Where one notice carries demands under both section 73 and section 74, the reasons for the split and a separate quantification under each are required (para 6). The circular notes that section 74A applies from financial year 2024-25, with a single period of 42 months from the due date of the annual return, but asks that the two sets of facts still be kept apart in the notice.

Para 13 carries the same discipline into the order. If the notice lacks clear evidence of intent, the adjudicating authority is to record that finding and confine the demand to section 73 or section 74A(5)(i).

Notices under section 74 that rest on a bare allegation, or on a scrutiny mismatch, should be reviewed against these paragraphs now.

Parallel proceedings and service

Section 6 bars CGST proceedings on a subject matter already taken up by a State or UT officer, and the circular asks officers to adhere to the guidelines in para 97 of M/s Armour Security (India) Ltd. v. Commissioner, CGST, Delhi East Commissionerate (2025) 33 Centax 222 (S.C.) (para 7). Service must be by a mode in section 169, with the summary in FORM GST DRC-01 (para 9).

Personal hearings

Section 75(4) requires a hearing on a written request or where an adverse decision is contemplated. Para 10.1 adds:

• Section 75(5) allows no more than three adjournments, so at most four hearing opportunities may be given. A request for adjournment is to be considered judiciously, and reasons recorded if it is declined.
• The order should follow the hearing promptly, preferably within one month.
• If the adjudicating authority is transferred, the successor must give a fresh hearing.

The order

Para 11 requires a speaking order, and quotes the Supreme Court’s guidelines in Joint Commissioner of Income Tax, Surat v. Saheli Leasing & Industries Ltd. 2010 (253) E.L.T. 705 (S.C.). The order must say whether each submission in the FORM GST DRC-06 reply is accepted, partly accepted or rejected, and why. “Reply has been considered” is named as an expression to avoid (para 11.5). Case law cited by the noticee must be discussed, with reasons if it is held inapplicable (para 11.7).

Section 75(7) is restated: no amount beyond the notice, and no ground outside it. A new issue needs a new notice (para 11.6).

Quantification is to be year-wise, issue-wise and head-wise, with amounts dropped and amounts already deposited shown (paras 11.9 to 11.9.3). Penalty is to be reasoned for each person, not levied mechanically, with regard to section 126 (para 11.10).

Para 11.7.1 adds that where officers use AI tools, the output must be verified independently before it goes into an order, and responsibility for the order stays with the officer.

Vague orders silent on the reply are, in the Board’s own words, the ones that end in remand or reversal on appeal (para 1.2). The order should be read against para 11 before the grounds of appeal are drafted.

Rectification under section 161

Rectification is limited to errors apparent on the face of the record, and only the authority that issued the order may rectify it. A senior officer cannot do so under section 5(2) (para 14.1). Citing Arun Dev Upadhyaya v. Integrated Sales Service Ltd. (2023) 8 SCC 11, the circular says an error needing long reasoning, verification of transactions, or capable of debate is not one. Section 161 is not a substitute for appeal (paras 14.2 to 14.2.2). The application is due within three months of the date of issue of the order; the rectification order within six months, except for a clerical or arithmetical slip.

Where the order is wrong on facts or law, the appeal period under section 107 should not be lost waiting on a rectification.

First appeals

• At registration under rule 108, the Appellate Authority checks maintainability. Merits are not a ground for rejecting the appeal at that stage (para 15.1).
• Limitation is decided first, as a separate issue. The period is three months from communication of the order, with one further month on sufficient cause (sections 107(1) and 107(4)). An appeal beyond the condonable period is not to be heard on merits even where a prima facie case exists (para 15.2).
• After the final acknowledgement in FORM GST APL-02, withdrawal under rule 109C needs the Appellate Authority’s approval, to be decided within seven days (para 15.3).
• Additional evidence is admitted only on the grounds in rule 112, with reasons recorded (para 15.6).
• Cross-appeals against the same order are decided by a common order (para 15.8).

Paras 10, 11 and 13 apply to Appellate Authorities as well (para 16).

A limit worth noting

Para 17 states that the guidelines are illustrative and non-exhaustive, and that proper officers must not cite them in notices, orders or appellate orders. The bar is on officers. Nothing in the circular stops a noticee from relying on it in a reply or in grounds of appeal.

This article is intended for educational purposes only and should not be construed as professional advice. It is based on the law as understood on the date of publication; laws and regulations are subject to change, and it may not reflect later developments. Readers are advised to consult a qualified tax professional on their specific situation before taking any action based on it. CA. Mohit Gaba takes no responsibility for any action taken or decision made on the basis of this article.