GST audit obligations continue even after registration cancellation under Section 65 Maharashtra SGST Act

The Bombay HC dismissed a writ petition challenging a GST audit notice issued under Section 65 of the Maharashtra SGST Act, 2017. The petitioner argued that audit provisions did not apply since their registration was cancelled after the audit period but before the audit order. The court held that audit obligations under Section 65 continue even after de-registration, as Section 29(3) of the SGST Act requires discharge of obligations despite subsequent cancellation of registration. The preliminary audit revealed excess input tax credit claims of Rs.3,60,44,378/- and total tax liability of Rs.7,01,31,710/- for FY 2020-21. The court ruled that accepting the petitioner's interpretation would render Section 29(3) redundant, emphasizing harmonious construction of statutory provisions.

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Issues Involved:

1. Applicability of Section 65 of the SGST Act to a person whose registration has been cancelled.
2. Interpretation of "registered person" under the SGST Act.
3. Validity of audit proceedings for a period when the petitioner was registered.
4. Relevance of Section 29(3) concerning obligations post-cancellation of registration.
5. Reliance on prior judicial decisions and their applicability.

Issue-wise Detailed Analysis:

1. Applicability of Section 65 of the SGST Act:

The primary issue was whether the provisions of Section 65 of the SGST Act, which deal with audits, apply to a person whose registration has been cancelled. The petitioner argued that since their registration was cancelled, they should not be subjected to an audit under Section 65. However, the court held that Section 65 applies to audits for periods during which the petitioner was a registered person. The court emphasized that the audit is a post-mortem of past events and is not concurrent, meaning it can be conducted after deregistration if it pertains to a period when the person was registered.

2. Interpretation of "Registered Person":

The court analyzed the definition of "registered person" under Section 2(94) of the SGST Act, which includes any person registered under Section 25. The court concluded that the term "registered person" for the purpose of Section 65 includes individuals who were registered at any point, even if their registration was later cancelled. This interpretation ensures that the audit provisions remain applicable to those who were registered during the audit period.

3. Validity of Audit Proceedings:

The court noted that the audit notice pertained to the financial year 2020-21, during which the petitioner was a registered person. The court rejected the petitioner's contention that a cancelled registration exempts them from audit for that period. It was clarified that the audit's objective is to verify past compliance, and the audit can be conducted at the tax authorities' discretion, even after deregistration.

4. Relevance of Section 29(3):

Section 29(3) of the SGST Act states that cancellation of registration does not affect a person's liability to pay tax or fulfill obligations for periods before cancellation. The court held that this provision supports the continuation of audit proceedings even after deregistration, as it ensures that obligations under the Act remain enforceable. The court emphasized that the audit under Section 65 aids in identifying any tax discrepancies that might lead to proceedings under Sections 73 or 74 for recovery.

5. Reliance on Prior Judicial Decisions:

The petitioner relied on a Madras High Court decision, which the court respectfully disagreed with, citing a lack of consideration for certain statutory provisions. The court found the Rajasthan High Court's interpretation in a similar case more aligned with its analysis, emphasizing that Section 65 is in aid of recovery proceedings under Sections 73 and 74. The court's decision was based on its independent analysis of the SGST Act's scheme and provisions.

In conclusion, the court dismissed the writ petition, upholding the validity of the audit notice and preliminary findings. The court clarified that Section 65 applies to audits for periods when the person was registered, regardless of subsequent deregistration. The rule was discharged with no order regarding costs.

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