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Know all about Form DRC-03: What are the steps ,Format and Prerequisites

There are times when one might discover that they have not reported their income correctly or might have missed out on something while filing GST returns. In such cases, businesses or individuals eligible for filing GST returns can use the DRC-03 form to make a voluntary tax payment as defined by GST. It is done when the government discovers a demand or deficiency of taxation after the deadline for filing tax returns for a financial year has passed. The DRC full form in GST is called the ‘Demand and Recovery Forms’.

Form DRC-03 is filed for making a voluntary payment of outstanding liabilities under Section 73 and 74 of the CGST Act. A taxpayer can self-ascertain the tax before issuance of SCN or within 30 days of SCN determination to avoid the hassles of demand and recovery provisions.

What is SCN? A Show Cause Notice (SCN) is a formal notice issued by the tax authorities under the Goods and Services Tax (GST) in India, to a taxpayer, requiring them to explain or justify a particular action or inaction that is in violation of the GST laws.

What is form DC-03?

DRC-03 is a form under the GST law that is required to be filed for voluntary tax payments towards demand or tax shortfall noticed later on after the time limit to file returns of a financial year expires. CGST rule 142 (2) and (2) covers this form. DRC-03 is also a voluntary tax payment form in which a taxpayer can pay the tax by raising its liability voluntarily or in response to the show-cause notice (SCN) raised by the GST department.

Below is the format of Form DRC-03:

1.		GSTIN
2.		Name
3.		Cause of payment						<<drop down>> Audit , investigation, voluntary, SCN, others (specify)
4.		Section under which voluntary payment made						<<drop down>>
5.		Details of show cause notice, if payment is made within 30 days of its issue						Reference No.
6.		Financial year
7		Details of payment made including interest and penalty, if applicable- Amount in Rs
Sr no	Tax period		Act	Place of Supply	Tax/Cess	Interest	Penalty if available
1	2		3	4	5	6	7

8) Reasons if any <<Text code>>

9) Verification

I hereby solemnly affirm and declare that the information given hereinabove is true and correct to the best of my knowledge and belief and nothing has been concealed there from.

Signature of the Authorized Signatory

Name______________

Designation / Status_______

Date-

When should a taxpayer make payment in DRC-03?

Audit/Reconciliation Statement: The most common reason for making payment through DRC-03 is when an auditor of GST finds out you have been underpaying your taxes, interests or penalties. A similar situation can also arise if the auditor discovers you have claimed more input in your tax credit than you were entitled to (for the year being reviewed) and the total time for declaring the mistake in the returns of GST has already passed. If either of these happens, you should make a payment voluntarily through DRC-03 Form (& report the same in GSTR-9).
Investigation & Others: If a taxpayer is being investigated and it is found that the taxpayer has fallen behind on tax payments during the investigation, he may submit a voluntary payment in Form DRC-03.

Annual Returns: Taxpayers typically reconcile their accounts and finances for the year before submitting their annual returns. Let’s say you find out you owe back taxes, interest, or penalties for failing to register taxable supplies correctly. In that instance, you can decide to use DRC -03 to make a voluntary tax contribution to make up for the tax difference. To make a voluntary payment of unpaid obligations under Sections 73 and 74 of the CGST Act, utilize Form DRC-03. A taxpayer can self-determine the tax before SCN issuance or within 30 days of SCN determination to avoid the difficulties of demand and recovery procedures.

Section 73 – deals with cases where there is non-payment / payment of Tax without any intention or invocation of fraud.

Section 74 – deals with cases where there is non-payment / under-payment of tax with intention or invocation of fraud.

You can also use DRC-03 to correct errors in the computation of taxes or to pay the additional tax due to changes in your monetary circumstances:

Mismatch in GSTR-1 to GSTR-3B: If the tax authorities have sent notice for differences, being shortfall of tax liability in GSTR-3B when compared to GSTR-1, then the taxpayer must make the payment in DRC-03 or reply by justifying the reasons. You can also use DRC-03 to correct errors in the computation of taxes or to pay the additional tax due to changes in your monetary circumstances.

