Audit proceedings under Section 65 and show cause notice under Section 74 can run concurrently

The Madras HC dismissed a writ petition challenging the simultaneous conduct of audit proceedings under Section 65 of CGST Act and show cause notice (SCN) proceedings under Section 74. The petitioner argued both proceedings cannot run concurrently. The court noted that inspection occurred on 16.03.2020, audit notice was issued on 30.08.2022, and SCN followed on 18.10.2022, establishing sequential rather than simultaneous proceedings. The court found no legal impediment to issuing SCN after commencing audit under Section 65, rejecting the petitioner's primary contention and dismissing the petition.

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Issues:
1. Simultaneous audit under Section 65 of TN-G & ST Act and proceedings under Section 74 of C-G & ST Act.
2. Applicability of case laws S.M.Overseas Pvt. Ltd. Vs. Commissioner of Income Tax and Sonam Berlia Vs. State of Odisha.
3. Compliance with legal procedures and notices by the Department.
4. Interpretation of Section 65 and Section 74 proceedings in the given factual matrix.

Issue 1: Simultaneous audit and proceedings:
The writ petition challenges the issuance of multiple notices under Section 65 of TN-G & ST Act for audit while proceedings under Section 74 of C-G & ST Act are ongoing. The petitioner argues that these processes cannot run concurrently citing a case from Calcutta High Court. The Revenue counsel contends that the audit and legal proceedings can proceed simultaneously if additional material is required. The court notes the sequence of events and rules that the audit notice predating the show cause notice does not invalidate the latter, dismissing the petitioner's primary argument.

Issue 2: Applicability of case laws:
The petitioner invokes case laws S.M.Overseas Pvt. Ltd. and Sonam Berlia to support their stance. The court distinguishes these cases as they involve different statutory provisions and factual contexts, ruling that they do not aid the petitioner's case. The court emphasizes the importance of considering the specific facts of each case before relying on legal precedents.

Issue 3: Compliance with legal procedures:
The Department recovered documents and sought additional information through a show cause notice. The court refrains from opining on the necessity of the requested documents. The Revenue counsel clarifies that the documents sought are distinct from those already recovered. The court upholds the Department's actions as lawful and refrains from finding any prejudice or illegality in the process.

Issue 4: Interpretation of Section 65 and Section 74 proceedings:
The court analyzes the chronology of events, highlighting the sequence of inspection, audit notice, and show cause notice. It concludes that initiating an audit under Section 65 before issuing a show cause notice under Section 74 is permissible. The court dismisses arguments challenging this sequence and emphasizes that the audit notice preceding the show cause notice does not violate legal principles. The court rules against the petitioner, dismissing the writ petition and associated applications without costs.

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