Audit report revision u/s 108 without prior adjudication u/ss 73/74 violates Section 65(7; order quashed

Whether revisional proceedings under Section 108 could be initiated to revise an Audit Report absent prior initiation of adjudication under Sections 73 or 74: court held that Section 65(7) requires that on knowledge of issuance of an Audit Report the authority must initiate action under Section 73 or 74; initiation of revision directly under Section 108 without those proceedings is impermissible as contrary to the statute and record. Consequence: the revisional proceedings and the impugned order were held illegal, arbitrary and without authority of law and were quashed; petition allowed.

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Issues: Whether initiation of revision proceedings under Section 108 of the KGST/CGST Act to revise or act upon an audit report is legally permissible, and whether the impugned show cause notice dated 05.11.2025 issued under Section 108 is liable to be quashed.

Analysis: The Court examined the statutory framework, particularly Section 65(7) of the KGST Act, which contemplates that upon detection of discrepancies in an audit report the proper course for the tax authority is to initiate proceedings under Section 73 or Section 74. The material on record showed that no proceedings under Section 73 or Section 74 had been instituted as on the date of issuance of the impugned revision notice. The Court relied on its earlier decision in M/s. Navayuga Engineering Co. Ltd. and applied the principle that revisional powers under Section 108 cannot be invoked to revise or supplant an audit report in the absence of initiation of the statutory assessment or adjudicatory proceedings contemplated by Sections 73/74. The Court also considered the respondent's contention of prematurity and explained that where an action is without jurisdiction, availability of a reply to a show cause notice does not preclude exercise of writ jurisdiction under Article 226.

Conclusion: The impugned show cause notice dated 05.11.2025 issued under Section 108 is without jurisdiction and is quashed. This conclusion is in favour of the assessee.

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