Tax Audit Challenged: Partnership Firm Wins Legal Battle Against Sudden GST Inspection Under Section 65

SC examined a GST audit challenge by a partnership firm seeking to close its business without paying collected tax. The court quashed the audit notice under Section 65 of CGST Act, finding the sudden audit inconsistent with periodic audit provisions. While permitting assessment proceedings under Sections 73 and 74, the court invalidated the impugned audit order, effectively allowing the writ petition.

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Issues involved:
The issues involved in the judgment are the challenge against the show cause notice for conducting an audit by a partnership firm registered under the Goods and Services Tax Act, 2017, which intended to close its business and failed to pay the collected tax.

Judgment Summary:

Issue 1: Challenge against the show cause notice for conducting an audit
The petitioner, a partnership firm registered under the Goods and Services Tax Act, 2017, sought to challenge the show cause notice issued for conducting an audit after the firm intended to close its business without paying the collected tax. The respondent argued that the show cause notice cannot be challenged at this stage and that the grounds raised in the petition are not acceptable as the firm is recently closed, giving the respondent the right to conduct an audit.

Issue 2: Jurisdiction to conduct audit after registration cancellation
The petitioner contended that as per Section 65 of the CGST Act, the respondent is not empowered to conduct an audit after the petitioner's registration is canceled, making it an unregistered concern. However, the respondent claimed that the audit was for a period when the petitioner was registered, justifying the audit.

The Court analyzed Section 65 of the CGST Act, which empowers the Commissioner or authorized officers to conduct audits for registered persons. It was observed that the audit should be conducted for registered persons within a specific period and manner. The Court noted that the sudden decision to conduct an audit after years of inactivity does not align with the provision for periodical audits. The Court concluded that while the respondent can initiate assessment proceedings under Sections 73 and 74, the impugned order for audit was quashed, granting liberty to the respondent for assessment proceedings.

Therefore, the Writ Petition was allowed, and no further orders were issued, leading to the closure of connected miscellaneous petitions.

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