ITC Mismatch in GSTR-2A/2B to GSTR-3B: If excess Input Tax Credit (ITC) claims (by more than allowed under the CGST Rule 36(4) of 5% of ITC in GSTR=2B) in GSTR-3B when compared to GSTR-2B, the tax authority may send notice. The taxpayer must use this form while depositing the excess claims of ITC.

Point to note: All the payments need to be made either from input tax credit available in electronic credit ledger or cash balance available in the electronic cash ledger. But, in case of interest and penalties ITC utilization is not available. It has to be compulsorily paid in cash.

Prerequisites before filing DRC-03?

Form DRC-03 is used for making a voluntary payment of tax. Voluntary payment can be made either:

Before the issuance of “Show Cause Notice (SCN)”.
Within 30 days of issue of SCN, in case the show cause notice is already issued.

Steps to file DRC-03:

Step 1: Login and navigate to User Services

Step 2: Choose either of the three circumstances under which a taxpayer makes payment:

Case 1: A taxpayer has not made any payment and does not have a Payment Reference Number (PRN).

Case 2: A tax payer has generated PRN but is unutilized and comes for payment within 30 minutes of generation of PRN.

Case 3: A taxpayer has generated PRN and is unutilized and taxpayer comes for payment after 30 minutes of generation of PRN.

Steps to be performed for Case 1:

Step (a) Select the Application Type as ‘Intimation of Voluntary Payment- DRC-03’ and then click ‘New Application’.

Step (b) A taxpayer will get two options whether payment is made voluntary or against SCN:

1. Voluntary payment: The payment date will be auto-populated without an option to edit.

2. Payment against SCN: A taxpayer has to manually enter the SCN Number and select the issue date which must be within 30 days of making payment.

Note: Application for intimation of voluntary payment can be saved at any stage of completion for a maximum time period of 15 days. If the same is not filed within period of 15 days, the saved draft will be purged from the GST database.

To view your saved application, navigate to Services> User Services>My saved Applications option.

Step (c) Select the Section under which payment is being made, the Financial Year and then select the from date and to date of the overall tax period

Step (d) Provide details of payment including interest and penalty. A taxpayer can provide additional details by clicking on ‘Add’. Then click ‘Proceed to Pay’.

Step (e) Voluntary payment page will be displayed which will be divided into 3 sections:

(1) Liability Details: Liabilities are displayed in this table

(2) Cash Ledger balance: The cash balance available on a particular date is reflected in this table. The taxpayer has to have to enter the value of cash to be paid from the available balance against outstanding liabilities.

(3) Credit Ledger balance: ITC available as on date is reflected in this table. The taxpayer has to enter the value of the liability to be paid through ITC and click Set-off.

Step (f) a confirmation message will pop up stating the cash and ITC balance being used up for making payment. On clicking ‘Ok’, a PRN will be generated along with a successful payment message.

Note: If PRN is not available, it can be extracted from the ‘Electronic Liability Register’ under Services>Ledgers>Electronic Liability Register.

Step (g) to view the draft DRC-03, Click the ‘Preview’ button on the page – ‘Intimation of payment made voluntarily or against SCN’.

Step (h) Provide reasons if any, in the field provided. Choose a file in the attachments section to upload. Click on the verification checkbox and then select the ‘Authorized Signatory’ and enter the ‘Place’.

Step (i) Click on ‘File’. Two options will be available:

File with DSC: Browse the certificate and click on the button ‘sign’.

File with EVC: An OTP will be sent to the registered mobile number and email ID. On validation of OTP, a success message will be received along with ARN.

Steps to be performed for Case 2:

Step (a) Follow the steps as mentioned in case 1 till the taxpayer reaches on Intimation of payment made voluntary or against the SCN page.

Step (b) Select ‘Yes’ for the option – Have you made payment? And enter the PRN.

Step (c) A link, known as ‘Get payment details’ will be displayed. Once the taxpayer clicks on it, details will be auto-populated on the basis of the respective payment that was made.

Step (d) Click on ‘Preview’ to view draft DRC-03 and then follow the same steps to file the application as mentioned in case1.

