GST Show Cause Notice Rules After CBIC Instruction 02/2026 and Circular 258: No SCN Below ₹10,000, No Arrests

GST Show Cause Notice Rules After CBIC Instruction 02/2026 and Circular 258

The rules on how a GST show cause notice is issued, heard and decided changed at the end of October 2026. Two CBIC documents put parts of the 57th GST Council's recommendations (8 October 2026) into practice before the law itself is amended:

• Instruction No. 02/2026-GST (30 October 2026): central tax officers are told not to issue show cause notices (SCNs) where the amount involved is below ₹10,000, not to make further arrests under GST, and to follow new limits on intercepting goods in transit.
• Circular No. 258/04/2026-GST (26 October 2026): detailed guidelines on drafting SCNs, invoking fraud, personal hearings, adjudication orders, rectification and first appeals.

For finance heads and CA firms handling notices across many GSTINs, both documents change which notices should arrive, what a valid notice must contain, and what to ask for during a hearing.

Instruction 02/2026-GST at a glance

The instruction (F. No. CBIC-20001/3/2026-GST) is addressed to Principal Chief Commissioners, Chief Commissioners and Directors General of Central Tax. It is an interim measure. It applies until the CGST Act amendments recommended by the Council come into force.

1. No SCN for amounts below ₹10,000

The instruction bars SCNs under Sections 73, 74 and 74A where the amount involved is below ₹10,000. The amount is the total of CGST, SGST/UTGST, IGST and compensation cess. It covers Section 74 cases (fraud, wilful misstatement or suppression) as well.

Three points to note:

• It is an administrative restraint, not a waiver. Tax that is actually payable remains payable. Businesses should still correct small errors through their returns or DRC-03.
• It does not deal with notices already issued. The Council also recommended withdrawing pending small-value notices, but that needs the law to be amended. Until then, reply to existing notices on time.
• It binds central tax officers. A copy was sent to the GST Council Secretariat for circulation to States, which may issue similar instructions. As of 3 November 2026, no State had published a matching instruction. If your GSTIN is administered by the State tax department, check your State's position before relying on it.

2. No further arrests under Section 69

Central tax officers are told that no further arrests may be made under GST until the law is amended. The Council has recommended omitting Section 69. Section 69 remains in the Act until Parliament removes it, and investigations, summons, recovery, interest and penalties continue.

3. Limits on stopping vehicles and goods in transit

Until Sections 68, 129 and 130 are amended:

• A conveyance may be intercepted only on specific intelligence, with reasons recorded in writing and authorisation from an officer not below Joint Commissioner.
• An officer may inspect only if the supplier or recipient is registered or located in that officer's State or UT.
• If neither is in that State, the officer must let the goods pass and send the information to the officer with jurisdiction.
• If no e-way bill has been generated and no origin or destination document is produced, the goods may be inspected, detained or seized regardless of jurisdiction.
• Goods and conveyances in transit may not be detained or seized for any other reason, and may not be confiscated under Section 130.

Circular 258/04/2026-GST: standards for notices, hearings and orders

Circular 258 is issued under Section 168(1) of the CGST Act. CBIC says it is illustrative, not exhaustive, and that officers must not cite it in SCNs or orders. It is still useful to taxpayers, because it sets out what a proper notice and order should look like.

What a valid SCN should contain

Fraud cannot be alleged mechanically

The circular says Sections 74(1) and 74A(5)(ii) cannot be invoked merely because GST was not paid. The SCN must set out the evidence of intent to evade. Scrutiny discrepancies alone are not enough, an incorrect statement is not automatically a wilful misstatement, and suppression must be deliberate. Where a notice covers both fraud and non-fraud amounts, it must give separate reasons and separate figures for each. If the adjudicating authority finds no evidence of fraud, it must record this, and the demand then falls under Section 73 or Section 74A(5)(i).

Personal hearings and orders

• A hearing must be given on written request, or where an adverse decision is contemplated (Section 75(4)).
• Adjournments are limited to three (Section 75(5)). The circular allows a maximum of four hearing opportunities before an order, and reasons must be recorded when an adjournment is refused.
• Virtual hearings are encouraged, and hearing dates and attendees must be recorded in the order.
• Orders must be speaking orders. Each submission must be accepted or rejected with reasons; a line such as "reply has been considered" is not enough.
• No demand may be confirmed on grounds not in the SCN (Section 75(7)), and the confirmed demand cannot exceed the SCN amount.
• Where AI tools are used, information must be verified independently by the officer.

Rectification and first appeals

• Rectification under Section 161 is limited to errors apparent on the record. It is not a substitute for an appeal.
• First appeals: three months to file under Section 107(1), plus one more month on sufficient cause. Appeals should not be rejected on merits at the registration stage, and the appellate authority should aim to decide within one year.

What finance teams and CA firms should do now

• Sort open notices by amount. Flag notices or DRC-01A intimations below ₹10,000 issued by central tax officers after 30 October 2026, and raise the instruction in reply.
• Keep replying to older notices. Notices issued before 30 October 2026 are not withdrawn by the instruction.
• Check every SCN against Circular 258. Look for year-wise figures, specific facts behind any fraud allegation and clear charges.
• Ask for a personal hearing in writing, and keep a record of each hearing and adjournment.
• Diarise appeal deadlines from the date of each order.
• Brief logistics teams on the new interception rules and keep e-way bills and documents with every consignment.

How Figment's products help

NoticeCPC is Figment's notice management software for GST, Income Tax and TDS notices. It syncs notices automatically or in bulk, keeps them in one place, lets you assign each notice to a team member and track its status, and alerts you before deadlines. For a firm handling many GSTINs, that makes it easier to find small-value notices, track hearings and avoid missing reply or appeal dates.

GSTCPC handles GST returns and GSTR-2B and IMS reconciliation across GSTINs, reporting ITC mismatches before GSTR-3B is filed. Fixing mismatches before filing reduces the discrepancies that lead to DRC-01A intimations and SCNs in the first place.

Key takeaways

• Instruction 02/2026-GST (30 October 2026) bars central tax SCNs where the amount is below ₹10,000 and stops further arrests under GST.
• It is interim, binds central tax officers, and does not withdraw notices already issued.
• Interception of goods in transit now needs specific intelligence and Joint Commissioner authorisation.
• Circular 258/04/2026-GST (26 October 2026) sets standards for SCNs, fraud allegations, hearings, orders and first appeals.
• Use Circular 258 as a checklist when reviewing any GST show cause notice.