GST Circular 258/05/2026: New Guidelines for SCN, Adjudication Orders and Appeal Proceedings

Introduction

Under GST, a taxpayer may have to go through several legal procedures, beginning with the issuance of a Show Cause Notice (SCN) and continuing through the adjudication order and appeal decision. It is important that the allegations in the notice are clear, the taxpayer’s reply is properly considered, a reasonable opportunity of hearing is provided, and a reasoned order is passed.

In this context, the Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 258/05/2026-GST on 26 October 2026. The circular provides guidelines on various procedural aspects relating to demand, adjudication and appeal proceedings under GST.

This article explains the important points of the circular in simple English so that GST practitioners, tax professionals, business owners and taxpayers can understand its practical significance.

Table of Contents

1. What is Circular No. 258/05/2026-GST?
2. Pre-SCN Intimation and Show Cause Notice
3. What Should a GST Show Cause Notice Contain?
4. When Can Fraud and Suppression Allegations Be Made?
5. Demand under Sections 73, 74 and 74A
6. Parallel Proceedings in the Same Matter
7. Important Guidelines on Personal Hearing
8. Importance of a Speaking Adjudication Order
9. Calculation of Tax, Interest and Penalty in a GST Order
10. Rectification under Section 161
11. Important Guidelines for First Appeal
12. Practical Checklist for Taxpayers and GST Professionals
13. Frequently Asked Questions

1. What is Circular No. 258/05/2026-GST?

Circular No. 258/05/2026-GST, issued by CBIC, aims to promote transparency, consistency and fairness in GST adjudication and appeal proceedings.

The circular mainly covers the following subjects:

• Drafting of Show Cause Notices and clear disclosure of allegations.
• Conditions for proposing demand on the basis of fraud, wilful misstatement and suppression.
• Personal hearings and the principles of natural justice.
• Proper consideration of the taxpayer’s reply and supporting documents.
• Speaking orders and issue-wise findings.
• Clear calculation of tax, interest and penalty.
• Limitations of rectification under Section 161.
• Scrutiny, limitation and appellate orders in first appeals.

It is important to note that the guidelines in the circular are intended to guide officers in quasi-judicial proceedings. Their application in a particular case will also depend on the relevant legal provisions and facts.

2. Pre-SCN Intimation and Show Cause Notice

What is Pre-SCN Intimation?

Under Rule 142(1A) of the CGST Rules, the taxpayer may be informed about the proposed tax liability through Part A of FORM GST DRC-01A.

According to the circular, wherever practically possible, an attempt should be made to provide such intimation before issuing a formal Show Cause Notice.

The purpose is to give the taxpayer an opportunity to explain its position and resolve the matter based on the available information.

Example: Suppose a discrepancy in output tax liability is identified during scrutiny of GST returns. Where appropriate under the applicable procedure, the taxpayer may be informed of the proposed liability through DRC-01A before a formal SCN is issued.

Are DRC-01A and an SCN the Same?

No. DRC-01A relates to pre-SCN intimation, whereas an SCN is a formal notice asking the taxpayer to explain why the proposed action should not be taken.

The circular also clarifies that, as required under the applicable provisions, the SCN or statement, along with the relevant summary, should be issued electronically in FORM GST DRC-01 or DRC-02, as applicable.

3. What Should a GST Show Cause Notice Contain?

An effective SCN should clearly state the allegations, facts, legal provisions and proposed demand.

Key Requirements

1. Taxpayer Identification and Details

The notice should mention the taxpayer’s name, GSTIN or Temporary ID, business name, registration status, principal place of business, jurisdiction and relevant tax period.

2. Background of the Matter

It should be clear whether the proceedings have been initiated on the basis of scrutiny, audit, assessment or investigation.

3. Facts and Evidence

The notice should clearly identify the facts and documents on the basis of which the alleged error or violation has been identified.

4. Applicable Legal Provisions

The provision allegedly violated should be mentioned, along with an explanation of how the relevant facts fall within that provision.

5. Clear Statement of Allegations

The taxpayer should be able to understand the basis on which a response is being sought.

6. Calculation of Demand

Where tax demand is proposed, the calculation and its basis should be clearly stated. In matters involving multiple financial years, a year-wise statement is useful.

7. Time Limit for Reply and Adjudicating Authority

The notice should specify the time limit for filing a reply and provide details of the concerned authority.

