The GST Network (GSTN) has issued an important advisory clarifying the
correct procedure for applying pre-deposit payments made through Form
GST DRC-03 when filing an appeal before the First Appellate Authority.
This advisory addresses a common problem faced by taxpayers who have
already paid amounts via DRC-03 but are still being asked by the portal
to make a fresh pre-deposit at the time of filing the appeal.
Many taxpayers voluntarily pay amounts during the investigation stage
using Form GST DRC-03. However, when they subsequently file an appeal
against a demand order, the GST portal continues to demand payment of
pre-deposit — even where the amount already paid through DRC-03 exceeds
the required pre-deposit amount.
When a demand order such as Form GST DRC-07 is issued, a Demand ID is
created in Part II of the Electronic Liability Register on the GST portal.
Payments made through the “Payment towards Demand” functionality are
automatically linked to this Demand ID. However, payments made through
Form GST DRC-03 are not automatically linked to any Demand ID and therefore
do not appear as adjusted against the demand in the Electronic Liability
Register.
When a taxpayer files an appeal, the GST system auto-calculates the
required amount (Admitted Amount + Pre-Deposit) and checks only the
Electronic Liability Register for prior payments against that Demand ID.
Since DRC-03 payments are not reflected there, the system treats the
pre-deposit as unpaid.
To ensure that a payment made through Form GST DRC-03 is counted against
a specific demand order, the taxpayer must link the DRC-03 payment to
the relevant Demand ID by filing Form GST DRC-03A on the
GST portal.
Once DRC-03A is filed:
GSTN has accordingly advised all taxpayers to file Form GST DRC-03A before filing an appeal, wherever a payment has been made through
DRC-03 against a demand order. The manual for filing DRC-03A is available
on the GST portal at www.gst.gov.in.
Missing this step can result in double payment of pre-deposit — a
significant financial burden especially in cases involving large demands.
Taxpayers who have already paid excess amounts through DRC-03 and were
forced to pay pre-deposit again may now use this advisory to seek
appropriate credit or rectification.
If you have received a demand order and are planning to file an appeal,
our team can assist you with the complete process — from DRC-03A filing
to appeal drafting and representation. Contact us for a consultation.
Input Tax Credit (ITC) is one of the most significant features of the GST framework — it allows businesses to set off tax paid on purchases against the tax payable on their outward supplies. However, not all purchases qualify for ITC. Section 17(5) of the CGST Act, 2017 specifically blocks ITC on certain categories, and any wrongful claim can attract demand, interest, and penalties.
Section 17(5) lists specific goods and services on which ITC is not available, even if such goods or services are used in the course of business. These are commonly referred to as “blocked credits”.
ITC is not available on motor vehicles with a seating capacity of up to 13 persons (including the driver), unless used for specific purposes such as transportation of passengers, driving schools, or further supply of such vehicles. ITC on fuel for personal vehicles is also blocked.
ITC is blocked on food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery — unless the business itself makes outward supply of the same category and ITC is used as a component of cost.
ITC on membership of clubs, health and fitness centres is not available. This is a common error seen during audits where corporate gym memberships are claimed as ITC.
ITC on rent-a-cab services, life insurance, and health insurance is blocked — except where it is obligatory for an employer to provide such services to employees under any law.
ITC on works contract services used for construction of an immovable property (other than plant and machinery) is blocked. This particularly impacts real estate developers and construction companies.
Any goods or services used for personal consumption by employees or directors — not for business purposes — are blocked from ITC.
The CBIC has issued several clarifications over the years on the scope of Section 17(5). Notably, Circular No. 172/04/2022-GST clarified that ITC on items provided to employees as a statutory obligation (such as group health insurance under ESIC obligations) may be available. Businesses should review their ITC claims in light of such circulars regularly.
Many businesses inadvertently claim ITC on blocked items during routine filing. Common errors include claiming ITC on:
A periodic ITC eligibility review by our specialists can identify wrongful claims before a department audit does. We assess your purchase ledgers, vendor invoices, and GSTR-2B data to ensure every ITC claimed is legally defensible.
If you have received a notice regarding ITC reversal under Section 17(5), contact our team for a case evaluation.