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Understanding Reply to DRC-01 or DRC-07 Notice
Under the GST regime, registered taxpayers may receive notices such as DRC-01 or DRC-07 when discrepancies are detected in their returns, payments, or reconciliations. These notices arise under Section 73 of the CGST Act, 2017, dealing with cases of unpaid or short-paid tax without fraud.
A proper, timely, and well-drafted reply to DRC-01 or DRC-07 can protect the taxpayer from unwarranted demands, penalties, and interest. This guide by Advocate Tabish Ahmad explains the legal foundation, procedural steps, and practical strategy to handle such notices effectively.
Legal Basis: Section 73 of the CGST Act, 2017
Section 73 governs cases where tax has not been paid or has been short-paid without any element of fraud, wilful misstatement, or suppression of facts.
Key points under Section 73:
- The Proper Officer issues a Show Cause Notice (DRC-01) under Rule 142 of the CGST Rules.
- The taxpayer may submit a reply or pay the tax along with interest before the order is issued.
- After adjudication, the officer issues Form DRC-07, summarizing the demand order.
- If payment is made within 30 days of the order, penalties can often be reduced.
For fraud-related matters, Section 74 applies — it is critical to distinguish between the two for correct procedural handling.
When and Why Are DRC-01 or DRC-07 Notices Issued?
The GST Department issues these forms during demand and recovery proceedings. Common reasons include:
- Mismatch between GSTR-3B and GSTR-1 returns.
- ITC claimed but not reflected in GSTR-2A/2B.
- Late filing or short payment of output tax.
- Non-reversal of ITC ineligible under Section 17(5).
- Clerical or accounting errors in return data.
DRC-01 – Show Cause Notice for Tax Short Payment
- Issued electronically on the GST portal by the Proper Officer.
- Requires the taxpayer to show cause why tax, interest, and penalty should not be demanded.
- Provides the grounds and calculation of alleged liability.
DRC-07 – Summary of Order Issued After Adjudication
- Issued after reviewing the reply or hearing the taxpayer.
- Summarizes the final adjudication order under Section 73.
- Becomes enforceable for recovery proceedings if unpaid.
Step-by-Step Guide to Replying to a DRC-01 Notice
Here’s a practical approach to handling the notice professionally:
Step 1: Analyze the Notice Contents
- Review the notice number, date, and section mentioned (73 or 74).
- Check if the computation of demand matches your records.
- Identify errors or assumptions made by the department.
Step 2: Collect Supporting Documents
Gather and organize:
- Copies of GSTR-3B, GSTR-1, GSTR-2A/2B.
- Purchase and sales registers.
- Ledger accounts, invoices, e-way bills.
- Corresponding reconciliations or payment proofs.
Step 3: Draft a Professional Reply on the GST Portal
- Log in to www.gst.gov.in.
- Navigate to Services → User Services → View Additional Notices/Orders.
- Open the relevant DRC-01 notice and click on “Reply”.
- Draft your response clearly — refer to specific paragraphs of the notice.
- Attach supporting documents in PDF format (under 5 MB each).
Step 4: Submit Reply and Acknowledge Receipt
After submission:
- Save the Acknowledgment Reference Number (ARN).
- Download the confirmation receipt for future records.
- If required, request a personal hearing under Section 75(4) for oral submissions.
Format of Reply to DRC-01 or DRC-07 Notice
A standard reply should include:
- Header: Reference number, GSTIN, and date.
- Subject Line: Reply to DRC-01 issued under Section 73 of the CGST Act.
- Body:
- Introduction and acknowledgment of the notice.
- Factual background and reconciliation explanation.
- Legal submission citing Section 73, Rule 142, and CBIC Circulars.
- Request for dropping the proceedings if liability is incorrect.
- Attachments: Reconciliation statements, invoices, return copies.
- Closing: Signature, designation, and date.
Common Mistakes to Avoid While Replying
- Ignoring the deadline (generally 15–30 days).
- Submitting a generic or incomplete response.
- Failing to attach reconciliations or explanations.
- Confusing Section 73 (non-fraud) with Section 74 (fraud).
- Not keeping acknowledgment proof from the GST portal.
