Sandipan Mitra is the CEO and co-founder of Pice. He boasts eight years of experience in the B2B and fintech sector. Sandipan's journey includes significant roles at multiple Indian Unicorns Including Product at PayU, and as founding member / VP, Product at Open Financial Technologies.
Demand and recovery under GST are initiated when tax authorities identify unpaid taxes or wrongful ITC claims.
Form GST DRC-02 is a formal notice issued under Sections 73(1) or 74(1) of the CGST Act to notify taxpayers of outstanding dues.
Taxpayers are given a fair opportunity to respond, pay dues, or provide evidence before any recovery actions are enforced.
DRC-02 ensures transparency by mandating that the summary of unpaid tax is shared electronically with the taxpayer.
Understanding the DRC-02 process is crucial for businesses to maintain compliance and avoid penalties under GST.
Demand and Recovery under GST is a process that the government can initiate to collect unpaid taxes. The tax authorities can recover unpaid tax if a taxpayer has paid an incorrect amount of GST or has wrongly claimed input tax credits. The demand and recovery process begins when the tax authorities identify an error or fraud and issue a fresh notice, such as DRC-01 and form DRC-02.
The tax authorities will allow taxpayers to respond or pay. If the taxpayer fails to respond or pay, tax authorities can recover the tax through bank attachments or the sale of property.
In this blog, we will focus on the demand and recovery process, while highlighting all the associated details that you need to know about DRC-02 in GST.
What Is Demand Under GST?
GST is mandatory to pay through self-assessment. There should not be any problem if an assessee ends up paying accurate tax on self-assessment. It is the sole responsibility of GST authorities to begin the demand and recovery procedure against the assessee in case of underpayment or improper use of input tax credit.
What is Recovery Under GST?
The Goods and Services Tax (GST) notice is a kind of notification that a tax authority sends to the taxpayer for collecting any unpaid taxes. When a taxpayer fails to pay required GST liabilities within the prescribed deadline, issuance of a notification takes place. The recovery notice states a deadline to the taxpayer, which is usually about 30 days from the issue of notice date. Within this date, the taxpayer’s duty is to pay the unpaid tax or interest.
On the other hand, a registered taxpayer is also penalised if he/she fails to file GST returns within the deadline prescribed in Form GSTR 3A. However, government officials look into this process and begin recovering tax under GST if the taxpayer fails to file the same, even after three months after issuance of order of the tax demand notice.
Form GST DRC-02 is a notice that the tax authority issues under Section 73(1) or 74(1) of the CGST Act. As per the statement summary of DRC-02, if a tax officer issues a detailed statement of unpaid taxes for any period, he is eligible to issue a statement following Section 73(3) or Section 74(3) of the Act.
The required summary of the statement is further uploaded electronically in this form. Similar to DRC-01, the new form DRC-02 was also accepted from April 1, 2019, through Notification No. 16/2019 – Central Tax, dated 29th March, 2019.
What is the Purpose of the Issuance of Form GST DRC-02?
Issuance of Form GST DRC-02 is a method of communicating tax demand to a taxpayer in a formal manner when discrepancies exist under GST law. It is a show cause notice to inform the compulsory taxpayer about the tax, imposition of penalty and interest, which, as per the authorities, is unpaid/partly paid/availed wrongly.
Issued under Section 73(1) or 74(1) of the CGST Act when a proper officer conducts an initial assessment and finds out that there has been a short payment, non-payment or use of Input Tax Credit over the values, which may be adjusted. The authorised body provides the taxpayer a chance, namely the period of issuance of DRC–02, within which the taxpayer must pay the required outstanding amount, or defend his or her position supported by evidence.
The result of this procedure is that it makes sure fairness has been applied by first giving the taxpayer an opportunity to explain or rectify the situation before any enforcement action is taken. Therefore, form is paramount to ensure transparency, and by extension, due process in tax administration.
What is the Format of DRC-02 in GST?
The image below depicts the required format of DRC-02 in GST:
In summary, demand and recovery under GST help ensure tax compliance and fair payment by everyone. Taxpayers have an opportunity to remedy their unintended errors or state their position before the GST demand has a serious impact on taxpayers.
The demand and recovery represent a system of government revenue protection, while providing taxpayers with a reasonable time and notice before responding to the tax authority's recovery action.
Knowing DRC-02 in GST will ensure that businesses remain compliant with tax obligations. Ultimately, this framework supports smooth tax collection and an operational GST regime to sustain and benefit our economy.
💡If you want to streamline your invoices and make payments via credit or debit card or UPI, consider using the PICE App. Explore the PICE App today and take your business to new heights.
FAQs
What triggers the demand and recovery process under GST?
The demand and recovery process is triggered when tax authorities detect short payment, non-payment, or wrongful input tax credit claims during assessments or audits. If discrepancies are found, authorities issue a show cause notice, such as Form DRC-01 or DRC-02. This process ensures that taxpayers correct errors or settle outstanding liabilities in a timely manner before enforcement action is taken.
What is Form GST DRC-02 and when is it issued?
Form GST DRC-02 is a statement of tax demand issued by a proper officer under Section 73(1) or 74(1) of the CGST Act. It is issued when the officer believes there’s a shortfall or incorrect utilization of Input Tax Credit (ITC) based on findings from DRC-01. It provides the taxpayer with a summary of the tax, interest, and penalty dues, and is uploaded electronically to maintain transparency.
What is the purpose of issuing Form GST DRC-02?
The primary purpose of DRC-02 is to formally communicate a tax demand to the taxpayer. It gives the taxpayer a chance to pay the dues or defend their case with supporting evidence within a specified period. This notice ensures fairness and due process by allowing the taxpayer to rectify mistakes or explain their position before the recovery process escalates.
What happens if a taxpayer does not respond to DRC-02?
If a taxpayer fails to respond, defend, or pay within the specified period mentioned in DRC-02, the authorities can initiate recovery proceedings. These may include bank account attachment, property seizure, or auction to recover the dues. Non-compliance may also lead to penalties, interest accrual, and loss of input credit eligibility, increasing the taxpayer's liabilities.
How does the demand and recovery process ensure transparency under GST?
The GST framework emphasizes transparency and fairness, and forms like DRC-01 and DRC-02 are issued electronically through the GST portal. These forms provide detailed breakdowns of dues and allow taxpayers to file replies or objections online. By following structured procedures and providing timelines for response, GST ensures that taxpayers are treated justly and enforcement is not arbitrary.
Sandipan Mitra is the CEO and co-founder of Pice. He boasts eight years of experience in the B2B and fintech sector. Sandipan's journey includes significant roles at multiple Indian Unicorns Including Product at PayU, and as founding member / VP, Product at Open Financial Technologies.
0
Instant Transfer
Lowest Rates
Credit on all transaction