Can Enforcement Officers Issue GST DRC-01 Under Section 67?

Summary: The article argues that the growing practice of Enforcement Officers issuing GST DRC-01 or DRC-01A immediately after inspections under Section 67 and treating them as demand notices is legally unsustainable. It explains that Section 67 authorizes only inspection, search, and seizure, whereas Sections 73 and 74 exclusively govern tax demand, interest, and penalty proceedings through a detailed Show Cause Notice (SCN) and an opportunity of hearing. Since DRC-01 is merely a summary of an SCN under Rule 142, it cannot replace a proper notice or be issued “under Section 67.” The article also criticizes the practice of audit officers mechanically confirming demands without independent adjudication, alleging violations of natural justice and speaking order requirements. Referring to judicial precedents and the Supreme Court’s Armour Security ruling, it emphasizes that demand proceedings must follow due process with one proper adjudicating authority. Taxpayers are advised to challenge defective proceedings lacking a valid SCN or fair hearing.

Can an Enforcement Officer Issue DRC‑01 under Section 67? Why This Practice Is Legally Flawed and Deeply Unfair?

In the last few years, I am seeing a very disturbing pattern in GST administration – in both Central and State wings.

• The Enforcement officer (DC/AC) is authorised only for inspection/search under Section 67.
• Based on that inspection, the same officer straightaway issues DRC‑01A and then DRC‑01, sometimes even describing it as “DRC‑01 under Section 67”.
• After this, the file is sent to another officer (like DCCT – Audit) who, without any meaningful hearing, just uploads a “reminder” and confirms the demand as per the DRC‑01 issued by the Enforcement officer.

This looks like a small procedural shortcut, but in reality, it has very serious consequences. Genuine taxpayers are facing huge demands of tax, interest and 100% penalty, without a proper show cause notice and without a fair opportunity of defence.

In this article, I am trying to explain in simple language why this practice is not supported by the Act, why it violates basic principles of natural justice, and how recent case law can help taxpayers and professionals to challenge such orders.

1. The basic legal framework

Before we discuss the problem, we must be very clear about the basic structure of the law.

Section 67 – only inspection, search and seizure

Section 67 of the CGST/SGST Acts deals with the power of inspection, search and seizure. It allows a proper officer (not below Joint Commissioner) to authorise inspection or search where he has “reasons to believe” that tax is being evaded, ITC is wrongly availed, or books and documents are kept in a clandestine manner.

The key point is:

• Section 67 is a power‑giving provision for search/inspection.
• It does not create a tax demand.
• It does not itself authorise any Show Cause Notice (SCN).
• It does not provide for assessment or penalty.

In simple words: Section 67 allows the department to collect information and evidence through inspection. It does not, by itself, decide or demand tax.

Sections 73 and 74 – demand, interest and penalty

Sections 73 and 74 are the heart of the demand proceedings:

• Section 73 covers cases without allegation of fraud or suppression.
• Section 74 covers cases with allegation of fraud, wilful misstatement or suppression and allows 100% penalty in such cases.

In both sections, the law is very clear:

• Proceedings start only when a proper officer issues a Show Cause Notice.
• That SCN must set out the facts, grounds, period, and proposal for tax, interest and penalty.
• Only after this SCN and after giving the taxpayer an opportunity of hearing, can the officer pass an order confirming any demand.

So, demand and penalty must always rest on Sections 73/74, not on Section 67.

DRC‑01 and DRC‑01A – their limited role

Under Rule 142, two electronic forms are used in demand proceedings:

• Form GST DRC‑01A – an intimation of tax liability, inviting the taxpayer to pay or make representation before a formal SCN under Section 73/74.
• Form GST DRC‑01 – an electronic summary of the SCN or statement under Section 73 or 74, to be uploaded on the portal.

The important clarification is:

• DRC‑01 is only a summary.
• It is not the actual SCN.
• The real SCN still has to exist, with full reasons and details, either in physical or electronic form.

Therefore, the correct legal mapping is:

• Section 67 → inspection/search/seizure
• Section 73/74 → demand of tax, interest and penalty (after SCN)
• DRC‑01A/DRC‑01 → procedural forms linked to Sections 73/74, not to Section 67

2. Can an Enforcement officer issue DRC‑01 “under Section 67”?

This is now a very common question in practice.

