A Comprehensive guide on Responding DRC-01- Draft Reply.

When a tax officer issues GST DRC-01 to a taxpayer owing to non-payment, underpayment of taxes, improper utilization of input tax credit, or the issuance of an incorrect refund, and the taxpayer neglects to clear the outstanding amount, they are categorized as defaulters. Following the provisions outlined in clause (a) of sub-section (1) of section 79 of the CGST Act, the respective tax officer is empowered to proceed with the issuance of GST DRC-09. This form is utilized to initiate the recovery process, aiming to collect the owed amount from the taxpayer on behalf of the department.

Understanding DRC-01 in GST

DRC-01, abbreviated for "Demand and Recovery Certificate-01," is a document employed by GST officers to present a succinct summary of a show cause notice to a taxpayer. This form is designed to encapsulate key information about the notice, clearly delineating the accusations leveled against the taxpayer. The primary objective of DRC-01 is to articulate the grounds for seeking payment, encompassing various elements such as taxes, interest, penalties, and any other outstanding amounts.

Subject: Detailed Response to DRC-01 GST Notice

[Your Name] [Your Address] [City, State, Zip Code] [Email Address] [Contact Number] [Date]

The GST Officer, Ward – [Ward Number], Delhi GST, T&T Building, Delhi.

Dear Sir,

Re: Response to DRC-01 GST Notice dated [Date]

GSTIN – [Your GSTIN]

I am writing to you in response to the DRC-01 GST Notice dated [Date] that I received from your office. The purpose of this letter is to provide a comprehensive reply to the issues raised in the notice and to seek a fair and just resolution. Please find below a detailed explanation of each point raised in the notice.

Lack of Digital Signature in DRC-01

The DRC-01 notice issued lacks the digital signature of the proper officer. Citing the case of Marg ERP Ltd vs CGST, as per the judgment in W.P.C. 872/2023 by the Hon’ble Delhi High Court, an unsigned notice/order is considered invalid and cannot be sustained under the law.

Incorrect DIN and Lack of Verification:

The Document Identification Number (DIN) entered by your office is incorrect and was not verified and authenticated at the GST Portal. Without the correct DIN, the Show Cause Notice (SCN) is deemed null and void.

Timing of Personal Hearing:

The date of the Personal Hearing mentioned in the notice is unreasonably early, and it raises concerns about the proper application of mind by the issuing officer. It is impractical to conduct a hearing before the taxpayer has the opportunity to submit a reply.

Tax Liability Due to Mismatch in GSTR-1 & 3B Forms:

The taxpayer acknowledges discrepancies in the first year of implementing the new GST Law due to lack of familiarity. Certain entries were incorrectly fed into the system, leading to mismatches. A request is made to exclude these entries from consideration.

Comparison of Forms GSTR 2A and 3B for Excess ITC Claims-

The taxpayer unequivocally asserts that no excessive Input Tax Credit (ITC) was claimed in their returns. The ITC claimed is meticulously aligned with the physical possession of goods, substantiated by valid invoices, evidence of bank payments, and documentation proving the actual movement of goods. These transactions stand as entirely legitimate, with the only exception being any ITC deemed ineligible.

It is imperative to highlight the practical complexities associated with GST ITC claiming, emphasizing the importance of meticulous adherence to the prescribed procedures. The taxpayer underscores the legitimacy of their ITC claims and provides comprehensive evidence to support the veracity of each transaction.

Moreover, the suppliers involved in these transactions operate from their duly registered business premises and are readily available to validate the authenticity of these dealings. Consequently, a fervent request is made to the concerned authority to meticulously review these transactions and accord the rightful Input Tax Credit (ITC) to the taxpayer. The taxpayer contends that all conditions specified in Section 16 of the CGST/SGST Act, 2017 have been scrupulously complied with, and the validity of this perspective is underscored by the Hon’ble Supreme Court's stance in the matter of Ecom Gill Coffee Trading Pvt Ltd.

In reference to the case of Diya Agencies vs State Tax Officers emanating from W.P.(C). 29769 of 2023, the Hon’ble Kerala High Court emphasized that "ITC cannot be denied to the recipient solely on the ground that transactions are not reflected in GSTR-2A." However, it is crucial to recognize that the GSTR-2A form, while serving as a facilitator, cannot be presumed to be infallible and complete.