DRC-03 and then follow the same steps to file the application as mentioned in Case1

Steps to be performed for Case 3:

Step (a) follow the steps as mentioned in case 1 till the taxpayer reaches on Intimation of payment made voluntarily or against the SCN page.

Step (b) Select Yes for the option – Have you made payment? Andenter the PRN.

Step (c) A link, known as ‘Get payment details’ will be displayed. Click on the link and enter the details, since the details will not be auto-populated as mentioned in Case 2. This happens because the time of 30 minutes has passed.

Note: The processing will happen in the Back end, wherein the system will check whether the amount entered by the taxpayer matches with the payment made. If yes, the intimation form will be accepted. If no, an error message will pop up.

Step (d) hereafter, follow the same steps as mentioned in Case 1 for filing the application DRC-03.

Note: with respect to Case 2 and Case 3 if the PRN is already utilized, an error message will be displayed asking the taxpayer to enter the unutilized PRN.

Where to report cash payments in GST returns?

Cash Payments in various GST returns are reflected in the below manner:

GST Return / Application	Electronic Cash Ledger
GSTR-3B (Monthly Return)	An electronic cash ledger is an e-wallet. This ledger records all payments made with cash and through banks. The ITC balance of a taxpayer may be used to pay tax Liabilities first. Liabilities that are more than the ITC must be settled in cash
GSTR-9 (Annually)	If any outstanding taxes are owed and are not paid when submitting GSTR-3B, they must be paid when filing GSTR-9. Payment of outstanding liabilities is made using the available balance in the electronic cash ledger. If the liabilities are greater than the cash balance that is available, a challan must be produced to make further cash payments.
In case of demand notices	If a demand notice is received, payment may be made using ITC and any remaining cash in the Cash Ledger. A new cash challan must be made in order to make the remaining payment in cash. Interest and penalties must be paid in full and in cash. A proper officer will issue a Form DRC-04 acknowledgment of the money made in Form DRC-03, and the officer will terminate the proceedings by issuing a Form DRC-05 order.

Post Filing status of form DRC-03:

The status of filing will change to “Pending for approval by Tax officer”.
The taxpayer gets an acknowledgement as issued by the tax officer in the form GST DRC-04 (Acknowledgement of Acceptance of voluntary payment).
There is no restriction on making another payment on a voluntary basis by a taxpayer, where the acknowledgement by the tax officer is still pending.

Frequently Asked Questions on DRC-03:

Is partial payment against a liability raised in an SCN allowed?

The taxpayer cannot make partial payments against a liability raised in the show-cause notice. Even the GST portal does not provide an option for making partial payments.

What happens after the DRC-03 form is filed on the GST portal?

All three ledgers – Electronic Liability Ledger, Electronic Cash Ledger and Electronic Credit Ledger shall get updated after the filing of form DRC-03, i.e., respective debit and credit entries will be passed and PRN gets generated.

What to do if there is no sufficient balance in the cash ledger to make voluntary payment in DRC-03 against a liability raised in an SCN?

Deposit the amount in the Electronic Cash ledger by using the “Create Challan” facility available on the voluntary payment screen. Upon clicking the “Create Challan” button, one will be redirected to a screen in the Payment module.

On the Create challan page, amounts get auto-populated in the challan based on the additional cash needed after considering the tax liabilities and others.

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Department cannot pressure RP to make payment by DRC- 03 same voluntarily only.

Shree Ambica Auto sales and service & 1 other (S) Versus Union of India (Gujarat High Court)

The facts of this litigation are quite disturbing. Mr. Uchit Sheth, the learned counsel appearing for the writ applicants has taken the Court through the averments made in paras 11 to 18 made in the memorandum of the writ application. The learned counsel also invited our attention to the affidavit filed by one of the partners of the partnership firm, which is annexed at page : 83, as Annexure : ‘J’ collectively. It is further brought to the notice of this Court by way of a draft amendment that the partners of the partnership firm have been served with a summons under Section 70 of the C.G.S.T. Act, 2017 calling upon them to personally remain present before the concerned authority on 19th January 2021.