The short legal answer

• An Enforcement DCCT/ACCT can be authorised under Section 67 to conduct inspection/search and seizure.
• The same officer may also be notified as a proper officer under Sections 73/74 to issue SCNs and DRC‑01, if the administration so assigns.
• But he cannot issue a DRC‑01 “under Section 67”, because:
  • Section 67 does not provide for SCN or demand.
  • DRC‑01 is by definition the summary of a notice under Section 73 or 74, issued under Rule 142.

So, if any officer describes a DRC‑01 as “issued under Section 67”, that is legally wrong.

The correct position is:

• Inspection/search may be authorised under Section 67.
• The subsequent demand must be clearly under Section 73 or 74, and the DRC‑01 is only the summary of that SCN.

This is not a mere drafting error. It reflects a fundamental misunderstanding: Section 67 is being treated as if it itself authorises demand and penalty. The Act does not support this.

3. DRC‑01 cannot replace a proper Show Cause Notice

Another serious issue we see on the ground is this:
Instead of issuing a proper SCN, some officers simply upload DRC‑01 and treat it as if it were the SCN.

However, High Courts have made it very clear that this is not permissible.

High Court view on DRC‑01 vs SCN

Gauhati High Court decisions (for example, in cases involving Udit Tibrewal and Prolay Dey Sarkar) have held that:

• Form GST DRC‑01 is only a summary of the SCN.
• If no detailed SCN under Section 73 or 74 is issued, an order based only on DRC‑01 is invalid.
• Such orders violate Sections 73(1)/74(1) and Rule 142(1)(a), and also breach natural justice.

In simple terms:

No proper SCN = No valid demand order.
DRC‑01 summary by itself is not enough.

This is directly relevant to the pattern we are discussing, where Enforcement officers issue DRC‑01, and then Audit officers confirm demands without any full SCN.

4. The ground‑level pattern – what is happening in reality

Let me summarise the pattern many taxpayers are facing, similar to what I have seen in Karnataka:

1. Assignment for inspection

• • JCCT (Enforcement) issues an order assigning an ACCT (Enforcement) to conduct inspection under Section 67.

2. Inspection and DRC‑01A/DRC‑01 by Enforcement officer

• • The ACCT (Enforcement) conducts inspection/search.
  • Based on this, the same officer:
    • issues DRC‑01A (intimation), and
    • then issues DRC‑01, proposing tax, interest and 100% penalty under Section 74.

3. File transferred to Audit officer for “adjudication”

• • The file is then sent to DCCT (Audit‑1) or similar officer.
  • That officer:
    • uploads a few “reminders” on the portal,
    • does not give any meaningful opportunity of hearing, and
    • simply confirms the demand as per the DRC‑01 issued by the Enforcement officer.

This entire model is seriously flawed.

5. Why this model is legally wrong

(a) Stretching Section 67 beyond its scope

The whole chain is built on Section 67 inspection and then directly converted into a full demand and 100% penalty, without clearly and correctly invoking Sections 73/74 through a detailed SCN.

This sends the wrong message that:

“Once we have done a search under Section 67, we can straightaway issue DRC‑01 and confirm demand.”

But the law clearly separates search and adjudication. Search is only the fact‑gathering stage. Adjudication must happen through independent application of mind under Section 73/74, with a proper SCN and hearing.

(b) Treating DRC‑01 as the SCN

Instead of drafting and serving a proper SCN:

• Officers are simply uploading DRC‑01 and treating it as the final notice.
• As noted above, courts have clearly held that this cannot be done.
• The taxpayer must know exactly what is alleged, with proper narration of facts, legal grounds, classification, valuation issues, ITC mismatches, etc.

A summary box in DRC‑01 cannot substitute such a detailed notice.

(c) No real adjudication by the Audit officer

The DCCT (Audit‑1) or similar officer is supposed to be the adjudicating authority:

• He must read the SCN,
• Consider the taxpayer’s reply,
• Hold a hearing if required, and
• Pass a speaking, reasoned order.

But in many cases:

• The Audit officer merely issues standard reminders,
• Does not call for records or explanations in detail, and
• Simply “confirms” the Enforcement DRC‑01 without independent reasoning.

This is a clear violation of natural justice and the concept of a speaking order.

(d) Chain of officers – unclear who is the “proper officer”

What we see is a kind of “relay race”:

• Enforcement ACCT issues DRC‑01,
• Audit DCCT signs the order,
• Sometimes, another authority deals with recovery.

This raises important questions:

• Who is the proper officer for Section 73/74?
• Has the taxpayer clearly been told who is adjudicating his case?
• On what basis is one officer merely “confirming” another officer’s proposal?

