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Compliance Pack

Reply to fake ITC notice when a supplier is found non-existent, Sec 16(2)(c)

  • When a supplier you bought from is found to be fake, the department may ask you to reverse the credit with interest and penalty.
  • Deadline: Within the time given in the notice (usually 30 days for DRC-06 reply to a show cause notice); summons on the date stated
  • Done in Reply drafted within 7 working days of complete documents, or within the time given in the notice
  • Prepared by your Savvy, checked by a CA
  1. Notice, summons or intimation copy
  2. Is this a scrutiny note
  3. Triage: read section, period, amount, DIN and response date; decide CA reply or CA plus advocate
  4. Filed reply with evidence index
The law and the stepsPay and start · QuoteAs needed, + 18% GST

Answer in brief

When a supplier you bought from is found to be fake, the department may ask you to reverse the credit with interest and penalty. We collect proof that your purchase was real, map it to every invoice in the notice, draft the reply and represent you at the hearing, and bring in a lawyer at once if summons, search or arrest is in the picture.

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From the official sources

What the law says, and what trips people up

From the official portal's manuals and FAQs, with the source for each point.

The law

  • CGST Act 2017, Sec 16(2)(c)

    ITC only if the supplier actually paid the tax; the main ground used in these noticesSource

  • CGST Act 2017, Sec 155

    Buyer must prove the ITC claim; Ecom Gill (SC 2023) says invoices alone are not enough, show vehicle, freight, delivery and paymentSource

  • Shaurya Alloys v State of Punjab (P and H HC, 1 October 2026)

    No mechanical denial; notice must disclose material and link the buyer; for Sec 74 or 74A must show facts connecting buyer to the fraud; personal hearing and reasoned order on cross-examination; DRC-03 payment does not cure a defective noticeSource

  • CGST Act 2017, Sec 74A (from FY 2024-25) and Sec 74 (up to FY 2023-24)

    Sec 74A: SCN within 42 months of annual return due date, order within 12 months; penalty 10 percent or ₹10,000 (non-fraud) or equal to tax (fraud), reduced to 15, 25 or 50 percent on early payment in fraud casesSource

  • CGST Act 2017, Sec 70 and CBIC Instruction 03/2022-23

    Summons to give evidence or documents is a judicial proceeding; issued with prior written approval and recorded reasons; must carry DIN; senior management not summoned first; portal data not to be summonedSource

  • CGST Act 2017, Sec 122(1) and 122(1A)

    Penalty of higher of ₹10,000 or tax for wrongful ITC; Sec 122(1A) on the person who retains the benefit of fake invoicingSource

  • CGST Act 2017, Sec 132

    ITC on invoices without supply is an offence; above ₹5 crore up to 5 years; above ₹5 crore cognizable and non-bailableSource

  • CGST Act 2017, Sec 69 and Radhika Agarwal v UOI (SC, 27 February 2025)

    Arrest only on reasons to believe based on material; grounds to be given; anticipatory bail available even before FIR; payments under coercion during investigation can be challengedSource

  • Government fee

    No fee to reply. If an appeal is needed later, a pre-deposit of 10 percent of the disputed tax applies. Source: https://www.caclubindia.com/forum/what-actually-happens-when-a-buyer-claims-itc-from-a-cancelled-supplier-practical-experience-neede-615315.asp

  • Late fee or penalty

    No late fee. Exposure if the demand stands: tax, interest at 18 percent a year, and penalty under Sec 74 or 74A (equal to tax in fraud cases, lower on early payment). Sources: https://www.vjmglobal.com/blog/detailed-insight-of-section-74-a-of-cgst-act-2017-common-provisions-for-fraud-and-non-fraud-cases-under-gst-law and https://www.caclubindia.com/forum/what-actually-happens-when-a-buyer-claims-itc-from-a-cancelled-supplier-practical-experience-neede-615315.asp

On the portal

  1. Login at gst.gov.in > Services > User Services > View Notices and Orders, or Additional Notices and Orders, to download the notice
  2. For ASMT-10, reply in ASMT-11 under the same case; for SCN, open the case and file the DRC-06 reply with attachments
  3. Use 'Request for personal hearing' or note it in the reply; upload the evidence index and documents
  4. Track the case and download the order; appeals from Services > User Services > My Applications > Appeal to Appellate Authority

What trips people up

  • Buyer gets ASMT-10 then DRC-01 months or years after the purchase

    Keep the proof file from day one; reply with transaction evidence and bona fide purchaser rulingsSource

  • Notice relies only on the supplier's cancellation or a departmental alert

    Ask for the material relied on and point out that this alone does not justify denialSource

  • Pressure to pay during investigation

    Payments under coercion can be challenged; pay only after advice, and use DRC-03 noting protestSource

  • Summons received without DIN or reasons

    Communications for investigation must carry a DIN; raise it in writing while still attending or seeking a dateSource

  • Defence used only tax invoices

    Add vehicle, freight, delivery and payment proof as Ecom Gill requiresSource

People ask

Do I have to attend a DGGI summons?

Yes. It is a judicial proceeding; repeated non-appearance can lead to a complaint before a magistrate. Ask for a new date in writing if needed.Source

Can they summon our CEO or MD first?

Under CBIC Instruction 03/2022-23, senior management should not be summoned at the first instance unless their role is clear.Source

When should we get a lawyer?

At once on a summons in a fake ITC case, a search, or any hint of arrest; anticipatory bail is available even before an FIR.Source

Can arrest happen in an ITC mismatch?

Arrest is for specified Sec 132 offences, generally not for rate or interpretation disputes, and needs Commissioner approval and written grounds.Source

If I pay through DRC-03, does the notice go away?

Payment does not cure a defective notice; under Sec 74A early payment reduces penalty. Decide with advice.Source

Will my own registration be cancelled?

A buyer's registration should not be cancelled merely because the supplier's was.Source

IDFD

How we solve it: 4 steps

Every line tracked live.

Step 1 of 4 · What we need from you

Tap each one you already have

Ready0 / 8
  • Notice, summons or intimation copy
  • Invoices from the named supplier
  • E-way bills and transport receipts
  • Weighbridge, GRN and stock records
  • Bank payment trail to supplier
  • Supplier portal status on invoice date
  • GSTR-2B showing supplier invoices
  • Supplier onboarding and due diligence fileOptional

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As needed. Delivered in Reply drafted within 7 working days of complete documents, or within the time given in the notice. Due: Within the time given in the notice (usually 30 days for DRC-06 reply to a show cause notice); summons on the date stated

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