I Got a GST Notice After 3 Years of Business — Here's What Happened
Three years into running my SaaS startup, I got a GST scrutiny notice. Nobody tells you how stressful this is when you are building a company. I want to share what happened so other founders know what to expect.
THE NOTICE
Got a DRC-01 notice (demand notice) claiming I had not paid GST on certain receipts. The amount stated: Rs 8.4 lakh including interest and penalty.
MY INITIAL REACTION: PANIC.
WHAT ACTUALLY HAPPENED
I called my CA at 9pm. He asked me to send the notice immediately. By 11pm he called back: "The department is claiming your export invoices to foreign clients should have had IGST. They don't understand zero-rated supplies."
Our situation: We export software services to US and UK clients. Zero-rated supply under GST — either pay IGST and claim refund, or export under bond/LUT without paying IGST. We had a valid LUT (Letter of Undertaking) filed every year. The system had not properly matched our LUT filings with the scrutiny.
THE PROCESS
- Responded to notice within the 30-day window (critical — do NOT let deadline pass)
- Submitted: LUT copies, export invoices, FIRC (Foreign Inward Remittance Certificates from bank), GSTR-1 showing zero-rated supplies
- Attended personal hearing with the GST officer
- Officer acknowledged the documentary evidence
- Order came 45 days later: Demand dropped to zero
TOTAL DAMAGE: Legal fee Rs 35,000. 3 weeks of distracted focus.
LESSONS FOR OTHER STARTUP FOUNDERS
1. File LUT every financial year without fail if you export services — April 1 should be on your calendar
2. Respond to every GST notice, even if you think it is wrong — ignoring creates ex-parte orders
3. Keep FIRC for every foreign remittance — banks issue these, make sure you save them
4. Get a good GST CA, not just any CA — it is a specialist field now
5. The GST department's data matching is improving — gaps between your filings and third-party data will be flagged
THE NOTICE
Got a DRC-01 notice (demand notice) claiming I had not paid GST on certain receipts. The amount stated: Rs 8.4 lakh including interest and penalty.
MY INITIAL REACTION: PANIC.
WHAT ACTUALLY HAPPENED
I called my CA at 9pm. He asked me to send the notice immediately. By 11pm he called back: "The department is claiming your export invoices to foreign clients should have had IGST. They don't understand zero-rated supplies."
Our situation: We export software services to US and UK clients. Zero-rated supply under GST — either pay IGST and claim refund, or export under bond/LUT without paying IGST. We had a valid LUT (Letter of Undertaking) filed every year. The system had not properly matched our LUT filings with the scrutiny.
THE PROCESS
- Responded to notice within the 30-day window (critical — do NOT let deadline pass)
- Submitted: LUT copies, export invoices, FIRC (Foreign Inward Remittance Certificates from bank), GSTR-1 showing zero-rated supplies
- Attended personal hearing with the GST officer
- Officer acknowledged the documentary evidence
- Order came 45 days later: Demand dropped to zero
TOTAL DAMAGE: Legal fee Rs 35,000. 3 weeks of distracted focus.
LESSONS FOR OTHER STARTUP FOUNDERS
1. File LUT every financial year without fail if you export services — April 1 should be on your calendar
2. Respond to every GST notice, even if you think it is wrong — ignoring creates ex-parte orders
3. Keep FIRC for every foreign remittance — banks issue these, make sure you save them
4. Get a good GST CA, not just any CA — it is a specialist field now
5. The GST department's data matching is improving — gaps between your filings and third-party data will be flagged
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Disclaimer: This content is the author's personal opinion and analysis. It does not constitute professional tax or legal advice. Consult a qualified professional for specific advice on your situation.
Comments (6)
LUT filing on April 1 is now permanently on my calendar. Thanks.
Every founder needs to read this. Got my first notice last month — wish I had seen this earlier.
The part about FIRC vs eBRC is important. Most banks now only issue eBRC digitally.
The FIRC point is so important. Many startups do not even know what FIRC is until they get a notice. Banks issue FIRC (or eBRC in many cases now) for every foreign inward remittance. You should download and save these immediately when you receive foreign payments. Most banks provide this through net banking now.
Ravi, thank you for sharing this. Most founders panic and go silent when they get GST notices. The 30-day response window is absolutely critical — missing it means an ex-parte order which is much harder to fight. The LUT + FIRC combination is the right documentary response for software exporters. In my experience, officers at the local GST office level are often not trained on zero-rated supply nuances. Persistence with documentation wins.
Deepa, adding to this — ICICI and HDFC now have an online eBRC download facility within the trade finance section of net banking. No need to visit branch. For founders who invoiced in USD or GBP — the eBRC maps your invoice amount to the specific SWIFT remittance, which is exactly what GST officers ask for.