GST Show Cause Notices After Circular 258: Intent, Hearings and Speaking Orders

Short answer: from 26 October 2026, a GST officer cannot call your case fraud because tax went unpaid or a mismatch turned up in scrutiny. CBIC Circular No. 258/04/2026-GST says sections 74(1) and 74A(5)(ii) need specific evidence of fraud, wilful misstatement or suppression with intent to evade tax — set out in the show cause notice itself.

You have probably felt the old pattern. A notice lands, heavy with sections and a large demand, and you are left guessing which fact the department actually disputes. This circular changes the shape of that fight. It does not erase tax demands. It forces the demand to be specific, evidenced, and answered properly.

What changed on 26 October 2026?

The Central Board of Indirect Taxes and Customs issued eight circulars on 26 October 2026, putting into administrative effect the process decisions of the 57th GST Council meeting of 8 October 2026. Circular 258 covers demand, adjudication and appeal proceedings; the other seven cover registration, pre-deposit, input service distributors, banks and NBFCs, demo vehicles, export proceeds, and the omission of Rule 96(10).

One distinction matters first. The big law changes from the 57th Council — scrapping the arrest power under section 69 and raising the prosecution threshold from ₹1 crore to ₹5 crore — still need Parliament and are aimed at 1 April 2027. Circular 258 is different: administrative guidance to officers under section 168(1), applying to how proceedings are run now. It does not rewrite the Act.

What does the intent test actually require?

Section 74(1) and section 74A(5)(ii) deal with tax not paid, short paid, wrongly refunded, or credit wrongly availed, where fraud, wilful misstatement or suppression is involved. Those words carry intent inside them: suppression means a deliberate failure to declare a fact the return required, or to give information specifically called for. A mere omission, clerical slip, or difference of interpretation is not suppression unless it was intentional and aimed at reducing tax.

So non-payment alone proves nothing. A discrepancy found in scrutiny proves nothing by itself either. Scrutiny under section 61 exists to examine records and work out what a difference actually is — it is not a shortcut to a fraud allegation. The investigation must disclose material evidence of the conduct, and the show cause notice must spell that evidence out. If the notice does not say it, the department cannot add it later. Think of the notice as an exam question paper. You cannot be marked down for a question that was never on the paper, and an order cannot confirm a demand on a ground the notice never raised. Section 75(7) says exactly that: no order beyond the notice, and no ground outside it.

Where a notice mixes fraud and non-fraud allegations, the circular wants them split apart — separate grounds, separate legal basis, separate amounts. That split matters for penalty as well as pride. Penalties under section 74 run from 15% to 100% of the tax depending on when you pay relative to the notice, so a demand that lumps everything together hides the very arithmetic you need to decide whether to pay, contest, or do both in part.

What must a proper show cause notice contain now?

Read your next notice — or your last one — against this checklist. A notice that meets the circular should give you, in plain terms:

• Who the notice is against, and which tax periods it covers.
• What facts are alleged, paragraph by paragraph, with the evidence behind each one.
• Which legal provision each allegation rests on — not a bare copy of the section.
• A quantified demand, split tax-wise and issue-wise, with interest and penalty shown separately.
• Where fraud is alleged, the specific material showing intent to evade tax.
• The electronic summary in Form GST DRC-01, so the demand on the portal matches the notice in your hands.

If any of those are missing, that gap is the first paragraph of your reply. Point to it, ask for it, and keep your substantive answers paragraph-wise against what the notice actually says.

How do hearings and orders change?

Section 75(4) already gives you a hearing where you ask for one in writing or where an adverse decision is contemplated. The circular tightens the practice around it. Adjournments under section 75(5) are capped at three per person, which the Board reads as a maximum of four hearing opportunities in all. Adjournment requests must be decided judiciously, with reasons recorded if refused. Virtual hearings are to be encouraged, authorised representatives under section 116 must be allowed, and every hearing's date, time and attendees should be on record. If the adjudicating officer is transferred midway, the successor gives a fresh hearing, and the order should preferably reach you within one month of the hearing.

Then comes the part that should end the most frustrating sentence in GST litigation: "reply has been considered." The circular says adjudication orders must be speaking orders. The officer must independently examine your reply, your evidence, your additional submissions and the case law you cite, and give reasons. A generic line is not an examination. Penalties likewise cannot be imposed mechanically; the order must record reasoned findings, keeping section 126 in mind.

