2024 (1) TMI 1140 - HC - GST

Natural Justice Prevails: Tax Authority Ordered to Reconsider Audit Report After Overlooking Taxpayer's Response

The HC found a violation of natural justice in the Final Audit Report. The tax authority failed to consider the taxpayer's reply to a discrepancy notice, ... Principles of natural justice - audit under Rule 101(4) of the APGST/CGST Rules, 2017 - finalisation of audit findings after due consideration of the reply - quashing of administrative action for breach of statutory procedurePrinciples of natural justice - audit under Rule 101(4) of the APGST/CGST Rules, 2017 - Final Audit Report quashed for failure to consider the petitioner's reply to the discrepancy notice, in breach of Rule 101(4) and principles of natural justice. - HELD THAT: - Sub rule (4) of Rule 101 requires that where discrepancies are informed to a registered person, the person may file a reply and the proper officer shall finalise the findings of the audit only after due consideration of that reply. It was not disputed before the Court that the petitioner filed a reply dated 19.12.2023 to the discrepancy notice dated 12.12.2023, but the Final Audit Report records that no reply was filed and the reply escaped consideration. That omission amounts to a violation of the statutory mandate and of the principles of natural justice. The Final Audit Report is therefore vitiated and cannot form the basis for further proceedings. [Paras 7, 8]Impugned Final Audit Report quashed on the ground that the petitioner's timely reply was not considered, resulting in breach of Rule 101(4) and principles of natural justice.Finalisation of audit findings after due consideration of the reply - quashing of administrative action for breach of statutory procedure - Direction to the respondents to consider the petitioner's reply afresh and to finalise the audit report in accordance with law. - HELD THAT: - Having quashed the Final Audit Report for procedural infirmity, the Court directed that the respondents shall consider the petitioner's reply dated 19.12.2023 to the discrepancy notice dated 12.12.2023 and thereafter finalise the audit report. Any further proceedings initiated on the basis of the impugned Final Audit Report are also unsustainable. The Court did not decide the merits of the audit findings; it remitted the matter to the authority for fresh consideration in accordance with the statutory procedure. [Paras 9]Respondents directed to consider the petitioner's reply and to finalise the audit report thereafter; further proceedings based on the quashed report cannot stand.Final Conclusion: Writ petition partly allowed: Final Audit Report dated 22.12.2023 quashed for failure to consider the petitioner's reply; respondents directed to consider the reply dated 19.12.2023 and to finalise the audit report in accordance with law; no order as to costs. Issues Involved:The challenge to Final Audit Report based on violation of principles of natural justice.Issue 1: Violation of Principles of Natural Justice- The petitioner challenged the Final Audit Report dated 22.12.2023 on the ground of violation of the principles of natural justice.- The petitioner had filed a reply dated 19.12.2023 to the discrepancy notice under Rule 101(4) of the Andhra Pradesh Goods and Services Tax/Central Goods and Services Tax Rules, 2017.- The Final Audit Report did not consider the petitioner's reply, stating that 'the tax payer did not file any reply to the proposed notice.'- The Court found that the Final Audit Report was in violation of the principles of natural justice and statutory provisions as the petitioner's reply was not considered.- As per Rule 101(4), discrepancies noticed should be informed to the registered person, who may file a reply that must be considered before finalizing the audit findings.- The Final Audit Report was quashed on the ground of not considering the petitioner's reply, and the respondents were directed to consider the reply and finalize the audit report before proceeding further.Decision:- The writ petition was partly allowed, quashing the Final Audit Report on the basis of not considering the petitioner's reply to the discrepancy notice.- The respondents were instructed to consider the petitioner's reply, finalize the audit report, and proceed further in accordance with the law.- No costs were awarded in this matter, and any pending miscellaneous petitions were to be closed as a result of this judgment.