ORDER BASED ON DRC-01 IS NOT VALID

Rule 142 of the Central Goods and Services Tax Rules, 2017 (‘Rules’ for short) provides that the show cause notice under Section 74 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) is to be issued to a tax payer with the directions to file reply to the show cause notice within the time stipulated in the said notice.  In addition to the notice a summary in Form GST DRC – 01 is also to be uploaded in the GST portal.

The issue to be discussed in this article is as to whether the Proper Officer can pass order based on the summary of show cause notice in DRC – 01 without issuing the show cause notice with reference to decided case law.

In HRD Commercial Industrial Security Force Private Limited Versus The State of Assam, The Principal Commissioner State Tax Guwahati, The Assistant Commissioner of State Tax Dispur. - 2026 (3) TMI 832 - GAUHATI HIGH COURT, the petitioner was issued a summary of show cause notice on 24.09.2025 for the period from April 2021 to March 2022.  The calculation sheet determining the liability of tax was attached.  There was no proper show cause notice was issued to the writ petitioner.  The petitioner kept quiet.  Subsequently, the Proper Officer passed an order on 26.11.2025. 

The petitioner filed the present writ petition challenging the order of the Proper Officer.  The petitioner submitted the following before the High Court-

• The attachment to DRC – 01 shall not be considered as a show cause notice.
• In DRC – 01, there was no mention about the hearing date and the required column has been left blank.
• The provisions of the Act and Rules provide hat irrespective of a request made or not but when an adverse decision is contemplated an opportunity of hearing is mandatory.
• When Section 74 of the Act contains a mandate of hearing, the requirement for complying with the principles of Natural Justice, it cannot be given a go by.
• Since the impugned order is passed without giving a reasonable opportunity of being heard the impugned order is liable to be set aside.

The Department submitted the following before the High Court-

• The Department has issued the summary of show cause notice in Form DRC – 01.
• The said was accompanied with the determination of tax in which the petitioner was provided with all details.
• Therefore, the petitioner ought to have file reply to DRC – 01.
• There is no separate show cause notice apart from DRC – 01 and the calculation sheet determining the tax.
• Despite the Department issued notice to the petitioner, the petitioner intentionally evaded the same and did not file reply to the notice.

The petitioner, in response to the submissions of the Department reiterated that no show cause notice has been issued to the petitioner.

The High Court heard the submissions of both the parties.  The High Court framed the following issues for its determination in the present writ petition-

• Whether the show cause notices were issued prior to passing the impugned order under Section 74 of the Act?
• Whether the determination of tax as well as the order attached to the summary of the show cause notice in GST DRC – 07 can be said to be the show cause notice and order respectively?
• Whether the impugned orders under Section 74(9) of the Act is in conformity with Section 75(4) of the State Act is in consonance with the principles of Natural Justice?

The High Court analysed the provisions of Section 74 of the Act.  Section 74(1) of the Act provides that when it appears to the Proper Officer that any tax has not bee paid or any tax is short paid or any tax is erroneously refunded or where input tax credit had been wrongly availed or utilised by reasons of fraud or any wilful misstatement or suppression of fact to evade the payment of tax.  The High Court observed that the Proper Officer is mandated to issue a show cause notice under specific circumstances prescribed under Section 74(1).  The show cause notice issued to the taxable person must clearly state the reasons and justifying the issuance of show cause notice.

The High Court further observed that Section 74(9) of the Act requires the Proper Officer to determine the tax, interest and penalty after considering the reply given by the tax payer. Section 74(10) of the Act provides that the Proper Officer shall pass the order within three years from the due date of the annual return.  Section 74(2) requires to issue the show cause notice at least 3 months before the due date.  The Statement issued in continuation to show cause notice is separate from the original show cause notice.

The High Court observed that there is no mention in Section 74 for the issuance of summary of show cause notice.  But Rule 142 provides that a summary of show cause notice and a summary of statement are to be furnished under DRC – 01 and DRC – 02 respectively.  The High Court relied on various judgments of various High Courts.  In these judgments it was held that DRC – 01 cannot replace a proper of show cause notice and issuing a proper show cause notice is required before the recovery of tax, interest and penalty.

Therefore, the High Court held that merely attaching a tax determination order to the summary in DRC – 01 does not amount to valid initiation under Section 74.  Since the summary is supplementary to the proper show cause notice, the impugned orders passed without a proper show cause notice are in violation of Section 74 of the Act and Rule 142. Therefore, the High court held that the claim of the Department that the Statement attached to the summary in DRC – 01 constitutes a valid show cause notice is misconceived and contrary to law.

The High Court, then considered the next question as to whether the impugned orders under Section 74(9) conform to Section 74(4) of the Act.  The summary of the show cause notice did not mention any date of hearing, leaving the relevant column blank.  The petitioner was merely asked to file  a reply, without giving a reasonable opportunity of being heard. 

Section 75(4) of the Act provides that an opportunity of hearing must be granted when a request is made by the person chargeable with the tax or penalty or when any adverse decision is contemplated against such person.  This section serves as a safeguard for the assessees ensuing procedure fairness. 

The High Court, after a detailed analysis, held that the summary of the show cause notice in DRC – 01 does not substitute the proper show cause notice.  A formal and authenticated show cause notice is mandatorily required to initiate proceedings under Section 74.  The Statement of tax cannot be treated as a valid show cause notice.  The impugned order contravenes the provisions of Section 75(4) of the Act which mandates that a reasonable opportunity of hearing must be provided either when an adverse decision is contemplated or when a written request is received from the tax payer.  If no reply is filed, the Proper Officer cannot proceed to pass an adverse order without affording a personal hearing.

Therefore, the High Court set aside the impugned order.  The High Court granted liberty to the Department to initiate de novo proceedings under Section 74 of the Act, if considered appropriate.