Rule 142 of CGST Rules: Notice, Order & Recovery Process

Rule 142 of the CGST Rules, 2017 lays down the procedure for issuing Goods and Services Tax (GST) demand notices, communicating liabilities, passing adjudication orders and initiating recovery of unpaid tax through prescribed DRC forms. It ensures that every stage of demand and recovery under GST is documented, trackable and legally enforceable.

This rule is important because it standardises how tax authorities raise demands and how taxpayers respond, pay voluntarily or contest liabilities, making GST compliance more transparent and structured.

When does rule 142 apply?

Rule 142 applies whenever the GST department determines that a taxpayer has failed to pay tax, has short-paid tax, has wrongly availed Input Tax Credit (ITC), has received an erroneous refund or has become liable for any penalty under GST law. It governs the entire lifecycle of demand proceedings, from pre-notice communication through recovery of dues.

Applicable sections under rule 142

Rule 142 applies when notices or orders are issued under the following provisions of the CGST Act:

• Section 52: Defaults by e-commerce operators in Tax Collected at Source (TCS).
• Section 73: Tax not paid, short-paid, erroneous refund or incorrect ITC without fraud or wilful misstatement (up to FY 2023-24).
• Section 74: Tax dues involving fraud, wilful misstatement or suppression of facts (up to FY 2023-24).
• Section 74A: Unified provision for tax not paid, short-paid, erroneous refund or incorrect ITC for FY 2024-25 onwards.
• Section 76: Tax collected from customers but not deposited with the government.
• Sections 122–125: Penalties for various compliance and procedural violations.
• Section 127: Penalty imposed by a proper officer.
• Section 129: Seizure, detention and release of goods or conveyances in transit.
• Section 130: Confiscation of goods or conveyances and related penalties.

Key Forms Used Under Rule 142

Rule 142 operates through standardised electronic Demand and Recovery Claim (DRC) forms used for notices, replies, payments and recovery actions:

Step-by-step breakdown of DRC forms

Here is the detailed explanation of each of the above forms under Rule 142:

Step 1: Pre-Notice Intimation: FORM GST DRC-01A

Before issuing a formal SCN under Sections 73 or 74/74A, the officer may communicate the proposed tax, interest and penalty in Part A of FORM GST DRC-01A. This serves as an early intimation of demand.

The taxpayer can either pay the dues or submit a reply in Part B of DRC-01A. If payment is made with applicable interest and penalty, proceedings may be closed without issuing an SCN.

Step 2: Formal Notice: FORM GST DRC-01

Issued for Sections 52, 73, 74, 74A, 76, 122, 123, 124, 125, 127, 129 or 130, this form is the electronic summary of the Show Cause Notice (SCN).

It formally initiates adjudication proceedings and requires the taxpayer to respond within the prescribed time.

Step 3: Statement for Multiple Periods: FORM GST DRC-02

Where a SCN covers multiple tax periods under Sections 73, 74 or 74A, a consolidated statement is issued and summarised in FORM GST DRC-02.

It consolidates demands across periods into one statement for adjudication.

Step 4: Voluntary Payment: FORM GST DRC-03

At any time before the issuance of a final order (DRC-07), a taxpayer may make a voluntary payment of tax, interest, penalty or other dues using FORM GST DRC-03. This form can be filed both before and after the issuance of a show-cause notice.

After the changes introduced by Notification No. 12/2024-CT dated 10-07-2024, FORM GST DRC-04 is now made available on the common portal once payment is completed through DRC-03.

Step 5: Acknowledgement and Closure: FORM GST DRC-04 and DRC-05

• FORM GST DRC-04: System-generated acknowledgement confirming receipt of the voluntary payment made via DRC-03.
• FORM GST DRC-05: Issued by the proper officer to formally conclude the proceedings upon satisfactory payment of dues. It signifies that the department has accepted the payment and closed the case against the taxpayer.

Step 6: Taxpayer's Reply: FORM GST DRC-06

The taxpayer submits objections, evidence and legal submissions against DRC-01 or DRC-02 through FORM GST DRC-06. This forms the basis for adjudication and further proceedings.

Step 7: Final Order: FORM GST DRC-07

After reviewing the taxpayer's response and considering any submissions made during the personal hearing, the proper officer issues a final order in FORM GST DRC-07. The order sets out the tax, interest and penalty payable by the taxpayer.

Crucially, sub-rule (6) of Rule 142 explicitly states that the order referred to in sub-rule (5), i.e., the DRC-07 order, shall be treated as the notice for recovery. This means no separate notice for recovery is required.

Step 8: Rectification: FORM GST DRC-08

If any apparent error is found or an order is withdrawn, rectification is recorded through FORM GST DRC-08 under Section 161 of the CGST Act.

It ensures corrections are properly reflected on the GST portal.

Recovery process under Rule 142

The recovery process under Rule 142 is sequential and rights-respecting:

• The proper officer initiates proceedings with DRC-01A (optional pre-notice intimation).
• A formal notice is then issued through DRC-01/DRC-02.
• The taxpayer may choose to pay the dues using DRC-03 or contest the demand through DRC-06.
• The officer passes a final order in DRC-07, which automatically acts as the recovery notice.

If dues remain unpaid after the final order, recovery is initiated under Sections 78 and 79 of the CGST Act. Recovery may include deduction from government payable amounts, bank account attachment, attachment and sale of movable or immovable property, recovery through revenue authorities or recovery from third parties who owe money to the taxpayer, as permitted under the Act.

Importance points for taxpayers

For businesses and practitioners, Rule 142 carries several practical implications:

• All GST notices and orders are issued digitally and must be issued through the GST common portal using the prescribed DRC forms; no informal or verbal demands are valid.
• Payment through DRC-03 before adjudication under Section 73 can reduce the penalty to nil; under Sections 74/74A, timely payment can reduce the penalty to 15% of the tax dues.
• Receipt of DRC-07 should be treated as the start of the recovery process, not merely the end of adjudication.
• Payments made through DRC-03 must be correctly adjusted on the GST portal, including via DRC-03A where applicable, before filing an appeal to avoid duplication or accounting errors.

Conclusion

Rule 142 ensures GST demand and recovery is a structured, time-bound and fully digital process. For businesses, staying audit-ready through timely reconciliations, accurate return filing and prompt response to GST portal notices helps prevent escalation into recovery proceedings.

Using a GST-ready accounting system like TallyPrime can improve record accuracy, streamline compliance tracking and enable faster responses, helping businesses manage GST scrutiny with greater efficiency and confidence.