Penalty Cannot Be Confirmed Beyond What is Specified in Statutory Form GST DRC-01

The Allahabad High Court has ruled that a GST penalty cannot be confirmed if the statutory Form GST DRC-01 states '0' penalty, regardless of a detailed show cause notice proposing one. The court emphasised that Rule 142 of the CGST Rules requires full disclosure of tax, interest, and penalty within the DRC-01 form itself. Failure to do so renders the adjudication order invalid and allows the taxpayer to seek rectification of the notice.

The Hon’ble High Court of Judicature at Allahabad in the case of Comfort Battery vs Additional Commissioner Central Goods and Services Tax [Writ Tax No. 2097 of 2026, order dated April 22, 2026] held that penalty demand cannot be confirmed where the statutory Form GST DRC-01 mentioned ‘0’ penalty, even though the annexed detailed show cause notice proposed penalty. The Court held that Rule 142 of the CGST Rules mandates complete disclosure of tax, interest and penalty in Form GST DRC-01 itself, and any ambiguity therein would defeat the statutory right available under Section 74(8) of the CGST Act. Accordingly, the adjudication order confirming penalty was set aside and liberty was granted to the Revenue to rectify the notice and proceed afresh.

Facts:

M/s Comfort Battery (“the Petitioner”) filed a writ petition challenging the adjudication order dated 15.12.2025 passed under Section 74 of the UPGST/CGST Act for the financial years 2018-19 to 2022-23 and also challenged the notice dated June 24, 2025 issued along with Form GST DRC-01 dated June 26, 2025.

Additional Commissioner Central Goods and Services Tax (“the Respondent”) issued show cause proceedings against the Petitioner alleging wrongful availment of ITC and subsequently passed an adjudication order imposing penalty of Rs. 4,36,18,072/-.

The Petitioner contended that in the statutory Form GST DRC-01, the column meant for specification of proposed penalty demand mentioned ‘0’, whereas the adjudication order-imposed penalty of Rs. 4,36,18,072/-, which was contrary to Section 75(7) of the CGST Act since no such penalty had been proposed in the statutory notice.

The Respondent contended that although no amount of penalty was mentioned in Form GST DRC-01, the detailed show cause notice specifically proposed imposition of penalty under Clause 16(iii), and therefore the Petitioner was fully aware of the proposed demand. Reliance was also placed upon Sections 74(5) and 74(8) of the CGST Act.

Aggrieved by confirmation of penalty not specified in the statutory Form GST DRC-01, the Petitioner approached the Hon’ble Allahabad High Court by way of writ petition under Article 226 of the Constitution of India seeking quashing of the adjudication order and the show cause notice proceedings under Section 74 of the CGST Act.

Issue:

Whether penalty under Section 74 of the CGST Act can be confirmed in adjudication proceedings when the statutory Form GST DRC-01 specifies ‘0’ penalty, though the annexed detailed show cause notice contains a recital proposing penalty?

Held:

The Hon’ble High Court of Judicature at Allahabad in Writ Tax No. 2097 of 2026 held as under:

·       Observed that, Section 74(1) of the CGST Act specifically requires the proper officer to issue notice requiring the assessee to show cause as to why tax, interest and a penalty equivalent to the tax specified in the notice should not be imposed.

·       Noted that, Rule 142 of the CGST Rules mandates issuance of summary of notice electronically in Form GST DRC-01 specifying therein the details of the amount payable.

·       Observed that, the statutory Form GST DRC-01 contains a prescribed table requiring disclosure of turnover, tax, interest, penalty, fee and other amounts proposed to be confirmed and therefore complete disclosure must be made in the statutory form itself.

·       Observed that, it would be dangerous to allow the revenue authorities to pursue confirmation of demand solely on the strength of disclosure made in such Annexure though it may not find mention in the statutory form.

·       Noted that, since DRC-01 is a statutory form and the detailed notice is merely an annexure thereto, ambiguity in the statutory form cannot be lightly overlooked.

·       Observed that, by virtue of Section 74(8) of the CGST Act, a statutory right is granted to the noticee to conclude proceedings upon payment of tax, interest and 25% of the proposed penalty within thirty days of issuance of notice, and therefore the exact amount of proposed penalty must be clearly specified in Form GST DRC-01 itself.