Over a period of time, this Court has taken notice of the fact that the assessees are compelled or rather pressurized to fill up the Form DRC-03.

The Form DRC-03 may be filled up provided the assessee decides to voluntarily make any payment. Even if there is any lapse on the part of the assessee and the department wants to recover a particular amount, it cannot exert pressure or administer threats for the purpose of filling up of the Form DRC-03.

The department is expected to proceed in accordance with law. We take a very serious view of the matter, and therefore, we want a responsible officer of the department to file appropriate reply by the next date of hearing.

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January, 28
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Any use of discretionary power exercised for an unauthorized purpose amounts to malice in law – HC

Rule 86A provides vide powers to the Commissioner or an officer authorized by him to impose restrictions on ITC available in the electronic credit ledger (ECL), in a case where there were reasons to believe that the ITC was fraudulently availed or was ineligible.

The Commissioner had the authority to utilize the power under Rule 86A in the following cases:

non-existent supplier/recipient or not conducting business from its registered place
the tax has not been deposited with Government
issuance of invoice without supply, and
recipient not in possession of invoice/debit note

The said Rule also specifies that on account of the said restriction, the ITC would not be allowed to be used to discharge the output GST liability or claim refund of any unutilized amount for a period of 1 year.

Let us refer to the case of S.S. Industries v. UOI – 2020 Gujarat HC, where it was held that the power under Rule 86A should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee.

Facts of the Case:

The writ applicant was a partnership firm, engaged in the business of manufacture of goods like the TMT Bars etc.
The Joint Director, Directorate General of Goods and Services Tax was conducting the investigation against the writ applicant.
While paying the GST on the goods manufactured, applicant was availing the ITC on the input transactions upon receiving the tax paid inputs and tax invoices.
The writ applicant received tax paid inputs from 36 registered dealers.
The writ applicant received the tax invoices from its suppliers and the transactions of inputs received and the ITC availed have been recorded in the electronic credit ledger maintained by the writ applicant.
The Directorate General of GST Intelligence received information that some registered dealers were supplying only the tax invoices to the various manufacturers of steel products located across the Country, and in the course of such inquiry against such registered dealers/supplies, it was revealed that the writ applicant herein had also received inputs from them involving the ITC to the tune of Rs. 2.40 Crore.
In such circumstances, the Investigating Agency thought fit to initiate an inquiry against the writ applicant.
It was the case of the Department that the inquiry revealed that the concerned suppliers of inputs, referred to above, had issued only the tax invoices without supplying any tax paid inputs and the transactions of these input suppliers/registered dealers were only on paper and, therefore, the ITC availed by all the buyers including the writ applicant herein on such tax invoices of these input suppliers was inadmissible.
The writ applicant was pressurized, as alleged, to deposit an amount of Rs.25 Lakh in cash by uploading the Form DRC-03.
Over and above the same, the ITC of Rs. 84,34,547 was blocked by the Jaipur based agency under Rule 86A of the CGST Rules.
As the Revenue Authorities declined to refund the amount of Rs. 25 Lakh deposited by the writ applicant in cash as well as declined to unblock the ITC in the credit ledger of the writ applicant of Rs. 84,34,547, the writ applicant appealed before the High Court (HC).

Observations of HC on right of the assessee to avail the benefit of the ITC.

Rule 86A undoubtedly conferred drastic powers upon the proper officers if they had reason to believe that the activities or invoices were suspicious.
“Reason to believe” must have a rational connection with or relevant bearing on the formation of the belief.
It was a subjective term and could be interpreted differently by different individuals.
It appeared that the Rule 86A did not even contemplate for issue of any show-cause notice or intimation notice.
In such circumstances, the person affected may be taken by surprise when he would go to the portal to pay taxes and find that his ITC was not usable.
The proviso to Rule 86A specifically states that a manufacturer cannot take credit after 6 months from the date of issue of any of the documents specified in the first proviso to the said sub-rule.
The same applies to those cases where a manufacturer is seeking to take the credit after the introduction of the Rule and to cases where the manufacturer is seeking to do so after a period of six months from the date when the manufacturer received the inputs.
This rule does not operate retrospectively in the sense it does not cancel the credit nor does it in any manner affect the rights of those persons who already took the credit before coming into force of the Rule in question.
It operates prospectively in regard to those manufacturers who seek to take credit after the coming into force of this Rule.
Therefore, in HC’s opinion, the Rule in question only restricted a right of a manufacturer to take the credit beyond the stipulated period of six months under the Rule.

