The Allahabad High Court, consisting of Justice Surya Prakash Kesarwani and Justice Jayant Banerji, has ruled that Form GST DRC-01A is a pre-show cause notice intimation which focuses on reducing litigation.

The petitioner/assessee submitted that before issuing the notice under Section 74(1) of the CGST Act, 2017 on Form GST DRC 01, the statement as required under Rule 142 (1A) of the CGST Rules, 2017 was not submitted by the proper officer to the petitioner. Therefore, on account of the non-compliance with the provisions of Rule 142 (1A) of the CGST Rules, the notice deserves to be quashed.

Counsel for the petitioner submitted that even if the input tax credit is blocked by invoking the provisions of Rules 86A and 86B of the CGST Rules, a negative input tax credit cannot be shown, otherwise it would amount to stopping the dealer from filing his return and depositing tax.

On the other hand, the counsel for the respondents submitted that Rule 142(1A) of the CGST Rules have been amended by the Central Board of Indirect Taxes and Customs (CBIC) by Notification No.79/2020 dated 15.10.2020, which states that there is no requirement to send a statement in Part-A of GST DRC-01A under Rule 142(1A) of the CGST Rules.

The court observed that Section 74(1) of the CGST Act, read with Rule 142(1A) of the CGST Rules, intends to afford an opportunity to the dealer/assessee on a pre-show cause notice stage, which shall ultimately benefit both, i.e., the assessee and the department, and shall also reduce litigation, which also indicates the principles of natural justice at a pre-show cause notice stage.

The court listed the matter before the appropriate bench on March 28, 2022.

"As an interim measure, it is provided that the petitioner is permitted to file his return along with proof of deposit of tax for the relevant tax period for which the return is being filed," the court said.