4. When Can Fraud and Suppression Allegations Be Made?

This is an important aspect of the circular, particularly in cases where the department proposes demand under Section 74 or Section 74A(5)(ii).

Allegations such as fraud, wilful misstatement and suppression should not be made merely because tax has not been paid or a discrepancy has been found in a return.

Where fraud, wilful misstatement or suppression is relied upon with an intention to evade tax, the facts and evidence supporting that basis must be clearly stated.

Difference Between Fraud and an Ordinary Error

Suppose a taxpayer incorrectly reports a transaction in a return. This error alone does not automatically establish that the taxpayer intentionally attempted to evade tax.

On the other hand, if the available evidence indicates that the taxpayer deliberately provided incorrect information or concealed material facts to evade tax, the concerned officer must examine those facts.

The circular also clarifies that finding a discrepancy during scrutiny does not, by itself, prove fraud.

What Should Be Clearly Stated in the SCN?

• The specific basis for alleging fraud, wilful misstatement or suppression.
• The relevant material facts and available evidence.
• The connection between the alleged conduct and the intention to evade tax.
• The reason for taking action under the applicable legal provision.

With reference to G.R. Infra Project Ltd. v. State of Madhya Pradesh [(2026) 45 Centax 331 (S.C.), dated 19 August 2026], the circular explains that the necessary basis of the allegations should be stated in the notice itself. It may not always be possible to cure fundamental defects in the original notice merely through subsequent explanations.

Useful point for taxpayers: If an SCN contains allegations of fraud or suppression, the reply should address not only the calculation of demand but also the factual basis of the allegations and the supporting evidence.

5. Demand under Sections 73, 74 and 74A

In GST demand proceedings, it is essential to correctly identify the applicable section and relevant tax period.

According to the circular:

• Section 73 relates to non-fraud cases, subject to the applicable statutory conditions and tax periods.
• Section 74 applies to cases involving fraud, wilful misstatement or suppression where its conditions are satisfied.
• Section 74A applies to the relevant cases for financial year 2024-25 onwards.

Where an SCN contains different types of allegations, the factual and legal basis and the demand calculation for each category should be separately and clearly stated.

Can Different Types of Demand Be Included in the Same SCN?

According to the circular, if an SCN proposes separate demands relating to non-fraud and fraud matters, their basis and quantification should be clearly distinguished. Merely referring to several provisions in an unclear manner is not sufficient.

The relevant tax period, applicable statutory provision and limitation must be examined separately in each case.

6. Parallel Proceedings in the Same Matter

Section 6 of the CGST Act contains provisions relating to the powers of CGST and SGST/UTGST officers and addresses the prevention of parallel proceedings on the same subject matter.

The circular also refers to M/s Armour Security (India) Ltd. v. Commissioner, CGST, Delhi East Commissionerate [(2025) 33 Centax 222 (S.C.)].

In practical terms, if a taxpayer receives notices from different tax authorities concerning the same subject, it is necessary to examine whether both proceedings actually relate to the same subject matter and whether parallel proceedings are prohibited under the applicable law.

The mere fact that both notices refer to the same transaction does not automatically mean that they always concern the same subject matter. The facts and relevant orders must be examined.

7. Important Guidelines on Personal Hearing

The purpose of natural justice is to ensure that the taxpayer receives a reasonable opportunity to respond to the proposed action.

Under Section 75(4) of the CGST Act, where the taxpayer requests a hearing in writing or where an adverse decision is proposed against the taxpayer, an opportunity of hearing should be provided in accordance with the applicable provisions.

The circular provides the following guidelines regarding personal hearings:

• The statutory limit for adjournments under Section 75(5) should be observed. The circular refers to a maximum of four personal hearing opportunities.
• Requests for adjournment should be considered properly, and reasons for rejecting an adjournment should be recorded in writing.
• Requests to appear through an authorised representative under Section 116 should be considered appropriately.
• Wherever possible, virtual hearings should be encouraged.
• A record should be maintained of the date, time and persons present at each hearing.
• After the hearing, the adjudication order should be issued as soon as possible, preferably within one month.
• Where the Adjudicating Authority is transferred, the circular’s guidelines regarding a fresh hearing by the successor authority should be followed.

Can a Taxpayer Request a Virtual Hearing?

