Section 128A CGST Act | DRC-03A Acceptance Nil Principal Liability Satisfies Waiver Condition Despite FY Error : Gujarat HC

The Gujarat High Court has held that a taxpayer's adjustment of a previously made voluntary payment through Form GST DRC-03A against a confirmed demand satisfies the principal tax payment condition for availing the interest and penalty waiver under Section 128A of the CGST Act. The Court quashed an order rejecting the waiver application where the competent authority disregarded the accepted DRC-03A adjustment that had reduced the outstanding liability to nil on the GST portal.

Background & Facts

The Dispute

The petitioner, R.J. Technologies, a partnership firm engaged in supplying electrical transformers, wires and allied products, sought to quash an order dated 02.07.2025 rejecting its application for waiver of interest and penalty under Section 128A of the Central Goods and Services Tax Act, 2017 (CGST Act). The application was filed in Form GST SPL-02 pursuant to the amnesty scheme introduced by the Finance (No.2) Act, 2024 with effect from 01.11.2024.

Key Facts

• The petitioner filed GST returns for Financial Year 2017-18 and subsequently noticed a mismatch in Input Tax Credit (ITC) between Form GSTR-3B (Rule 61) and Form GSTR-2A (Rule 60).
• On 04.10.2019, the petitioner filed Form GST DRC-03 under Rule 142(2) and paid Rs. 31,14,653/-, representing the entire ITC balance available, but inadvertently mentioned FY 2018-19 instead of FY 2017-18.
• On 05.02.2020, the petitioner filed a reconciliation statement in Form GSTR-9C (Rule 80(3)) recording that the unreconciled ITC had been paid through Form GST DRC-03.
• On 05.10.2021, the petitioner paid Rs. 11,39,200/- through Form GST DRC-03 for another discrepancy (mismatch between GSTR-1 and GSTR-3B for FY 2017-18), correctly mentioning the financial year.
• On 05.01.2022, the petitioner paid interest of Rs. 5,02,000/- under Section 50 for delayed payment of tax for FY 2017-18.
• The respondent issued an intimation in Form GST DRC-01A under Rule 142(1A) for FY 2017-18, proposing a demand under Section 73. The petitioner replied on 08.12.2022.
• On 05.01.2023, a show-cause notice under Section 73 was issued.
• The petitioner replied on 28.03.2023.
• On 30.11.2023, the adjudicating authority passed an Order-in-Original raising two demands for FY 2017-18: (i) Rs. 15,54,771/- for shortfall in output tax (GSTR-1 vs GSTR-3B); (ii) Rs. 30,27,040/- for excess ITC (GSTR-2A vs GSTR-3B). The authority declined credit for the Rs. 31,14,653/- payment citing the FY mismatch.
• The petitioner appealed under Section 107 on 27.02.2024; the first appellate authority affirmed the order on 24.05.2024.
• Rule 142(2B) was inserted w.e.f. 10.07.2024, enabling adjustment of DRC-03 payments against demands via Form GST DRC-03A.
• Section 128A (amnesty scheme) was inserted w.e.f. 01.11.2024 for waiver of interest/penalty on specified demands for the period 01.07.2017 to 31.03.2020.
• On 18.01.2025, the petitioner filed two Forms GST DRC-03A: first to adjust the Rs. 31,14,653/- payment against the FY 2017-18 liability; second to appropriate pre-deposit towards balance liability. Both were accepted on the GST portal on 18.01.2025, reducing outstanding principal tax liability to NIL.
• The petitioner withdrew Special Civil Application No. 14849 of 2024 on 13.03.2025 to avail the amnesty scheme.
• On 25.03.2025, the petitioner filed Form GST SPL-02 under Section 128A read with Rule 164 seeking waiver of interest and penalty.
• On 06.05.2025, a notice in Form GST SPL-03 proposed rejection; the petitioner replied on 15.05.2025 citing the DRC-03A adjustment.
• The impugned order dated 02.07.2025 rejected the application, holding the Rs. 31,14,653/- payment could not be treated as payment for FY 2017-18.