Two smaller points: the Centre and the States must not run parallel proceedings on the same subject matter, and anything an AI tool produces must be independently verified before it goes into an order. The responsibility stays with the officer who signs.

If you have a notice in hand, what do you do first?

Start with the clock, not the merits. A reply to a demand notice is filed in Form GST DRC-06, and the usual window is 30 days from service. Ask for more time in writing before the deadline if you need it — do not let the date pass and hope. Then split the demand before you argue it. Pay the part you genuinely accept through Form GST DRC-03; contesting every rupee, including amounts you cannot defend, weakens the rest of your reply. Contest the balance paragraph by paragraph, with reconciliations to GSTR-1, GSTR-3B, GSTR-2B, e-invoices and your books, and ask expressly for a personal hearing in the reply itself.

Before the formal notice, there is often a pre-notice intimation in Form GST DRC-01A, which the circular encourages wherever feasible. If you received a scrutiny notice, answer the discrepancy in your scrutiny reply in ASMT-11 with documents, not denials, so the file never needs to become a fraud allegation at all.

One honest limit: the Board itself says these guidelines are illustrative and non-exhaustive, and officers must not cite them in show cause notices or orders. The circular guides how officers must conduct proceedings; it does not create a new defence section in the Act. Your reply should still rest on the Act, the rules, and case law — with the circular as the Board's own statement of how its officers are expected to behave.

What about appeals, and the other seven circulars?

On appeals, first appeals should, as far as possible, be decided within the one-year statutory period, cross-appeals on the same order should be disposed of by one common order, and appellate summaries go up in Form GST APL-04. Rectification under section 161 stays narrow — errors apparent on the face of the record only, not a second look at the merits. A companion circular, 259, settles a long-running pre-deposit argument: you decide the split between admitted amount and tax in dispute when you file, and 10% of the disputed tax is the pre-deposit.

The other circulars will touch more readers than any single notice. Circular 257 gives GST registration a fixed document list by type of premises — owned, rented, consent-based, co-working — and tells officers not to raise presumptive queries about a director living in another city or a residential address being unsuitable for business. Aadhaar-authenticated applications are generally processed within seven working days, other routes within thirty. Circular 263 recognises RBI-permitted set-off of export receivables against import payables as satisfying the realisation condition for export of services. And notifications dated 26 October bring Finance Act 2026 amendments into force from 1 November 2026: post-sale discounts can be excluded through credit notes without a pre-existing agreement, provided the recipient reverses the corresponding credit, and eligible inverted-duty claims get up to 90% provisional refund.

Mistakes to avoid with a show cause notice

• Ignoring the notice. Silence usually ends in an ex parte order in Form GST DRC-07, and recovery follows the order.
• Replying in generalities. If the notice has twelve paragraphs, your reply needs twelve answers.
• Accepting a section 74 label without asking for the intent evidence. Non-payment and discrepancy are not intent.
• Forgetting to ask for a personal hearing in writing. Do not assume one will be offered.
• Paying nothing when part of the demand is admitted. Interest keeps running on the admitted part, and a partial payment strengthens the contested part.

The arrest power and prosecution threshold changes from the 57th Council point the same way as this circular: GST enforcement is being pushed, slowly, from punishment first towards proof first. That shift helps only the taxpayer who uses it — who reads the notice closely, answers it precisely, and insists on a reasoned order.

Questions you will ask next

Does Circular 258 change penalty rates? No. It changes how fraud provisions are invoked and how orders are reasoned. Penalty percentages under sections 73, 74 and 74A stay as the Act provides.

Can an officer still invoke section 74 against me? Yes, where the investigation discloses material evidence of fraud, wilful misstatement or suppression with intent to evade tax, and the notice sets that evidence out. What the circular stops is the mechanical invocation of section 74 on non-payment or a bare discrepancy alone.

What if the order ignores my reply? An order that does not examine your submissions and give reasons is vulnerable on the circular's own speaking-order standard and on natural justice under section 75(4). That is a strong ground in a section 107 appeal, which must be filed within three months of the order with the prescribed pre-deposit.