Procedural Lapse in DRC-03A Filing No Ground for Rejection of Settlement Application under Section 128A

Madras High Court Remands Matter and Permits Post-Facto Filing of DRC-03A

AUTHOR: CA Atul Gupta

CASE: M/s Sri Annamar Agencies v. The State Tax Officer (FAC) (Madras High Court) dated 15.09.2026 CITATION: 2026 Taxo.online 3203

1. BACKGROUND

The Goods and Services Tax regime introduced a settlement mechanism under Section 128A of the Central Goods and Services Tax Act, 2017 (CGST Act). It allows taxpayers to settle demands raised under Section 73 (non-fraud cases) by paying the tax liability and availing a waiver of interest and penalty. The procedure is governed by Rule 164 of the CGST Rules, 2017, which requires prescribed forms, including FORM GST DRC-03A, to credit payments made through FORM GST DRC-03 into the Electronic Liability Register.

A rigid reading of procedural requirements has often led to rejection of settlement applications even where the taxpayer’s substantive obligation, payment of tax, has been met. In M/s Sri Annamar Agencies v. The State Tax Officer (FAC) (2026 Taxo.online 3203), the Madras High Court held that procedural lapses should not override substantive compliance where the revenue is not prejudiced.

2. FACTS OF THE CASE

The petitioner, M/s Sri Annamar Agencies, received an adverse order under Section 73 of the CGST Act for the tax period 2018-19 on 22.04.2024, confirming a demand for tax, interest and penalty.

Before applying for settlement, the petitioner had debited the full tax liability equivalent to the demand on 01.06.2024 by generating FORM GST DRC-03. It did not, however, generate FORM GST DRC-03A, which Rule 142(2B) requires to credit that payment into the Electronic Liability Register against the demand.

On 05.03.2025, the petitioner filed an application under Section 128A to settle the demand. The respondent rejected it on 15.09.2025 (FORM GST SPL-07) solely because FORM GST DRC-03A had not been generated, citing Rule 164(2). The petitioner then filed a writ petition before the Madras High Court.

3. ISSUES

PRIMARY ISSUE Whether rejection of a settlement application under Section 128A for non-filing of FORM GST DRC-03A, despite prior payment of tax through FORM GST DRC-03, is justified.

Subsidiary issues

1. Whether failure to file FORM GST DRC-03A is a procedural lapse or a substantive non-compliance under Rule 164(2).
2. Whether the revenue suffered any prejudice, given that the tax amount had been debited and remained in the petitioner’s Electronic Credit Ledger.
3. CONTENTIONS

PETITIONER’S ARGUMENTS Substantive Compliance •    The tax liability was fully paid on 01.06.2024 through FORM GST DRC-03, well before the settlement application. •    Non-filing of FORM GST DRC-03A was a procedural oversight that did not prejudice the revenue. No Prejudice to Revenue •    The amount debited remained in the Electronic Credit Ledger and was not used for any other liability, so the revenue’s interest was protected. Interpretation of Rule 164(2) •    The rule should be read liberally to uphold the object of Section 128A, facilitating settlement of demands. •    A hyper-technical approach would defeat legislative intent. Post-Facto Filing •    The Court was asked to permit post-facto filing of FORM GST DRC-03A, as the substantive requirement of payment was met.

REVENUE’S ARGUMENTS Strict Compliance with Rule 164(2) •    The rule mandates FORM GST DRC-03A where payment is made through FORM GST DRC-03. •    Non-compliance made the settlement application incomplete and invalid. Procedural Integrity •    Procedural requirements are mandatory and cannot be waived, as they protect the integrity of the settlement process. •    Post-facto compliance would encourage laxity. No Discretion to Waive •    The proper officer has no discretion to condone non-filing, as the rule provides no exceptions.

5. HELD

The Madras High Court allowed the writ petition, quashed the impugned order and remitted the matter to the respondent for fresh adjudication.

1. Procedural Lapse, Not Substantive Non-Compliance

Failure to file FORM GST DRC-03A was a procedural lapse, provided the tax amount debited through FORM GST DRC-03 had not been used for any other liability. The Court observed:

THE COURT’S OBSERVATION “The failure on the part of the petitioner to file an application in Form GST DRC-03A in terms of Rule 142(2B) of the respective GST enactment is procedural in nature, provided the aforesaid amount has not been debited towards any other tax liability subsequently.”

