Why GST Notices to Unregistered Vendors Matter
The GST notices to 7,000 unregistered vendors across Karnataka mark a major state-wide crackdown. The Karnataka Commercial Tax Department has flagged vendors supplying to registered businesses without GST registration — a clear violation under Section 24 of the CGST Act, 2017.
If you or your clients supply goods/services to a GST-registered entity but haven’t registered yourself, this update is for you.
What Triggered These Notices?
As per government officials (via PTI report dated 29 July 2025), the department:
- Identified mismatch between e-way bills and registration data
- Found vendors supplying to corporates without registration
- Noted ITC claims by buyers, but no supplier trace in GSTN
- Detected multiple cases via data analytics using e-invoice trails
The department has now issued DRC-01 notices to over 7,000 unregistered vendors and is actively pursuing registration enforcement.
When is GST Registration Mandatory?
Here’s a quick refresher on when GST registration becomes compulsory:
| Type of Supply | Threshold Limit (₹) | Mandatory If |
|---|---|---|
| Goods (intra-state) | ₹40 lakh | Unless in special category states |
| Services (intra-state) | ₹20 lakh (₹10 lakh in NE states) | PAN India basis |
| Inter-state supply (goods/services) | No limit | GST registration compulsory under Section 24(i) |
| Supply to registered business | Compulsory, even if below limit | As per Section 24(v) – Reverse Charge not applicable |
| E-commerce seller | Compulsory, regardless of turnover | Must register under Section 24(ix) |
What is DRC-01 and Why You Shouldn’t Ignore It
DRC-01 is a show cause notice under Rule 142(1)(a) of the CGST Rules. It communicates the demand or proposed tax liability. Ignoring it can lead to:
- DRC-07 final order
- Interest and 100% penalty under Section 122(2)(b)
- Blocking of PAN from future registration
- Prosecution if willful suppression is found
If you’ve received one — act immediately. File your reply and consider opting for Composition Scheme if eligible.
Expert View: Can You Register Now and Avoid Penalty?
Yes, Section 122(2)(b) imposes a 100% penalty for failure to register. But in several judicial rulings, like Kusum Enterprises v. State of UP (2023), courts have held that if the taxpayer voluntarily pays tax and interest, the penalty can be waived under natural justice principles.
Pro Tip:
If your turnover is under ₹75 lakh, you can opt for Composition Scheme under Section 10 and pay 1%/6% tax with reduced compliance.
What to Do If You’ve Received a GST Notice
Step-by-step action plan:
- Don’t ignore: Acknowledge and check the notice reference (DRC-01)
- Verify turnover: Confirm if you crossed registration threshold or made inter-state B2B supply
- Check eligibility: Consider Composition Scheme if turnover < ₹75L
- Register immediately: Apply via GST portal — avoid further delay
- Respond to notice: Submit reply with payment of tax + interest
- Consult a tax professional: Especially if penalty is imposed
Why Karnataka Is Taking This Seriously
The state has set a ₹1.2 lakh crore revenue target for 2025–26 and is using AI-powered scrutiny to plug GST evasion. Similar actions are likely to follow in other states.
Related Blog:
Can you opt for Composition Scheme after receiving a GST notice?
Final Word
If you’re supplying to a GST-registered buyer — you must be registered. The recent GST notices to 7,000 unregistered vendors is a wake-up call. Compliance today avoids legal trouble tomorrow.
FAQ
Q1: Can a vendor register for GST after receiving DRC-01?
Yes, but prompt action is critical. Delay may invite penalty under Section 122.
Q2: Will penalty be waived if I pay tax now?
Possibly. Courts have allowed waiver in genuine cases. Submit a detailed representation.
Q3: Can I claim past ITC after late registration?
Only prospectively. Past input tax credit is generally disallowed.
Q4: Is Composition Scheme available after SCN?
Yes, if no final order is passed and turnover is within limits.
Need help responding to GST notice?
Let Efiletax guide you through notice replies, registration, and penalty resolution.
📩 Contact us now – www.efiletax.in
Snippet for Google:
Karnataka issues GST notices to 7,000 unregistered vendors. Understand DRC-01, registration rules, and how to avoid penalties under Section 122.