The Allahabad High Court ruled in favor of M/s Comfort Battery, the petitioner, against the Additional Commissioner, CGST, regarding an unexpected penalty imposition. The case arose when M/s Comfort Battery received a show cause notice with a tax demand but a penalty marked as '0' in Form DRC-01. However, the final adjudication order imposed a substantial penalty of ₹4.36 crore, which the petitioner argued was a violation of statutory procedure under GST law.
The department contended that although the DRC-01 showed zero penalty, the notice's annexure mentioned penalty liability. The issue was whether a penalty not specified in Form DRC-01 could be validly imposed through adjudication by relying on annexures.
The Court emphasized that Form DRC-01 is a statutory format that must clearly disclose all proposed demands, including penalties, to avoid ambiguity and procedural unfairness. It highlighted that GST law grants taxpayers the right under Section 74(8) to settle disputes with a reduced penalty, a right that becomes meaningless if not clearly mentioned in DRC-01.
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The Court concluded that confirming demands not specified in DRC-01 would undermine statutory safeguards, as taxpayers must be aware of exact liabilities upfront. The absence of the penalty amount in DRC-01 constituted a procedural defect, rendering the adjudication order unsustainable and legally flawed.
Order Date - 22 April 2026
Parties: M/s Comfort Battery vs Additional Commissioner, CGST
Facts -
- M/s Comfort Battery, the petitioner, received a show cause notice where penalty was shown as ‘0’ in Form DRC-01, though tax demand existed.
- However, in the final adjudication order, a massive penalty of ₹4.36 crore was imposed unexpectedly.
- The department argued that although DRC-01 showed zero penalty, the detailed annexure of the notice mentioned penalty liability.
- Feeling blindsided, the petitioner approached the High Court claiming violation of statutory procedure under GST law.
Issue -
- Whether penalty not specified in Form DRC-01 can be validly imposed through adjudication relying on annexures?
Order -
- The Court emphasized that Form DRC-01 is a statutory format, and it must clearly disclose all proposed demands including penalty. Reliance on annexures cannot override this requirement, as it creates ambiguity and procedural unfairness.
- It noted that GST law provides a valuable right to the taxpayer under Section 74(8) to settle disputes by paying reduced penalty. This right becomes meaningless if penalty is not clearly mentioned in DRC-01.
- The Court held that allowing authorities to confirm demands not specified in DRC-01 would be dangerous and contrary to statutory safeguards, as taxpayers must know exact liabilities upfront.
- Since the penalty amount was missing in DRC-01, the Court found a procedural defect, making the adjudication order unsustainable and legally flawed.
