The DRC-01, or Demand and Recovery Certificate, acts as a ‘show cause’ notice issued by competent GST officers. This notice is issued when the GST officer identifies a mismatch in ‘claimed’ and the available value of Input Tax Credits (ITC) for any GSTIN. It may also be issued if there is an underpayment of tax as against the assessed liability.
Each DRC-01 form includes a unique reference number for streamlined communication and tracking.
There are various reasons why filing Form DRC-01 is important. Some of these are given below -
- Provide clear and complete details of why the tax officer is demanding additional tax.
- Address discrepancies between claimed and available ITC.
- Ensure standardized and systematic communication between GST officers and GSTIN holders.
- Help minimize tax revenue loss for the government.
Given below are the cases in which the DRC-01 form is applicable, except composition taxable GSTINs -
- Regular Taxpayers
- e-Commerce Operators
- Casual Taxpayers
- GSTIN holders who have opted out of the GST composition scheme on a voluntary basis.
DRC-01 is a statutory form issued under section 73 or 74 of the Central Goods and Services Tax (CGST) Act. It acts as a show-cause notice for discrepancies in taxes. Here are the major components of Form DRC-01 -
- Reference Number: A unique identifier for the SCN, used for future correspondence and contesting.
- Receiver Details: Includes the taxpayer's name, GSTIN, and address as specified in the notice.
- Tax Period: Covers the months and financial year during which the authorized officer found any mismatch or discrepancy.
- Relevant GST Law Section and Subsection: Indicates the applicable sections and subsections of the GST law for the SCN.
- Summary: Provides a brief overview of the tax dues claimed by the officer, including grounds, penalties, and the state where the transactions took place.
Under sections 73(5) and 74(5) of the GST Act, GST officers can charge a taxpayer and recover the excess ITC paid with the interest that has already been paid.
As per these sections, in cases of any mismatch in the ITC claim and the ITC available, excess ITC paid to the taxpayer, and underpayment of GST by the taxpayer, the GST officer can declare any GST holder as a GST defaulter. The GST office can also impose a penalty on underpaid GST in the case of fraudulent claims and willful default.
DRC-01 can be system-generated automatically or the GST officers can file the DRC-01 form manually through the GST portal. Below are the steps that should be followed to file DRC-01 form -
- Login to the portal with officers’ credentials.
- Navigate to the services tab.
- Select the ‘Return Compliance’ option under the returns tab.
Under the returns compliance section, you can find the options ot file DRC-01A, DRC-01B or DRC-01C.
The DRC-01 form provides the taxpayer with an opportunity to defend himself by providing valid arguments and reasoning through a reply. However, if you fail to pay the outstanding amount demanded within 30 days of receiving the notice, you need to use the DRC-06 format to submit the reply.
It is important to address each allegation effectively and provide substantial evidence. Here are the steps that you need to follow to file a reply to DRC-01 form in DRC-06 form -
- Step 1. Click ‘Reply’ on the page showing the details of the notice.
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Step 2. Click on ‘Add Reply’. Select ‘Reply’ from the dropdown menu. You can see the following window -
- Step 3. Write your reply. Make sure you give valid reasons. Also, attach the necessary documents supporting your claims.
- Step 4. Preview your reply before clicking on the ‘File’ button.
- Step 5. After clicking File, the ‘submit application’ window opens with DSC/EVC validation.
You need to validate with an OTP if using EVC. Similarly, for DSC, you must browse the certificate and click on the sign button.
After receiving the DRC-01 form, you can settle the mismatch or demand by paying the tax and other dues mentioned. You can also reply to the SCN in the DRC-06 format. It is important to reply to the DRC-01 form within 7 days of receiving the notice. If you fail to do so, your access to GSTR-1 gets blocked automatically.
A tax officer can issue GST DRC-01 form to the taxpayer against non-payment of taxes, input tax credit, or an incorrect refunds. If the taxpayer fails to file a response or pay the outstanding amount, they are categorized as defaulters. To avoid this, it is important to create an appropriate reply to the DRC-01 notice.
However, understanding GST and complying with tax provisions accurately can be complicated. Therefore, you can consider taking professional help to manage your tax compliances. Whether you want to get that GST registration or file your GST returns, our tax experts got you covered. Book a Tax Expert!
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