Procedural History

• 04.10.2019: Form GST DRC-03 filed, Rs. 31,14,653/- paid (FY 2018-19 mentioned inadvertently)
• 05.02.2020: Form GSTR-9C filed recording payment
• 05.10.2021: Form GST DRC-03 filed, Rs. 11,39,200/- paid (correct FY)
• 05.01.2022: Interest of Rs. 5,02,000/- paid under Section 50
• 08.12.2022: Reply to DRC-01A intimation
• 05.01.2023: Show-cause notice under Section 73 issued
• 28.03.2023: Reply to show-cause notice
• 30.11.2023: Order-in-Original passed (two demands raised)
• 27.02.2024: Appeal under Section 107 filed
• 24.05.2024: Appellate order affirming Order-in-Original
• 10.07.2024: Rule 142(2B) inserted (DRC-03A mechanism)
• 01.11.2024: Section 128A inserted (amnesty scheme)
• 18.01.2025: Two Forms GST DRC-03A filed and accepted; liability reduced to NIL
• 13.03.2025: SCA 14849/2024 withdrawn
• 25.03.2025: Form GST SPL-02 filed under Section 128A
• 06.05.2025: Notice in Form GST SPL-03 issued
• 15.05.2025: Reply to SPL-03 filed
• 02.07.2025: Impugned order rejecting SPL-02 application
• 28.10.2026: Present judgment

Relief Sought

The petitioner sought quashing of the order dated 02.07.2025, acceptance and processing of its Form GST SPL-02 application dated 25.03.2025 under Section 128A, and a consequential order granting waiver of interest and penalty.

The Legal Issue

Whether the competent authority, while considering an application for waiver of interest and penalty under Section 128A of the CGST Act, can disregard an adjustment effected through Form GST DRC-03A under Rule 142(2B) that has been accepted on the GST portal and has reduced the outstanding principal tax liability to nil, on the ground that the original payment via Form GST DRC-03 mentioned an incorrect financial year.

Arguments Presented

For the Petitioner

Mr. Uchit Sheth submitted that the impugned order was passed without proper application of mind. The petitioner had clarified that the FY 2018-19 reference in the DRC-03 dated 04.10.2019 was inadvertent, the payment pertained to FY 2017-18. Following the insertion of Rule 142(2B), Form GST DRC-03A was filed and accepted on the portal, adjusting the payment against the FY 2017-18 demand and reducing liability to nil. The statutory condition under Section 128A - payment of entire principal tax - stood fulfilled. The authority could not disregard the Electronic Liability Register adjustment, which would amount to an impermissible review. The order also contravened Circular No. 238/32/2024-GST dated 15.10.2024 (para 3.2.2), which treats DRC-03A-adjusted amounts as tax payment and is binding under Section 168 CGST Act. The rejection defeated the legislative object of Section 128A to reduce litigation and provide relief for the initial GST implementation period.

For the Respondent

Mr. Utkarsh Sharma contended the impugned order was in accordance with law. The adjudicating authority had appropriated the Rs. 11,39,200/- payment (DRC-03 dated 05.10.2021) against the first demand. The Rs. 31,14,653/- payment (DRC-03 dated 04.10.2019) mentioned tax period April 2018 - March 2019, not FY 2017-18, and could not be appropriated against the ITC discrepancy for FY 2017-18. The petitioner failed to furnish satisfactory documentary evidence or explanation. The payment remained disputed and unaccepted by both adjudicating and appellate authorities. The demand of Rs. 30,27,040/- for wrongful ITC availment was confirmed.

The Court's Analysis

The Court examined the statutory framework of Section 128A (amnesty scheme) and Rule 164, which requires filing Form GST SPL-02 with details of payment made towards the tax demanded. The second proviso to Rule 164 mandates that if payment was made through Form GST DRC-03, an application in Form GST DRC-03A under Rule 142(2B) must be filed for credit in the Electronic Liability Register against the debit entry for the demand, before filing SPL-02.

The Court noted that Rule 142(2B), inserted w.e.f. 10.07.2024, provides a mechanism to adjust payments made through DRC-03 against corresponding demands under Sections 73, 74, 122, 125, etc. Upon filing DRC-03A, the amount is treated as paid towards the demand on the date of the original DRC-03 intimation.