2. No Prejudice to Revenue

The amount debited on 01.06.2024 should have remained in the petitioner’s Electronic Credit Ledger until the date of the impugned order. The respondent could verify this and, if correct, post-facto filing of FORM GST DRC-03A could be permitted.

3. Remand for Fresh Adjudication

The petitioner was directed to file a reply in FORM GST SPL-04 to the notice in FORM GST SPL-03 dated 11.06.2025 within 30 days of receiving the Court’s order. The respondent was directed to:

• Verify the Electronic Credit Ledger to confirm the tax amount debited through FORM GST DRC-03 had not been used for any other liability.
• Permit post-facto filing of FORM GST DRC-03A if verification confirmed that the revenue had not suffered prejudice.
• Pass a fresh order on merits within three months of receiving the petitioner’s reply, after giving due opportunity of hearing.

4. Natural Justice

The respondent must follow the principles of natural justice and pass a reasoned order after considering the petitioner’s submissions.

6. EXTRACTS OF RELEVANT PROVISIONS

SECTION 128A(1), CGST ACT, 2017 “(1) Notwithstanding anything to the contrary contained in this Act, where any amount of tax is payable by a person in pursuance of an order passed under this Act, and such order is not appealed against, or where an appeal has been filed and disposed of, and the person makes payment of such amount, then, the interest and penalty payable by such person in respect of such amount shall be waived to the extent provided in this section.”

RULE 164, CGST RULES, 2017 “(1) Any person who is eligible for waiver of interest, or penalty, or both in respect of a notice or a statement mentioned in clause (a) of sub-section (1) of section 128A, may file an application electronically in FORM GST SPL-01 on the common portal, providing the details of the said notice or the statement, as the case may be, along with the details of the payments made in FORM GST DRC-03 towards the tax demanded. (2) Any person who is eligible for waiver of interest, or penalty, or both, in respect of orders mentioned in clauses (b) and (c) of sub-section (1) of section 128A, may file an application electronically in FORM GST SPL-02 on the common portal, providing the details of the said order, along with the details of the payments made towards the tax demanded: Provided that the payment towards such tax demanded shall be made only by crediting the amount in the electronic liability register against the debit entry created by the said order: Provided further that if the payment towards such tax demanded has been made through FORM GST DRC-03, an application in FORM GST DRC-03A, as prescribed in sub-rule (2B) of rule 142, shall be filed by the said person for credit of the said amount in the Electronic Liability Register against the debit entry created for the said demand, before filing the application in FORM GST SPL-02.”

RULE 142(2B), CGST RULES, 2017 “Where any amount of tax, interest, penalty or any other amount is paid through FORM GST DRC-03, an application in FORM GST DRC-03A shall be filed by the said person for credit of the said amount in the Electronic Liability Register.”

7. KEY TAKEAWAYS

1. Procedural Lapses vs. Substantive Compliance

Non-filing of FORM GST DRC-03A should not lead to rejection of a Section 128A application where the tax has been substantively paid and the revenue is not prejudiced.

2. Liberal Interpretation of Rule 164(2)

The object of Section 128A, facilitating settlement of demands, should not be defeated by hyper-technical adherence to procedure.

3. Post-Facto Compliance Permissible

FORM GST DRC-03A may be filed post-facto if the Electronic Credit Ledger confirms the amount debited through FORM GST DRC-03 was not used for any other liability.

4. Verification of Electronic Records

The proper officer must verify the ledger to protect the revenue’s interest, favouring fact-based adjudication over mechanical rejection.

5. Principles of Natural Justice

The respondent must give the petitioner a hearing and pass a reasoned order after considering all submissions.

6. Precedent for Future Cases

Taxpayers who have substantively complied with Section 128A but missed procedural formalities can rely on this ruling to seek a pragmatic approach from authorities.

8. CONCLUSION

The judgment in M/s Sri Annamar Agencies v. The State Tax Officer (FAC) (2026 Taxo.online 3203) strikes a balance between procedural integrity and substantive justice. By holding that procedural lapses should not defeat taxpayers’ rights where the revenue is not prejudiced, the Madras High Court has reinforced fairness and equity in tax administration. Taxpayers and professionals should note that the ruling widens the scope for condoning procedural errors in Section 128A settlement applications, provided the tax has been paid in full, and underlines the need to verify electronic records before rejecting applications.

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