Tax Audit Challenge Under CGST Act Section 65(4) Sees Procedural Review with Balanced Approach to Statutory Compliance

HC analyzed a tax audit challenge involving CGST Act Section 65(4). The court found audit memos exceeded statutory time limits but did not invalidate the Show Cause Notice. While rejecting immediate quashing of proceedings, HC directed the adjudicating authority to review petitioner's response within three weeks and make an appropriate decision, preserving both parties' rights.

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Issues:
Petitioner challenging repeated audit memos and demand notices issued by Respondent No. 3, alleging they are time-barred under Section 65(4) of the Central Goods and Services Tax Act 2017. Petitioner seeking quashing of audit memos, submission of original note sheet, and direction to not initiate further proceedings based on the audit findings.

Analysis:
The petitioner filed a petition seeking the quashing of audit memos and demand notices issued by Respondent No. 3, claiming they were barred by limitation under Section 65(4) of the CGST Act 2017. The petitioner also requested the submission of the original note sheet granting permission for the audit and sought a direction to halt further proceedings based on the audit findings. The petitioner contended that the repeated audit memos and subsequent demand notices were illegal and non-est under the statute.

The petitioner was aggrieved by a Show Cause Notice (SCN) dated 01.08.2024 issued under Section 74 of the CGST Act and the DGST Act, based on an audit conducted under Section 65 of the Acts. The audit was initiated following the petitioner's application for tax refunds and subsequent referral to the Anti-Evasion Wing for investigation. The audit period was extended to cover additional financial years beyond what was stipulated under the law.

The High Court noted that the audit memos issued to the petitioner went beyond the statutory period prescribed under Section 65(4) of the CGST Act. The court found merit in the petitioner's objection to the time-barred audit memos and highlighted that the statutory provisions did not allow for the issuance of multiple audit memos determining a taxpayer's liability. The court observed that the audit memos not only communicated findings but also demanded payment of determined amounts, interest, and penalties.

The Respondents failed to justify the issuance of demand letters during the audit process as per any statutory provision. However, the court held that the irregularities in issuing the audit memos did not invalidate the impugned SCN. While the SCN was based on audit findings, it was deemed to be within the statutory framework, and any flaws in the audit memos did not affect the validity of the SCN.

Ultimately, the court declined to quash the impugned SCN at the initial stage but clarified that the petitioner could raise contentions in response to the SCN. The adjudicating authority was directed to consider the petitioner's reply to the SCN within three weeks and make an appropriate decision. Both parties' rights and contentions were preserved, and the petition was disposed of accordingly, with pending applications also being resolved.

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