Important Case Laws & CBIC Clarifications
- Bharat Mint & Allied Chemicals vs Commissioner of Commercial Taxes (2022):
The Allahabad High Court held that non-service of proper SCN or procedural defects invalidate demand orders. - CBIC Circular No. 125/44/2019-GST (18.11.2019):
Clarifies procedures for issuance and reply to DRC-01, DRC-01A, and DRC-07 notices. - Rule 142 of CGST Rules, 2017:
Specifies the format and process for notices and orders under GST demand proceedings.
Case Study: Practical Illustration
A Patna-based manufacturer received a DRC-01 alleging ₹5 lakh short payment due to ITC mismatch. Upon reviewing GSTR-2A, he found vendor filing delays caused the discrepancy. He submitted reconciled purchase data and supplier confirmations. The officer verified the same and dropped the proposed demand, avoiding unnecessary penalties.
Lesson: Timely and evidence-based replies can resolve notices efficiently.
Consequences of Non-Reply or Delayed Reply
Failing to respond can lead to:
- Ex parte adjudication under Section 73(9).
- Issuance of DRC-07 and confirmed tax demand.
- Imposition of interest and penalty.
- Blocking of ITC or initiation of recovery actions under Section 79.
Conclusion – How to Handle GST Demand Proceedings Effectively
Responding to DRC-01 or DRC-07 notices requires a balanced mix of legal knowledge, accounting clarity, and timely action. Always:
- Review the notice thoroughly,
- Reconcile your GST data,
- File a structured reply on the portal, and
- Seek expert legal assistance when needed.
Need help drafting a professional DRC-01 or DRC-07 reply? Consult expert GST lawyers at GSTLawyer.in or book a free case review today.
Frequently Asked Questions (FAQ)
Q1: What is a DRC-01 notice under GST?
A1: It is a show cause notice issued under Section 73 or 74 for unpaid or short-paid tax.
Q2: What is a DRC-07 notice?
A2: DRC-07 is a summary of the final demand order issued after adjudication of DRC-01.
Q3: How much time do I have to reply to a DRC-01 notice?
A3: Generally, 15–30 days are given, depending on the case and officer’s discretion.
Q4: Can I reply to DRC-01 online?
A4: Yes, replies can be filed through the GST portal under “Services → User Services → View Additional Notices.”
Q5: What happens if I don’t reply to a DRC-01?
A5: Non-reply can lead to an ex parte order and issuance of DRC-07 with confirmed demand and penalty.
Q6: What documents should be attached with a DRC-01 reply?
A6: Reconciliation statements, purchase registers, invoices, and GSTR-3B/GSTR-1 returns are usually attached.
Q7: Can I contest a DRC-07 order?
A7: Yes, it can be appealed within three months before the appellate authority under Section 107.
Q8: What’s the difference between Section 73 and 74?
A8: Section 73 covers unintentional errors; Section 74 applies to fraud or wilful misstatement.
Q9: Is professional assistance recommended?
A9: Yes, expert drafting ensures procedural compliance and minimizes exposure to penalties.
References
- CBIC GST Portal – cbic-gst.gov.in
- Official GST Portal – gst.gov.in
- India Code – CGST Act & Rules
- CBIC Circular No. 125/44/2019-GST dated 18.11.2019
- Bharat Mint & Allied Chemicals vs Commissioner of Commercial Taxes (2022)
About the Author – Advocate Tabish Ahmad
Advocate Tabish Ahmad (B.A. LL.B., LL.M., Diploma in Cyber Law – GLC Mumbai) is a Certified Cyber Law Practitioner and practising Advocate at the Patna High Court. He specializes in Cyber Crime, GST Litigation, and Tax Appeals, with extensive experience in representing clients before judicial and quasi-judicial forums.
He serves as President of the Cyber Lawyers Association and is a Member of the Advocates’ Association, Patna High Court. As a Mentor at the Indian Tax Academy and JurisCrack, he guides young lawyers and students in cyber and tax law practice.
Author of several books on Cyber Crimes, Taxation, and GST, Advocate Tabish Ahmad is recognized for his practical insights on digital law, data privacy, and cyber fraud defence.