Without clarity, this chain becomes an easy way for the department to spread responsibility, while the taxpayer is left confused and helpless.

6. Role of Armour Security and Section 6(2)(b)

The Supreme Court’s decision in Armour Security (India) Ltd. v. Commissioner, CGST has added an important dimension to this discussion.

What Armour Security clarified

The Court clarified that:

• Summons, search, and investigation (including Section 67 actions) are not “proceedings” under Section 6(2)(b).
• Formal proceedings begin only with an SCN under Section 73/74.
• Parallel adjudication by Central and State on the same subject‑matter and period is not permitted. One authority must step back once the other has initiated proper proceedings.

The Court also recognised the concept of “intelligence‑based enforcement action”, but even in such cases, it stressed:

• duplicate SCNs and duplicate adjudication for the same demand are not allowed;
• there must be coordination and one coherent proceeding.

How this supports taxpayers

In the context we are discussing:

• Even if the Enforcement action is labelled “intelligence‑based” and justified under Section 67,
• There still has to be:
  • one proper SCN, and
  • one clear adjudicating officer for that subject‑matter and period.

The present “Enforcement DRC‑01 + Audit confirmation” model looks like multiple, loosely defined layers of adjudication on the same demand, without strict compliance with Sections 73/74. That is contrary to the discipline emphasised by the Supreme Court.

7. Why this practice is dangerous for honest taxpayers

From a ground‑level perspective, this practice is extremely harmful:

• Search and inspection – meant to be exceptional powers – are being used almost as a routine entry point to create huge demands.
• 100% penalties under Section 74 are being proposed even for cases of record‑keeping mistakes, portal mismatches, or interpretational disputes.
• Small and medium businesses – often without in‑house legal support – suddenly see DRC‑01s on the portal and later a demand order, without ever receiving a detailed SCN or being given a real chance to explain.

This kind of approach breaks the promise of GST as a self‑assessment, trust‑based system. Instead, it creates fear and uncertainty.

If this continues unchecked:

• Honest taxpayers will lose confidence in the fairness of the system.
• Genuine disputes will be pushed into litigation, increasing burden on both courts and businesses.
• The basic idea of “One Nation, One Tax” with cooperative federalism and balanced enforcement will be undermined.

8. How professionals and taxpayers can respond

Here are some practical steps that professionals can take in replies and writ petitions:

(1) Demand a proper SCN under Section 73/74

Whenever you see only a DRC‑01 summary:

• Write to the officer asking for the full SCN, with all facts and legal grounds.
• Specifically mention that DRC‑01 is only a summary, not the SCN itself.
• Cite the High Court view that no SCN = no valid demand order.

(2) Object to “DRC‑01 under Section 67”

If the notice or order literally says “DRC‑01 issued under Section 67”:

• Point out that Section 67 does not authorise any DRC‑01.
• Argue that this is a jurisdictional error, showing that the officer has invoked the wrong provision.
• Use this as a separate ground in any challenge.

(3) Plead violation of natural justice

If the adjudicating officer:

• Has only issued standard reminders, and
• Has not granted a proper hearing or considered detailed reply,

then:

• Clearly plead violation of natural justice – no real opportunity, no speaking order, no independent mind.
• Courts are usually sensitive to such lapses, especially in high‑stake tax matters.

(4) Highlight the “relay” or chain of officers

Explain to the court:

• How Enforcement issued DRC‑01,
• How Audit merely confirmed it without independent reasoning, and
• How this creates a confused and overlapping adjudication structure.

Link this to the principle from Armour Security – there must be one coherent adjudication, not a chain of endorsements.

 9. Conclusion

The simple question “Can an Enforcement officer issue DRC‑01 under Section 67?” goes to the heart of fair procedure under GST.

• Section 67 is only about inspection, search and seizure. It is a tool for gathering information, not a licence to raise and confirm demands.
• Sections 73 and 74 are the only provisions that authorise demand of tax, interest and penalty, and they insist on a proper SCN and opportunity of hearing.
• DRC‑01 and DRC‑01A are summary forms linked to Sections 73/74 and cannot replace a detailed SCN.
• The current practice of Enforcement issuing DRC‑01 and Audit blindly confirming it, without proper SCN and without fair hearing, is legally unsound and deeply unfair to bona fide taxpayers.

As professionals, we need to consistently highlight these defects, both before departmental authorities and in judicial forums. Only then will the administration be compelled to follow the procedure laid down in the Act and to respect the rights of honest businessmen and entrepreneurs.