DRC-01 Notice is mandatory before concluding Assessment under the GST regime held by Mad. High Court

The Madras High Court, while quashing an assessment order in the case of VRS Traders vs. Union of India, held that DRC-1 Notice is mandatory before concluding Assessment under the GST regime. FORM GST DRC-01 is an online functionality made available to the tax officer to share the details with the taxpayer on the common portal, consequent to the manual issue of show cause notice as specified under Section 73, 74, and 76 of the CGST Act, 2017.

In the present case, the petitioner, VRS Traders approached the Court claiming that communication in Form No. DRC-01A dated 15.10.2020 was issued to the petitioner alleging that they had wrongly availed Input Tax Credit i.e., ITC during the period 2017- 2018 to 2019-2020. The said notice has been replied by the petitioner on 19.10.2020 not accepting the said proposal issued under the notice in DRC-01A.

Subsequently, the department issued an order confirming the demand. Justice R Suresh Kumar observed that if the revenue wants to initiate proceedings under Section 74 of the Act (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any wilful misstatement or suppression of facts), has to serve a notice to pay the amount of tax along with interest payable under Section 50 and a penalty equivalent to 15% of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.

“Therefore, what has been proposed by the revenue would be intimated by way of notice under Sub Section 5 of Section 74 of the Act initially to the assessee/dealer, who on receipt of the same may or may not accept and once he accepted there would be a conclusion. However, if he does not accept the proposal sent by the Revenue under Section 74(5) of the Act, the next course of action to be followed is to issue a notice under Section 74(1) of the Act as has been quoted hereinabove,” the Court said.

While quashing the notice, the Court observed that “Therefore a Section 74(1) notice is an independent notice to be issued in DRC-01, whereas the notice under Section 74(5) was to be issued in DRC01A. Herein the case in hand, admittedly DRC-01A was issued, thereafter straightaway the respondent revenue proceeded to pass the impugned assessment order. The DRC-01 notice under Section 74(1) of the Act, which is also mandatory to be issued before passing the impugned order of assessment has not been issued in this case. In the absence of any such notice, the proceedings, which is culminated in the order of assessment, which is impugned herein, is, no doubt, vitiated.”

In many cases it has been observed that Adjudicating Officer passes final order determining tax payable without serving notice in DRC 01. In all such cases, above referred judgement of Madras High Court will be useful