Interim Relief Granted: Final Order Stayed due to Non-Issuance of Pre-Consultation Notice (DRC-01A)

Issue

Whether a Show Cause Notice (SCN) issued under Section 74 of the CGST/SGST Act is valid if the department failed to issue the mandatory Pre-consultation Notice (Form GST DRC-01A) as required under Section 74(5) read with Rule 142(1A), and whether the adjudication proceedings should be stayed on this ground.

Facts

The Action: The GST Department issued a “Show-Cause-Cum-Demand Notice” against the petitioners alleging fraud/suppression (invoking Section 74).
The Violation: The petitioners contended that the department skipped a crucial procedural step: they did not issue the Pre-consultation Notice in Form GST DRC-01A.
Legal Argument: Under Rule 142(1A), before serving a formal SCN under Section 74(1), the proper officer is required to communicate the details of tax, interest, and penalty (via Form GST DRC-01A) to give the assessee a chance to resolve the dispute or explain their stance.
Petitioner’s Prayer: The petitioners approached the High Court seeking a restraint on the passing of the final adjudication order until the writ petition (challenging the validity of the SCN) was decided.

Decision

Notice Issued: The High Court took note of the petitioner’s submission regarding the procedural lapse and issued a notice to the respondents (Department).
Interim Protection: The Court granted ad-interim relief to the petitioners.
Adjudication to Continue, Order Stayed: To balance the interest of revenue and the assessee:
- The petitioners were directed to cooperate in the ongoing adjudication proceedings (filing replies, attending hearings).
- However, the Department was restrained from passing the final order during the pendency of this writ petition.
Outcome: The petitioners secured immediate protection from any adverse demand or recovery while the Court examines the legality of skipping the DRC-01A stage.

Key Takeaways

Form GST DRC-01A is Critical: This form is not just a formality; it is a statutory “Pre-Show Cause Notice” consultation. It allows you to pay the tax with a reduced penalty (15% instead of 50% or 100%) or clarify the issue before a formal legal notice is issued.

Procedural Defense: If you receive a direct Show Cause Notice (DRC-01) under Section 74 without receiving the prior intimation (DRC-01A), you can challenge the validity of the proceedings in the High Court, as seen in this case. The lack of pre-consultation is often viewed as a violation of natural justice and statutory procedure.

HIGH COURT OF GUJARAT

Luxor Hospital

Union of India^*

A.S. Supehia and Pranav Trivedi, JJ.

R/SPECIAL CIVIL APPLICATION NO. 15009 of 2025

NOVEMBER 20, 2025

Abhay Y Desai for the Petitioner. Nidhi T. Vyas for the Respondent.

ORDER

A.S. Supehia, J. – Heard learned advocate Mr. Abhay Desai for the petitioners and learned Assistant Government Pleader Ms. Nidhi T. Vyas for the respondents.

2. Learned advocate Mr. Abhay Desai submitted that the impugned show-cause cum demand notice dated 27.05.2024 was issued in contrary to the provision of Section 74(5) of the CGST/GGST Act, 2017 (for short “the Act”), as the respondent authorities have not issued any notice in Form GST DRC-01A as contemplated under Rule 42(1A) of the CGST/GGST Rules, 2017.

3. It was submitted that though the requirement of issuance of the pre-consultation notice in Form-DRC-01A is not compulsory as per the amendment brought on the statute with effect from 15^th October, 2020, the word “may” is required to be read as “shall” otherwise, Subsection (5) of Section 74 of the Act would become redundant.

4. Considering the above submissions, issue Notice returnable on 27.11.2025. By way of ad-interim relief, the petitioners shall continue to cooperate in the adjudication process of the impugned show-cause notice, however the respondents shall not pass the final order during the pendency of this petition.

5. Direct service through e-mail is permitted.