Intimation under Form DRC-01A is mandatory, notwithstanding use of word ‘may’ in Rule 142(1A)

Observing that statutory provision contained in the principal legislation that is Section 74(5) of the CGST Act, 2017, is mandatory, the Allahabad High Court has held that the use of the word ‘may’ in Rule 142(1A) of the CGST Rules must be given the same interpretation. According to the Court, the provisions of Rule 142(1A) must be read in conjunction with Section 74(5). 

Revenue department’s submission that since the word ‘may’ has been substituted for the word ‘shall’ in Rule 142(1A) the provision is now directory, was thus rejected.

As per Rule 142(1A), the Department has to communicate in Form DRC-01A the details of tax, interest and penalty to the person before issuance of notice. Section 74(5) provides for payment of tax, interest and 15% penalty by the person chargeable with tax before service of notice. 

Allowing assessee’s petition, the Court in World Phone Internet v. Superintendent observed that since Section 74(5) provides for finalization of proposed demands before issuance of a formal show cause notice, with clear benefits of reduced penalty as against payment after issuance of notice or after adjudication, the said section is unambiguously mandatory. 

According to the Court, the benefit flowing therefrom should not be denied to an assessee who raises that plea at the stage of reply to the SCN. However, it was also observed that the SCN issued on DRC-01 may not lack inherent jurisdiction and for want of DRC-01A not issued, prior in time. 

Further, it may be noted that the High Court here observed that statutory right conferred under Section 74(5) is deemed to have been waived if the noticee chooses to enter appearance in response to the SCN on DRC-01 and disputes its liability to pay the demand so raised, without claiming his right under Section 74(5).