Observations of HC on the power conferred upon the Revenue under Rule 86A

According to the applicant, the power conferred upon the Revenue under Rule 86A is to be exercised with due care and caution, and that too, based on cogent materials and not on mere suspicion.
Rule 86A talks about “reason to believe” which was necessary to be formed for the purpose of blocking the input tax credit in cases of inquiry or investigation into fraudulent transactions.
Any opinion of the authority to be formed was not subject to objective test.
The language left no room for the relevance of an official examination as to the sufficiency of the ground on which the authority may act in forming its opinion.
But, at the same time, there must be material, based on which alone the authority could form its opinion that it has become necessary to block the ITC pending an inquiry or investigation into the fraudulent transactions of fake/bogus invoices.
The existence of relevant material was a pre-condition to the formation of the opinion.
The opinion to be formed by the Commissioner or by the delegated authority could not be on imaginary ground, wishful thinking, howsoever laudable that may be.
Such a course was impermissible in law.
But the expression “circumstances suggesting” cannot support the construction that even the existence of circumstances was a matter of subjective opinion.
That expression points out that there must exist circumstances from which the Authority forms an opinion that they are suggestive of the crucial matters set out in the three subclauses.
It was hard to contemplate that the legislature could have left to the subjective process both the formation of opinion and also the existence of circumstances on which it was to be founded.
It was also not reasonable to say that the clause permitted the Authority to say that it had formed the opinion on circumstances which in its opinion existed and which in its opinion suggested an intent to defraud or a fraudulent or unlawful purpose.
In the absence of any cogent or credible material, if the subjective satisfaction was arrived at by the authority concerned for the purpose of blocking the ITC in exercise of power under Rule 86A of the Rules, then such action would definitely amount to malice in law.
Malice, in its legal sense, meant such malice as may be assumed from the doing of a wrongful act intentionally but also without just cause or excuse or for want of reasonable or probable cause.
Any use of discretionary power exercised for an unauthorized purpose amounted to malice in law. It is immaterial whether the authority acted in good faith or bad faith.
HC stated that it could not be said that the inquiry or investigation initiated as regards the fake/bogus invoices for the purpose of ITC was mala fide or based on absolutely no materials.
It could be said that prima facie, there was something which the Revenue had noticed and, therefore, were looking into the same before taking any final call as regards the claim of the writ applicants to avail the ITC.
Even, otherwise, Rule 86A provided that on expiry of the period of one year, the restriction shall cease to have effect from the date of imposition of such restriction.

Observations of HC on whether Rule 86A contemplate any passing of a specific order with an obligation to communicate the same to the affected person

Rule 86A casts an obligation upon the authority concerned to form an opinion but is silent with regard to passing of any specific order assigning prima facie reasons for invoking Rule 86A.
To this extent, the Government needs to look into the matter and issue appropriate guidelines and also lay down some procedure to be followed for the exercise of power under Rule 86A of the Rules.
In the case on hand, the inquiry, so far, had revealed a prima facie case for the respondents to exercise the power under Rule 86A of the Rules.
Although, no specific order was passed and communicated to the writ applicants in this regard, yet in the facts of the present case, it could not be said that exercise of power under Rule 86A for the purpose of blocking the ITC was mala fide or without any application of mind.

In the overall view of the matter, HC was convinced that they should not interfere at this stage, more particularly, when the investigation was in progress. The respondents made themselves clear in the reply affidavit filed in both the matters that at the end of the investigation if they decided to issue a show-cause notice under Section 74 of the Act, then all the materials relied upon by the Department shall be disclosed to the writ applicants.

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