Facts of the Case:

In this case, the petitioner challenged the adjudication order passed under Section 74 of the CGST/UPGST Act for the financial years 2018–19 to 2022–23, along with the underlying show cause notice issued in Form GST DRC-01. The dispute arose from the fact that while the detailed show cause notice (annexure) proposed imposition of penalty equivalent to the tax demand, the statutory Form GST DRC-01 mandatorily required under Rule 142 mentioned the penalty amount as “0”.

Despite this discrepancy, the adjudicating authority, in the final order, imposed a penalty of ₹4,36,18,072/-. The petitioner contended that such imposition was beyond the scope of the notice and violated Section 75(7) of the Act, as the penalty was not specified in the statutory form. The Revenue argued that the detailed show cause notice clearly contained a proposal for penalty and therefore the demand was valid.

Issue:

Whether penalty can be validly imposed in an adjudication order under Section 74 when the statutory Form GST DRC-01 does not specify any penalty, but such proposal is mentioned only in the detailed annexure to the show cause notice?

Held That:

The Court held that the statutory Form GST DRC-01 is a crucial and mandatory component of the show cause notice mechanism under GST law and must clearly specify the complete demand, including tax, interest, and penalty.

It observed that allowing the Revenue to rely on details mentioned only in annexures, while the statutory form reflects a “nil” penalty, creates ambiguity and undermines the statutory scheme.

The Court emphasized that such ambiguity directly affects the taxpayer’s rights, particularly under Section 74(8), which provides an option to settle proceedings by paying reduced penalty within a prescribed time. For such rights to be meaningfully exercised, the exact quantum of penalty must be clearly disclosed in the statutory form itself.

Accordingly, the Court held that non-specification of penalty in Form GST DRC-01 constitutes a procedural defect that vitiates the adjudication. The impugned order was set aside. However, the Court permitted the department to rectify the defect by issuing a fresh/rectified show cause notice specifying the correct demand, granting the petitioner opportunity to reply and participate in fresh adjudication proceedings.

Case Name: M/s Comfort Battery Versus Additional Commissioner Central Goods and Services Tax dated 22.04.2026

To read the complete judgement 2026 Taxo.online 1062