GST demand notice must clearly specify proposed penalty in Form DRC-01 before adjudication can sustain confirmation.

Clear specification of the proposed penalty in Form GST DRC-01 is required under the GST demand framework, because section 74 contemplates notice of the tax, interest and penalty sought to be recovered and section 75(7) confines adjudication to matters covered by that notice. Where the statutory form omitted the penalty amount and the demand appeared only in the accompanying detailed notice, the notice created ambiguity on a material component of liability and impaired the recipient's ability to exercise the statutory options under sections 74(5) and 74(8). The penalty confirmation was therefore unsustainable, and the matter could proceed only after issue of a rectified notice.

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Issues: Whether the adjudication order confirming penalty could stand when the statutory Form GST DRC-01 did not specify the proposed penalty amount and the demand was instead reflected only in the accompanying detailed notice.

Analysis: Section 74 of the Central Goods and Services Tax Act, 2017 contemplates a notice specifying the amount of tax, interest and penalty proposed to be recovered, while section 75(7) requires that the adjudication remain confined to the matters covered by the notice. Rule 142(1) of the Central Goods and Services Tax Rules, 2017 prescribes Form GST DRC-01 as the statutory form for disclosure of the proposed demand. Since the form did not mention the penalty amount, the notice created ambiguity on a material component of the demand. The requirement of clear specification in the statutory form is necessary so that the noticee can meaningfully exercise the statutory option available under section 74(5) and section 74(8). The omission, therefore, constituted a procedural defect in the demand process.

Conclusion: The confirmation of penalty could not be sustained on the basis of a demand not specified in Form GST DRC-01, and the adjudication order was liable to be set aside with liberty to issue a rectified notice and proceed afresh.

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