For your ease of reference, a detailed list of the transactions leading to the observed mismatch is provided below, accompanied by all relevant documentation:

• Date

• Bill No.

• GSTIN

• Invoice Value

• E-way Bill No.

These documents are submitted with the utmost transparency, intending to facilitate a thorough examination of the transactions in question. The taxpayer is committed to cooperating fully and seeks a fair and just resolution in this matter.

ITC Claimed from Non-Existent Dealers:

The taxpayer is eager to elucidate that their purchases were indeed transacted with dealers who were operational at the time, and the goods were duly received. Substantiating this, the taxpayer possesses a comprehensive set of documentation, including valid GST e-invoices, e-way bills, and conclusive evidence of tax payments. These documents are further fortified by bank records showcasing the actual payment to the supplier.

It is noteworthy that all the supplier's returns have been diligently filed on the GST Portal, and these records are verifiable through the portal. This meticulous adherence to procedural requirements underscores the taxpayer's full compliance with Section 16 of the CGST/DGST Act, 2017.

An essential aspect to underscore is the supplier's responsibility to remit the taxes collected, in accordance with the guidelines established by the Central Government of India. Neglecting this obligation may result in potential instances of double taxation. The taxpayer, however, highlights the inherent limitation in independently verifying whether the supplier has indeed remitted the taxes or adjusted them from their Input Tax Credit (ITC). This responsibility squarely rests with the government administrator and not the bona fide purchaser. The taxpayer's ability to confirm the supplier's filing of GSTR-3B, duly executed in this case, is limited to their scope. It is crucial to emphasize that no contradictory legal evidence has been presented, and thus, there exists no justifiable reason to draw adverse conclusions.

For your meticulous examination, a detailed list comprising the date, bill number, GSTIN, invoice value, and E-way bill of the transactions is provided below:

• Date

• Bill No.

• GSTIN

• Invoice Value

• E-way Bill

Enclosed herewith are copies of the aforementioned invoices, the corresponding e-way bills, and irrefutable proof of payment for your convenience and thorough assessment.

In alignment with legal precedent, the taxpayer references the case of Gargo Traders vs Joint Commissioner of Commercial Taxes arising from W.P.C. 1009 of 2022. The Hon'ble Calcutta High Court ruled that "a recipient of goods/services cannot be denied ITC if the supplier becomes non-existent or their registration was cancelled retrospectively." A parallel perspective was maintained in the case of LGW Industries Ltd vs Union of India. W.P.C 23512 of 2019, where the Hon'ble High Court of Calcutta concurred with the identical opinion. This legal backing fortifies the taxpayer's position in seeking due consideration and resolution of the matter at hand.

ITC on Exempted Supply:

The taxpayer clarifies that all sales and purchases are solely for business purposes. ITC was claimed only for taxable purchases used for furtherance in the ordinary course of business, and no reversal of ITC is required.

Uniformity in Construction of Statutory Provisions:

Citing the principle of uniformity, the taxpayer refers to the Bombay High Court's observation in CIT Vs. T. ManeklalMfg. Co. Ltd. (1978) 115 ITR 725. The taxpayer emphasizes the need for consistent interpretation of statutory provisions under the all-India GST statute.

The Court, in its wisdom, has established that the considered opinion of any other High Court should generally be adhered to unless there are compelling and overriding reasons necessitating the adoption of a different perspective. This principle, which emphasizes the importance of uniformity in the interpretation of statutory provisions, is of paramount relevance.

In alignment with these well-established legal principles and considering the unique circumstances surrounding this case, the taxpayer is not only prepared but also eager to extend full cooperation to your office. It is the earnest request of the taxpayer that, in light of the principles articulated and the specific nuances of this case, the notice issued be dismissed, and any proposed demand associated with it be withdrawn in its entirety. This plea is grounded in the belief that adherence to the principle of uniformity, as underscored by the Court, would lead to a fair and just resolution in this matter.

Thank you for your attention to this matter.

Yours faithfully,

[Your Full Name] 

[Your Designation] 

For [Your Business/Entity Name]

CA Kavita Dhingra