The circular encourages the use of virtual hearings. Therefore, a taxpayer may request a virtual hearing in the relevant matter. However, whether the request is accepted will depend on the applicable procedure and the concerned authority.

8. Importance of a Speaking Adjudication Order

A speaking order is an order in which the authority does not merely state the final conclusion but also explains the reasons for reaching that conclusion.

According to the circular, an adjudication order should clearly address the following:

1. Facts of the case and details of the SCN.
2. Main questions requiring determination.
3. Analysis of the available documents and evidence.
4. Consideration of the taxpayer’s reply and defence.
5. Applicable legal provisions and relevant judgments.
6. Clear findings on each important issue.
7. Calculation of tax, interest and penalty.
8. Final decision and its legal basis.

Is It Sufficient to Write Only “Reply Considered”?

The circular clarifies that a general statement that the taxpayer’s reply has been considered is not sufficient. The authority should explain whether the taxpayer’s submissions and documents have been accepted, partly accepted or rejected, and state the reasons.

For example, if the taxpayer has submitted purchase invoices, payment proofs and reconciliation statements, the order should explain how those documents affect the relevant allegation.

9. Calculation of Tax, Interest and Penalty in a GST Order

The demand calculation in an adjudication order should be clear, accurate and issue-wise.

According to the circular:

• Tax should be recalculated on the basis of the findings recorded for each issue.
• The confirmed demand should not exceed the amount proposed in the SCN.
• Under Section 75(7), demand should not be confirmed on grounds different from those specified in the notice.
• Where possible, the calculation should be provided financial year-wise and issue-wise.
• CGST, SGST, IGST and UTGST amounts should be shown separately.
• Any tax, interest or penalty already paid should be properly adjusted.
• Where the demand is fully or partly dropped, both the original demand and the confirmed demand should be clearly stated.

What About Interest?

The circular explains that interest applicable on short-paid or unpaid tax may continue until the date of actual payment. Where possible, the adjudication order should calculate interest up to the date of the order and clarify the further liability.

Under the applicable provisions of Section 75(9) of the CGST Act, the mere omission to separately mention interest in the order does not automatically extinguish the statutory interest liability.

Reasons Are Required for Imposing Penalty

Penalty should not be imposed mechanically. Appropriate findings should be recorded based on the relevant default and applicable legal provision. The circular also refers to the general discipline relating to penalty under Section 126.

10. Rectification under Section 161

Section 161 of the CGST Act gives the concerned authority limited power to correct an error that is apparent on the face of the record.

However, it is important to understand the difference between rectification and appeal.

What Kind of Error Can Be Rectified?

A clerical or arithmetical mistake, or another error that is clearly apparent from the record, may be rectified under Section 161, depending on the circumstances.

In contrast, if proving the alleged error requires detailed factual investigation, fresh evaluation of evidence or determination of a disputed legal interpretation, it will generally not be an error that can be resolved merely through rectification.

Time Limit for Rectification

The circular refers to the time limits for applications and rectification orders under Section 161:

• Generally, an affected person should file the application within three months from the date of issue of the relevant decision, order, notice or document.
• In ordinary cases, the rectification order should be passed within six months.
• A statutory exception provides that the six-month limit does not apply to the correction of a purely clerical or arithmetical error arising from an accidental slip or omission.

The power of rectification belongs to the authority that issued the relevant document or order. According to the circular, Section 161 cannot be used to reconsider the merits of the case or to create an alternative remedy to an appeal.

Rectification requests should be disposed of through FORM GST DRC-08.

11. Important Guidelines for First Appeal

A taxpayer aggrieved by a GST adjudication order may file an appeal before the First Appellate Authority under Section 107, subject to fulfilment of the applicable statutory conditions.

Time Limit for Filing an Appeal

Under Section 107(1), an appeal should generally be filed within three months from the date on which the order or decision is communicated.

Under Section 107(4), where sufficient cause is shown, the Appellate Authority may condone the delay for a further period of up to one month, subject to fulfilment of the statutory conditions.

Therefore, limitation should be calculated carefully before filing an appeal.

Preliminary Scrutiny of an Appeal

According to the circular, the Appellate Authority should conduct an initial examination of the maintainability and procedural completeness of the appeal under Rule 108. This may include:

• Details of the appellant and the impugned order.
• Limitation of the appeal.
• Prescribed form and required documents.
• Payment of the applicable pre-deposit.
• Grounds of appeal.
• Jurisdiction of the concerned authority.

