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DRC-01

DRC-01 in GST: A Thorough Explanation

What is DRC-01?

DRC-01, short for Notice/show cause notice, is a form utilized by GST officers in India to convey a summary of a show cause notice to a taxpayer. It acts as a concise overview, highlighting the details and allegations mentioned in the complete notice.

Purpose of DRC-01

The primary purpose is to clearly communicate the reason behind any proposed tax demand, interest, or penalty against a taxpayer. It enables them to understand the accusations and allows them to:

  • Agree and comply: If the taxpayer accepts the alleged discrepancies, they can make necessary payments in DRC-03 and potentially avoid further escalation.
  • Contest the claims: If the taxpayer disagrees with the accusations, they can submit a detailed response with supporting documents, relevant laws, and case laws to defend their position.

When is DRC-01 issued?

Several scenarios can trigger a DRC-01 issuance, including:

    • Outcome of Audit: Issuance may be the outcome of the Audit where the difference found by the Auditing team is not accepted by the Assessee.
    • Non-satisfactory reply in ASMT-11- When the proper Officer is not satisfied with the reply filed by the assessee.
    • Non-satisfactory reply in Part B of DRC-01A- When the proper Officer is not satisfied with the reply filed by the assessee, DRC-01 may be issued.
    • May be issued directly on the following grounds:
      • Non-payment of taxes: Failing to pay GST dues within the stipulated period can lead to a demand notice along with a DRC-01 summary.
      • Excess input tax credit claims: Claiming ITC exceeding eligible credits might result in a show cause notice and a DRC-01 summary.
      • Wrongful refunds: Receiving an undue refund might lead to a demand for recovery and a DRC-01 explanation.
      • Other compliance issues: Discrepancies in returns, missing invoices, or suspicious transactions could also invoke a DRC-01.
      • ITC against fake invoicing- Fake invoicing is a menace in the GST system that needs to be carefully addressed. 
      • Cancellation of supplier’s GST No.- GST No. of supplier may be canceled suo motu by department or on application of taxpayer. Merely cancellation of supplier’s GST No. is not a worry until fake invoicing is involved or the supplier was non-existent during the impugned period, though the notice is issued. Even such grounds can be properly addressed by expert Tax advocates.

What does DRC-01 contain?

The key features include:

    • Basic taxpayer information: Name, registration number, etc.
    • Relevant tax period: The period under scrutiny.
    • Nature of discrepancy: Specific reason for the show cause notice (e.g., unpaid tax, excess ITC).
    • Quantum of demand: Proposed amount of tax, interest, and penalty (if applicable).
    • Reference to relevant legal provisions: Sections of the CGST Act and Rules cited as justification for the demand.
    • Deadline for response: Timeframe allowed for the taxpayer to respond to the show cause notice.
    • Date of Personal Hearing

What to do when you receive DRC-01

Receiving a DRC-01 demands prompt action:

  1. Seek professional advice: Consulting a tax consultant/Tax Advocate is crucial to understand the allegations and strategize an appropriate response. 
  2. Thoroughly review the document: Understand the accusations and gather any supporting documents relevant to your case.
  3. Respond within the deadline: Ignoring the notice can lead to further consequences, including increased penalties and prosecution.
  4. Choose the appropriate response:
    • Agree and comply: If you acknowledge the error, pay the demanded amount in Form GST DRC-03).
    • Contest the claims: If you disagree with the allegations, submit a detailed response within Form GST DRC-06, explaining your position and providing supporting evidence.

Remember, this information is for general understanding only and should not be construed as professional tax advice. If you have specific questions about the DRC-01 or your situation, it is best to consult with us. Contact Now.

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