GST Show Cause Notices, Orders and Appeals: What CBIC Circulars 258 and 259 of 2026 Require

The short answer

On 26 October 2026, following the 57th GST Council meeting, CBIC issued two circulars that change how GST disputes should run:

• Circular No. 258/04/2026-GST sets out how a show cause notice (SCN), an adjudication order and a first-appeal order should be written. It covers fraud allegations, personal hearings, rectification and appeal limitation.
• Circular No. 259/05/2026-GST settles six recurring questions about the pre-deposit paid to file an appeal, and about getting it back.

The circulars bind officers, not taxpayers. Read as a taxpayer, though, they work as a checklist of what a valid notice and a valid order must contain. That makes them useful in every reply and appeal.

Circular 258: what a show cause notice must contain

The circular asks officers, wherever feasible, to send a pre-SCN intimation in Part A of Form GST DRC-01A (rule 142(1A)) before a formal notice, so the taxpayer can clarify first. The notice itself, with its summary in DRC-01 (or the statement in DRC-02), should have:

• the taxpayer's particulars, the tax periods and how the case arose (audit, scrutiny, enforcement and so on);
• the facts and the evidence, examined objectively, with neutral wording such as "it appears that" rather than conclusions;
• the exact provisions said to be breached, linked to each act or omission, without stacking unrelated sections;
• a concise statement of charges;
• the demand quantified, with its basis, and split financial year by financial year where the notice covers several years;
• the adjudicating authority, the reply deadline and the consequence of not replying.

Citing the Supreme Court's 19 August 2026 judgment in G.R. Infra Project Ltd. v. State of Madhya Pradesh, the circular notes that what is needed to sustain a notice must be in the notice itself. A deficient notice cannot be cured later. We explain that judgment in our article on what a Section 74 notice must actually say.

Fraud, wilful misstatement and suppression: the bar is raised

This is the part of Circular 258 most likely to matter in a dispute. Section 74, and section 74A(5)(ii) for FY 2024-25 onwards, carry the heavier consequences reserved for fraud, wilful misstatement or suppression of facts. The circular says:

• The notice must disclose the basis for alleging fraud, misstatement or suppression. Mechanically repeating those words is not enough.
• These terms carry an intent to evade tax. A mere omission, or an incorrect statement that was not knowingly false, is not suppression or wilful misstatement.
• Section 74(1) or 74A(5)(ii) cannot be invoked merely because GST was not paid. They are not meant for scrutiny cases just because a discrepancy was noticed.
• A second notice on the same facts for a later period should not allege fraud unless there are new and independent grounds.
• Where one notice proposes demands under both section 73 and section 74, it must separate and quantify each part, with reasons. The same applies to the two limbs of section 74A.
• Where the adjudicating authority finds the fraud allegation is not established, the demand is confined to section 73 or 74A(5)(i).

Hearings, orders and rectification

• Hearings. No more than three adjournments (section 75(5)), so up to four hearing opportunities. Authorised representatives are to be heard, virtual hearings are encouraged, and a new adjudicating officer must give a fresh hearing.
• Speaking orders. Each submission must be dealt with; a line such as "reply has been considered" is not enough. The order cannot exceed the notice's amount or go beyond its grounds (section 75(7)). Tax, interest and penalty should be quantified year by year and head by head, with amounts already paid adjusted. The summary goes up in DRC-07.
• AI tools. If an officer uses AI tools, the output must be independently verified. Responsibility for the order stays with the officer.
• Rectification under section 161. Apply within three months. It is limited to errors apparent on the face of the record, must be made by the authority that issued the order, and cannot be used to re-argue merits. That needs an appeal.

First appeals

For appeals under section 107, the circular directs that:

• merits are not to be rejected at the registration stage;
• limitation (three months, condonable by one further month for sufficient cause) is decided first, as a separate issue;
• hearing details form part of the appellate order;
• additional grounds and additional evidence (rule 112) are decided with recorded reasons;
• appeals are, as far as possible, decided within one year (section 107(13)).

One caution in paragraph 17: the guidelines are illustrative, and officers are told not to cite them in notices or orders. They are guidance on how the law should be applied, not new law.

Circular 259: pre-deposit, answered

An appeal before the Appellate Authority (section 107(6)), or the Appellate Tribunal (section 112(8)), needs payment of the admitted amount in full plus 10% of the tax in dispute. The circular clarifies:

1. Admitted vs disputed. The taxpayer decides, when filing the appeal, which part of the order is admitted and which is disputed, in Table 14 of APL-01 or Table 20 of APL-05. The 10% applies only to the disputed tax.
2. Tribunal stage. If the first appeal changes the liability, the 10% before the Tribunal is computed on the liability as confirmed by the Appellate Authority that is still disputed. It is payable in addition to the first-stage pre-deposit.
3. Refund needs no express direction. A favourable order need not say "refund the pre-deposit". Claim it in RFD-01 under the category "on account of order".
4. Department appealing is no reason to withhold it. The pre-deposit is refundable after a favourable order unless that order is stayed by the Tribunal or a court.
5. Interest under section 115 runs separately from the date of each payment, first stage and Tribunal stage.
6. Remand. On a full remand by the Tribunal, the pre-deposit is refundable. On a partial remand, any demand that is upheld is recovered or adjusted first and the balance refunded.

What to do with this

• Replying to an SCN: test it against the Circular 258 checklist. Is the demand quantified and split by year? Is the basis for any fraud allegation actually stated? Are unrelated sections stacked?
• Facing a section 74 or 74A(5)(ii) allegation in a scrutiny case: paragraph 5.3 is directly relevant. See also our guide to replying to an ASMT-10 scrutiny notice.
• Filing an appeal: decide the admitted portion carefully, because the 10% is computed on what you dispute. Keep the challans for both stages for interest on refund.
• After winning an appeal: file RFD-01 "on account of order" for the pre-deposit. A pending departmental appeal is not by itself a ground for refusal.

Related: CBIC Instruction 02/2026 (no arrests, e-way bill checks, the ₹10,000 notice threshold) and our 57th GST Council overview.

Sources: CBIC Circular No. 258/04/2026-GST and Circular No. 259/05/2026-GST, both dated 26 October 2026, read from the copies on CBIC's Tax Information Portal. The judgments mentioned are those cited in Circular 258. This article explains the circulars; it is not legal advice on a particular case.