DRC-01 is backed by subsection (1) of section 74 and DRC-01A by subsection (5) of Section 74.
The two read as –
Subsection (1)
Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.
Subsection (5)
The person chargeable with tax may, before service of notice under sub-section (1), pay the amount of tax along with interest payable under section 50 and a penalty equivalent to fifteen per cent. of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.
For the purpose of subsection (5) Rule 142(1A) provides for issue of Form GST DRC-01A. The aforementioned subrule reads as-
The proper officer may, before service of notice to the person chargeable with tax, interest and penalty, under sub-section (1) of Section 73 or sub-section (1) of Section 74, as the case may be, communicate the details of any tax, interest and penalty as ascertained by the said officer, in Part A of FORM GST DRC-01A.
The requirement for issue of DRC-01A is optional in the sense that words like “shall” were substituted by “may“. However, DRC-01 issued in pursuance of subsection (1) of section 74 and sub-rule (1) of Rule 142 is mandatory in nature. The procedure laid down under section 74 prescribes an order in which the notices and then the demand order should be issued. As per the aforementioned section, the issue of demand order, if so warranted by the circumstances owing to fulfilment of conditions laid down therein, can be made only after issue of notice in Form GST DRC-01.
Thus, the requirement to issue DRC-01 cannot be done away with only because of issue of Form GST DRC-01A. A demand order issued straightaway after issue of Form GST DRC-01A happens to be invalid in nature.
The conclusion is also backed by the judgement dated 10/2/2022 passed by Madras High Court in the case of V.R.S. Traders.