·       Noted that, there is no warrant to allow the revenue authorities any margin to not specify the amount of tax or penalty or other dues sought to be confirmed, in the statutory form DRC-01, or to seek its confirmation on the strength of disclosure that may be made otherwise, i.e., in the Annexure to the statutory form.

·       Observed that, since the amount of penalty confirmed was not specified in Form GST DRC-01, a procedural defect had crept into the proceedings which would not permit confirmation of demand in the face of such ambiguity.

·       Directed that, the adjudicating authority may rectify the show cause notice dated 24.06.2025 and issue a rectified notice within one week specifying the exact demand of tax, penalty and interest; the Petitioner was granted two weeks to file final reply thereafter.

·       Held that, the adjudication order dated December 15, 2025 stood set aside and the adjudicating authority was directed to conclude fresh proceedings on or before June 30, 2026 after granting personal hearing with at least fifteen days’ advance notice.

Our Comments:

The present judgment reiterates the mandatory nature of statutory compliance under Rule 142 of the CGST Rules, 2017 read with Section 74 of the CGST Act.

The judgment aligns with the decision of the Hon’ble Madras High Court in VRS Traders vs Assistant Commissioner (ST) [W.P.Nos.1607, 1609 and 1613 of 2022 order dated February 10, 2022] , wherein it was held that non-issuance of mandatory DRC-01 notice prior to assessment under Section 74 vitiated the proceedings itself. The Madras High Court observed that Form GST DRC-01 is a statutory requirement and failure to issue the same violates principles of natural justice and the statutory scheme contemplated under Rule 142 of the CGST Rules.

Relevant Provisions:

Section 74 of the CGST Act, 2017

“74. Determination of tax, pertaining to the period up to Financial Year 2023-24, not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful- misstatement or suppression of facts.-

(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 by 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 equivalent to the tax specified in the notice.

(2) The proper officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order.

(3) Where a notice has been issued for any period under sub-section (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for such periods other than those covered under sub-section (1), on the person chargeable with tax.

(4) The service of statement under sub-section (3) shall be deemed to be service of notice under sub-section (1) of section 73, subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any wilful-misstatement or suppression of facts to evade tax, for periods other than those covered under subsection (1) are the same as are mentioned in the earlier notice.

(5) The person chargeable with tax may, before service of notice under sub-section (1), pay the amount of tax along with interest payable under section 50 and a penalty equivalent to fifteen per cent. 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.

(6) The proper officer, on receipt of such information, shall not serve any notice under sub-section (1), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder.

(7) Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable.

(8) Where any person chargeable with tax under sub-section (1) pays the said tax along with interest payable under section 50 and a penalty equivalent to twenty-five per cent. of such tax within thirty days of issue of the notice, all proceedings in respect of the said notice shall be deemed to be concluded.”

Rule 142 of the CGST Rules, 2017

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

(1) The proper officer shall serve, along with the

(a) Notice issued under section 52 or section 73 or section 74 or section 74A  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 ,

(b) statement under sub-section (3) of section 73 or sub-section (3) of section 74 or sub-section (3) of section 74A, a summary thereof electronically in FORM GST DRC-02 , specifying therein the details of the amount payable.

(1A) The proper officer may, before service of Notice to the person chargeable with tax, interest and penalty, under sub-section (1) of Section 73 or sub-section (1) of Section 74 or sub-section (1) of section 74A, as the case may be, communicate the details of any tax, interest and penalty as ascertained by the said officer, in Part A of FORM GST DRC-01A.;

(2) Where, before the service of Notice or statement, the person chargeable with tax makes payment of the tax and interest in accordance with the provisions of sub-section (5) of section 73 or clause (i) of sub-section (8) of section 74A, as the case may be, or tax, interest and penalty in accordance with the provisions of subsection (5) of section 74 or clause (i) of sub-section (9) of section 74A, or where any person makes payment of tax, interest, penalty or any other amount due in accordance with the provisions of the Act whether on his own ascertainment or, as communicated by the proper officer under sub-rule (1A), he shall inform the proper officer of such payment in FORM  GST DRC-03 and an acknowledgement, in FORM GST DRC–04 shall be  made  available  to the  person through the  common portal electronically.

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OFFICIAL JUDGMENT COPY HAS BEEN ATTACHED