2024 (11) TMI 912 - HC - GST

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

LJ - Victoria Properties Private Limited Versus Union of India, Through the secretary, Department of Revenue, Ministry of Finance, North Block, New Delhi, State of Maharashtra, Asst. Commissioner of Sales Tax Kandivali

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 ... Challenge to notice issued u/s 65 of the Maharashtra Goods and Services Tax Act, 2017 (SGST Act) in Form No. GST ADT-01 read with Rule 101 of the Goods and Services Tax Rules, 2017 (GST Rules) by which the respondents seek to conduct an audit for the financial year 2020-21 - whether the provisions of Section 65 of the SGST Act dealing with audit would apply to a person who was registered under the CGST Act for the period for which an audit is ordered but who ceases to be registered on the date the audit is ordered? - HELD THAT:- In the instant case, the preliminary findings of the audit as per its report dated 11 October 2024 is that the petitioner has claimed an excess input tax credit of Rs.3,60,44,378/- which is ineligible under the provisions of the Act. Furthermore, there is also a prima-facie finding that in the absence of proper documentation reversal of input tax credit (Rs.10,36,950/- + Rs.1,17,75,353/- + Rs.1,17,75,353/-) amounting to Rs.2,45,87,656/- is not in accordance with the law. Preliminary audit reports also suggest short disclosure of other income, resulting in the short payment of tax. The preliminary audit report prima facie has found a total tax plus interest liability of Rs.7,01,31,710/- for the period 2020-21. In our view, the petitioner cannot escape non-facing audit proceedings in the light of these prima facie findings of the audit conducted by the authorities by taking a plea that since they have now been de-registered they are not covered by the provisions of Section 65 of the SGST Act. There is an obligation cast on a person in whose case of audit is conducted to comply with the directions of the tax authorities under Section 65(5) and these obligations are not affected even if registration is subsequently cancelled. This is made clear from the provisions of Section 29(3) of the SGST Act. If the contention of the petitioner that because they are de-registered, they are not covered by the provisions of Section 65 is accepted, then it would lead to provisions of Section 29(3) dealing with discharge of obligation under the Act or the Rules redundant. It is a settled position that any interpretation that will make the Act's provisions redundant or nugatory cannot be accepted. Instead, we must adopt an interpretation that gives meaning to all the provisions taken together, if necessary, by resorting to a harmonious construction. It is also important to note that provisions of Section 65 of the SGST Act, read with Rule 101, give sufficient and adequate opportunity to a noticee to explain his case before any audit report is prepared. If an assessee has complied with all the provisions of the Act or Rules and has not defaulted in payment of tax or has not made short-payment of tax or has not wrongly availed input tax credit or refund, then there should not be any hesitation on the part of the noticee to make his submissions and come clear rather than to obstruct the audit proceeding by taking the plea which is canvased. The provisions of Section 65 of the SGST Act would be applicable for conducting the audit of a financial year when a person was registered, although, on the date of ordering the audit, such a person ceases to be registered voluntarily or otherwise. This writ petition, challenging the impugned notice dated 21 August 2024 (Exhibit-A) and preliminary audit findings dated 11 October 2024 (Exhibit-B), is dismissed. 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.