However, the merits of the dispute should generally be considered during the adjudication of the appeal. An appeal should not be rejected at the initial registration stage merely by deciding its merits.

Additional Grounds and Evidence

The circular also provides guidelines regarding consideration of additional grounds of appeal under Section 107(10) and admission of additional evidence under Rule 112.

While accepting or rejecting additional evidence, the applicable conditions and proper reasons must be considered. Appellate proceedings should not ordinarily be used as a substitute for a fresh investigation to cure every deficiency in the original adjudication.

Appellate Order and Hearing Records

The Appellate Authority should maintain a proper record of the hearing date, appearance of the appellant or authorised representative, submissions, documents produced and directions issued.

A summary should also be issued and uploaded electronically in FORM GST APL-04 along with the appellate order, as required under the applicable rules.

The circular further states that where both the taxpayer and the department have filed cross-appeals against the same impugned order, efforts should be made to process them together and pass a common composite order for consistency.

12. Practical Checklist for Taxpayers and GST Professionals

When a GST notice or adjudication order is received, the following points may be useful:

• GSTIN, tax period and details of the concerned authority are correct.
• The allegations and their factual basis are clearly stated in the SCN.
• The applicable legal provisions have been correctly mentioned.
• The proposed demand calculation and reconciliation have been checked.
• Where fraud or suppression is alleged, the relevant evidence and reasons have been examined.
• Invoices, returns, ledgers and other supporting documents have been attached with the reply.
• The date of personal hearing and submissions made have been properly recorded.
• The adjudication order contains findings on the taxpayer’s main arguments.
• Tax, interest, penalty and adjustment of amounts already paid have been verified.
• The relevant statutory deadline has been calculated if rectification or appeal is required.

This checklist is intended for general guidance. The documents, facts and applicable legal provisions must be examined separately in every case.

13. Frequently Asked Questions (FAQs)

Q1. What is the subject matter of Circular No. 258/05/2026-GST?

The circular provides guidelines for handling GST demand, Show Cause Notices, adjudication and appeal proceedings.

Q2. Can Section 74 be applied to every GST discrepancy?

No. A discrepancy or non-payment of tax does not, by itself, establish fraud, wilful misstatement or suppression. The necessary factual basis and evidence must be examined in accordance with the applicable provisions.

Q3. Is it necessary to consider the taxpayer’s reply in a GST adjudication order?

Yes. According to the circular, the taxpayer’s submissions and evidence should be independently examined and reasoned findings should be recorded on the relevant issues.

Q4. Can every type of error be corrected under Section 161?

No. Section 161 is limited to errors apparent on the face of the record. Detailed factual analysis or reconsideration of disputed legal questions is generally not the purpose of rectification.

Q5. What is the general time limit for filing a GST first appeal?

Under Section 107(1), the general time limit is three months. Under Section 107(4), delay may be condoned for a further period of up to one month where sufficient cause is shown, subject to the applicable conditions.

Q6. Can a virtual option be provided for a personal hearing?

The circular encourages virtual hearings. The taxpayer may request this option in the relevant matter.

Q7. Should tax and interest calculations be clearly stated in an adjudication order?

Yes. The circular emphasises issue-wise and, wherever possible, financial year-wise quantification. Tax, applicable interest, penalty and amounts already paid should be clearly stated.

Conclusion

Circular No. 258/05/2026-GST highlights the importance of due process, clear allegations, consideration of the taxpayer’s submissions and reasoned decision-making in GST demand, adjudication and appeal proceedings.

For taxpayers and GST professionals, the practical importance of this circular lies in enabling a more systematic review of notices, replies, adjudication orders and appeals. In every dispute, the relevant facts, evidence, statutory provisions and applicable judicial decisions must be examined.

Disclaimer: This article has been prepared for general information and educational purposes. Before taking any decision in a specific GST dispute, refer to the original text of the relevant circular, the CGST Act, the CGST Rules and applicable judicial decisions. This article is not a substitute for personalised legal or tax advice.

Taxlly.com — Stay connected with us for practical GST information and tax compliance updates.

57th GST Council Meeting: Key Recommendations on Registration, Refunds, ITC and GST Compliance