"For the purposes of determining the date of payment of full amount of tax, the date on which the amount has been paid through FORM GST DRC-03 may be considered and not the date on which the said amount has been adjusted using FORM GST DRC-03A."

The Court relied on Circular No. 238/32/2024-GST dated 15.10.2024 (para 3.2.2), which explicitly states that where payment towards tax demanded has already been made through DRC-03, the taxpayer shall file DRC-03A to adjust the amount against the demand in ELR-Part II before filing SPL-02, and the date of DRC-03 payment shall be considered for determining full payment.

The Court found that the petitioner had filed two DRC-03A applications on 18.01.2025, both accepted on the portal, reducing the outstanding principal tax liability for FY 2017-18 to NIL. The demand of Rs. 34,42,611/- reflected in Form GST DRC-07 dated 15.03.2024 stood adjusted against the payments of Rs. 31,14,653/- (DRC-03 dated 04.10.2019) and Rs. 3,44,262/- (DRC-03 dated 22.02.2024).

The Court held that the competent authority failed to appreciate the legal effect of the accepted DRC-03A adjustments reflected in the Electronic Liability Register (Form GST PMT-01) under Section 49(7) and Rule 85(6) CGST Rules. Disregarding the portal-accepted adjustment amounted to passing the order without proper application of mind. The petitioner's consistent stand - that the FY reference was a clerical error, no liability existed for FY 2018-19, and annual returns for FY 2018-19 and 2019-20 confirmed this - required due consideration.

The Verdict

The writ petition succeeds. The impugned order dated 02.07.2025 is quashed and set aside. The respondent authority is directed to accept and process the petitioner's Form GST SPL-02 application dated 25.03.2025 under Section 128A and pass a consequential order in accordance with law within twelve weeks from receipt of the judgment. If the portal does not allow processing of the 25.03.2025 application, the respondents shall accept a fresh application filed by the petitioner in physical mode or through the portal and process it. Rule made absolute.

What This Means For Similar Cases

DRC-03A Adjustment Is Conclusive For Section 128A Eligibility

Once a taxpayer files Form GST DRC-03A under Rule 142(2B) and the GST portal accepts it, reducing the outstanding principal tax liability to nil in the Electronic Liability Register, the condition of "payment of entire principal tax amount" under Section 128A stands satisfied. The competent authority cannot reopen the correctness of the original DRC-03 entry (such as an inadvertent financial year error) to reject the waiver application. The portal-accepted adjustment has statutory effect under Rule 142(2B) and must be respected.

• Practitioners should ensure DRC-03A is filed and accepted before filing SPL-02, as mandated by the second proviso to Rule 164.
• The date of original DRC-03 payment (not DRC-03A adjustment) determines compliance with the Section 128A payment deadline.
• Circular No. 238/32/2024-GST (para 3.2.2) is binding on authorities and expressly validates this mechanism.

Electronic Liability Register Reflects Final Liability Position

The Electronic Liability Register (Form GST PMT-01) maintained under Section 49(7) and Rule 85 is the authoritative record of a taxpayer's liabilities. Once an adjustment via DRC-03A is credited in the ELR and the liability shows nil, the authority considering a Section 128A application is bound by that position. Treating the liability as still outstanding constitutes an impermissible collateral review of the adjustment.

• Authorities must verify the ELR status before rejecting a Section 128A application on grounds of non-payment.
• Taxpayers should preserve screenshots/records of the ELR showing nil liability after DRC-03A acceptance.

Clerical Errors In DRC-03 Can Be Rectified Via DRC-03A

An inadvertent error in selecting the financial year in Form GST DRC-03 does not invalidate the payment where: (a) the payment amount matches or exceeds the disputed liability; (b) the taxpayer consistently maintains the error was clerical; (c) no corresponding liability exists for the wrongly mentioned year; (d) DRC-03A is filed to correctly appropriate the payment. The revenue cannot reject the rectification without verification, especially when the portal accepts the DRC-03A.

• File DRC-03A promptly upon its availability (post 10.07.2024) to correct historical DRC-03 errors.
• Support the rectification with annual returns (GSTR-9) showing no liability for the wrongly cited year.
• The appellate authority's refusal to accept the explanation does not bind the Section 128A competent authority once DRC-03A is accepted.