Mandatory GST audit notice and reply consideration can vitiate audit findings and consequential show cause action.

Mandatory notice under Section 65(3) of the Andhra Pradesh GST Act requires prior intimation of at least fifteen working days before audit, and Rule 101(4) requires the proper officer to consider the taxpayer's reply before finalising audit findings. Where the notice period is not fully provided and a timely reply is ignored, the audit process is defective and the resulting findings are vitiated. A Section 73 show cause notice founded on such a defective audit report may also be set aside to that extent, although independent fresh action under Section 73 may still be taken in accordance with law after due notice and consideration of the reply.

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Issues: (i) Whether the audit proceedings complied with the mandatory fifteen working days' notice requirement under Section 65(3) of the Andhra Pradesh Goods and Services Tax Act, 2017 and the reply furnished by the registered person was required to be considered before finalising the audit findings; (ii) Whether the show cause notice under Section 73 of the Andhra Pradesh Goods and Services Tax Act, 2017, which was founded on the audit report, could survive when the audit report itself was prepared in breach of the statutory procedure and principles of natural justice.

Issue (i): Whether the audit proceedings complied with the mandatory fifteen working days' notice requirement under Section 65(3) of the Andhra Pradesh Goods and Services Tax Act, 2017 and the reply furnished by the registered person was required to be considered before finalising the audit findings.

Analysis: Section 65(3) requires prior information by notice not less than fifteen working days before conduct of audit. Rule 101(4) requires the proper officer to consider the reply furnished and then finalise the audit findings. The notice was uploaded only on 14.09.2023 and the audit was finalised on 29.09.2023, so the statutory notice period was not available in full. The reply dated 28.09.2023 was also submitted within the statutory period and ought to have been taken into account before finalisation.

Conclusion: The audit proceedings did not comply with Section 65(3), and the audit findings were finalised without due consideration of the petitioner's reply.

Issue (ii): Whether the show cause notice under Section 73 of the Andhra Pradesh Goods and Services Tax Act, 2017, which was founded on the audit report, could survive when the audit report itself was prepared in breach of the statutory procedure and principles of natural justice.

Analysis: Although a show cause notice under Section 73 can, in law, be issued independently of an audit report, the impugned notice expressly referred to the audit report dated 29.09.2023. Since that report was prepared without adhering to the mandatory notice period and without considering the timely reply, the notice founded on it could not be sustained in the present form.

Conclusion: The Section 73 show cause notice, to the extent based on the defective audit report, was liable to be set aside.

Final Conclusion: The impugned audit findings and the consequential show cause notice were set aside, while leaving it open to the authorities to proceed afresh in accordance with law after due notice and consideration of the petitioner's reply, including by taking independent action under Section 73 if permissible.

Ratio Decidendi: Where a fiscal statute prescribes prior notice and consideration of the taxpayer's reply before audit findings are finalised, non-compliance with that mandatory procedure vitiates the audit and any consequential action founded upon it.

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