2026 (2) TMI 165 - HC - GST

Audit report and show cause notice review: defects not warranting demand; authority ordered to decide merits within 3 months

Judicial review addressed a taxpayer's challenge to an audit report and a show cause notice under the CGST/TNGST framework, finding that Defects 1-6 did ... Judicial review of audit report - challenge to show cause notice u/s 74 - interim relief pending adjudication - direction to decide on merits - opportunity of hearing before final order - remand for fresh consideration - HELD THAT:- Upon verification of the records and reconciliations submitted by the taxpayer, and based on the provisions of the CGST/TNGST Act, 2017, it is respectfully recorded that Defects 1,2,3,4,5 and 6 do not warrant the confirmation of demand, as the factual submissions and statutory documentation provided sufficiently address the issues raised, and no evidence of suppression, misstatement or intent to evade tax has been established. It is noticed that in view of the interim order dated 13.09.2024 of this Court, no final orders have been passed. Since the second respondent has decided to proceed against the petitioner based on the personal statement dated 08.12.2025, the second respondent is directed to bring conclusion to the issues by passing appropriate orders on merits pursuant to the Audit report and the show cause notice impugned in these writ petitions respectively, as expeditiously as possible, preferably within a period of three months from the date of receipt of a copy of this order. These writ petitions stand disposed of with the above observations. Issues: (i) Challenge to the impugned Audit Report dated 04.03.2024 for the tax period 2018-2019 under Section 65(6) of the respective GST enactments; (ii) Challenge to the Show Cause Notice dated 22.07.2024 for the tax period 2018-2019 under Section 74 of the respective GST enactments.Issue (i): Challenge to the impugned Audit Report dated 04.03.2024 under Section 65(6) for 2018-2019.Analysis: The Court recorded that an interim order was in force and noted the Assistant Commissioner's conclusion and recommendations dated 08.12.2025 which found that Defects 1-6 do not warrant confirmation of demand, that audit observations arose from interpretational and data-alignment aspects, and that no evidence of suppression, misstatement or intent to evade tax was established. The Court observed that no final order has been passed in view of the interim directions and directed the respondent to pass appropriate final orders on merits after hearing the petitioner within a specified time frame.Conclusion: No final adjudication on the validity or merits of the Audit Report is made by the Court; the matter is remitted to the respondent for passing appropriate orders on merits after hearing the petitioner.Issue (ii): Challenge to the Show Cause Notice dated 22.07.2024 issued under Section 74 for 2018-2019.Analysis: The Court noted the interim order and considered the Assistant Commissioner's recommendations which addressed the audit observations and statutory reconciliations. The Court observed that, in view of the interim stay, no final order has been passed on the show cause notice and directed the respondent to conclude the proceedings on merits, hearing the petitioner, and preferably within three months from receipt of the Court's order.Conclusion: No final adjudication on the Show Cause Notice is made by the Court; the matter is remitted to the respondent for final disposal on merits after affording the petitioner an opportunity of hearing.Final Conclusion: The writ petitions are disposed of by directing the respondents to decide the issues raised in the Audit Report and Show Cause Notice on merits after hearing the petitioner and to pass appropriate final orders expeditiously; the interim order shall continue insofar as provided until the respondents conclude the proceedings.