Can DRC-01 Be Issued for Claim of Interest Only

INTRODUCTION-

The Goods and Services Tax (GST) is a comprehensive and multi-stage tax system that aims to simplify the indirect taxation regime in India. However, the implementation of GST has also brought about various challenges and complexities for the taxpayers, especially in terms of compliance and interest liability. This article examines the legal and procedural aspects of the interest demands raised by the GST department on the taxpayers, and the judicial response to such demands.

BRIEF-

Interest liabilities may arise for various reasons some of which are reproduced as under-

• Delayed filling of Form GSTR-3B subject to Rule 88B of the Central goods and Services Tax Rules, 2017.

• Delayed payment of Tax vide DRC-03.

• Delayed reporting of Invoices/Turnover on which tax is payable.

• Claim of Excess ITC and it’s subsequent reversal subject to Rule 88B of the Central goods and Services Tax Rules, 2017, etc.

GRENERAL TREND-

GST officers are issuing show cause notices u/s 73 or 74 of the CGST Act in Form DRC-01. Sections 73 and 74 talk about the determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized. Subsection (1) of both sections i.e. section 73 and 74 stipulates that the Proper officer shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised Input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made thereunder. The extracts of provisions of Section 73(1) is reproduced as under-

"(1) Where it appears to the Proper officer that any tax has not been paid or short paid or erroneously refunded, or where Input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised Input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made thereunder."

The Show Cause Notice and it’s Summary in DRC-01 is issued in accordance with Rule 142(1) of the Central Goods and Services tax Rule, 2017 which is also reproduced as under-

"(1) The Proper officer shall serve, along with the

(a) notice issued under section 52 or section 73 or section 74 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130, a summary thereof electronically in FORM GST DRC-01,

(5) A summary of the order issued under section 52 or section 62 or section 63 or section 64 or section 73 or section 74 or section 75 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130 shall be uploaded electronically in FORM GST DRC-07, specifying therein the amount of tax, interest and penalty, as the case may be, payable by the person concerned.

(6) The order referred to in sub-rule (5) shall be treated as the notice for recovery."

That from the combined reading of section 73 and rule 142 it can be concluded that notice form DRC-01 can only be issued in case where tax has not been paid or short paid or ITC has been wrongly avail or utilised or refund has been erroneously taken. Further rule 142 also does not contain any provision for issue of notice in Form DRC-01 for recovery of interest prescribed under section 50.

To bring more clarity in the issue extracts from the Order of Hon’ble High Court of Gujarat in case of Rajkamal Builder Infrastructure Private Limited [2021] 34 TAXLOK.COM 078 (Gujarat)- is reproduced as under-

"13. Thus, the aforesaid provisions make it abundantly clear that notwithstanding anything contained in Section 73 or Section 74, if there is any amount of interest payable on tax and which had remained unpaid, the same has to be recovered under the provisions of Section 79.

14. Section 79 is with respect to recovery of tax. Section 79 provides for the modes of recovery.

15. We shall now look into Rule 142 of the CGST Rules. Rule 142(5) reads as under:

"142. Notice and order for demand of amounts payable under the Act.

… …

(5) A summary of the order issued under section 52 or section 62 or section 63 or section 64 or section 73 or section 74 or section 75 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130 shall be uploaded electronically in FORM GST DRC-07, specifying therein the amount of tax, interest and penalty payable by the person chargeable with tax."

16. Rule 142 makes it clear that the order referred in sub­rule (5) shall be treated as the notice for recovery.

17. From the aforesaid, we have reached to the conclusion that the notice should have been issued in Form GST DRC-07. The Notice should specify the amount of tax, interest and penalty payable by the person chargeable with tax.

18. In view of the aforesaid, the Form GST DRC-01 could be said to have been issued without any authority of law.

19. In the result, this writ application succeeds and is hereby allowed. The impugned order issued in GST DRC-01 is hereby ordered to be quashed and set aside. We reserve the liberty for the respondents to initiate fresh proceedings against the writ applicant in accordance with law.

20. With the above, this writ application stands disposed of."

Hence from all above it can be concluded that notice in form DRC-01 under section 73 or 74 has no legal substance in cases where interest is being demanded under section 50. However, the GST officer is expected to directly issue form DRC-07 raising the demand of interest and the same shall in accordance with Rule 142(6) be considered as notice of recovery. This also gets it’s backing from Section 75(12) which is reproduced as under-

"(12) Notwithstanding anything contained in section 73 or section 74, where any amount of self-assessed tax in accordance with a return furnished under section 39 remains unpaid, either wholly or partly, or any amount of interest payable on such tax remains unpaid, the same shall be recovered under the provisions of section 79."