GST Audit - Time Bar on Show Cause Notice

[VAISHACH Vaishach]

Hello Expert 

My father"s company was recently audited for FY 2017-18 to FY 2023-24. The Audit was conducted in the First week of June and Form GST ADT-02 was issued and audit findings are issued. I also intend to furnish my reply for the Audit Report accepting a few things on our part and also wanting to contest a few things.

We want to go for an appeal on the same. In the Audit Report, after each para it is given, you are liable to pay as per Section 73 and Section 50 of the GST Act. 

My question is

1. What is the next step after my reply has been furnished? 

2. Assuming there is no Fraud or Willful suppression, will SCN be issued based on Section 73 of the Act?

3. If yes, isn"t it time barred.. Do i have any remedy to contest the time bar for GST Audit also

[Jayaram Yarram]

Once the ADT-02 is issued, the matter will be considered for adjudication for the open observations. Either Audit authorities or Adjudication authorities will issue notices in sequence (DRC-01A and then DRC-01). Post filing reply to DRC-01, if the adj. authority is not satisfied with the submissions, this will be considered for final demand to be paid and demand order in DRC-07 would be issued. Then based on merits of the case, an appeal can be preferred to Appellate Authority and later to Tribunal.

Under Section 73, the authorities cannot initiate proceedings and time limitations would be applicable for them to issue notices. This is upto 2020-21 time is over. They may either drop the proceedings or issue notice under Section 74 and this decision is on case - to case basis.

[KASTURI SETHI]

My question is

1. What is the next step after my reply has been furnished ?

Ans. You are required to wait for the observations of the Audit Officer. If the Audit Officer is satisfied with your replies, the paras will be settled by way of dropping the same. If the Audit Officer is not satisfied, then you will be advised to pay the Govt. dues along with interest.

2. Assuming there is no Fraud or Willful suppression, will SCN be issued based on Section 73 of the Act ?

Ans. If the ingredients of Section 74 are not present, the SCN will be issued under Section 73. Pl. note that the demand for the period up to 20-21 has become time barred. SCN for 20-21 was required to be issued by 30.11.2024.

3. If yes, isnt it time barred.. Do i have any remedy to contest the time bar for GST Audit also.

Ans. If Section 74 is invoked, the burden of proof is cast upon the department. The department must have documentary evidence for invokation of Section 74.

You will be given an opportunity to defend yourself before issuance of the SCN.

[VAISHACH Vaishach]

Dear Experts . 

Thank you for your guidance .

To follow up. I have only received the draft ADT-02 as the authorities are giving me an opportunity to be heard.

The main points raised were 

1. Some of the RCM on Freight charges in 2018-19 and 2019-20 were not paid. However having contested that it was not fraud or other reasons given in Section 74 and requesting them to drop it as the time limit u/s 73 is over. They are saying the department has informed them to issue the report and notices u/s 74 regardless of intent . 

2. They have also asked me to pay RCM on Factory licence renewal, is this point valid?

3. They are also contesting that section 50 and section 73 is not the same. Even if the demand are said to be dropped u/s 73 for the time limit. They will proceed to issue notice on interest alone. 

Waiting to hear your thoughts

Thank you in advance 

[KASTURI SETHI]

1. some of the rcm on freight charges in 2018-19 and 2019-20 were not paid. however having contested that it was not fraud or other reasons given in section 74 and requesting them to drop it as the time limit u/s 73 is over. they are saying the department has informed them to issue the report and notices u/s 74 regardless of intent . 

Ans. If section 74 is invked forcibly, the demand will be set aside by the first Appellate Authority at the first stroke.

2. they have also asked me to pay rcm on factory licence renewal, is this point valid ?

Ans. The department is correct.

3. they are also contesting that section 50 and section 73 is not the same. even if the demand are said to be dropped u/s 73 for the time limit. they will proceed to issue notice on interest alone. 

Ans. Both Sections are not same but interest is a part of tax. If the demand of tax is itself hit by time limitation, SCN for interest only on what basis ?  

[VAISHACH Vaishach]

Thank you for your valuable reply sir.

[Shilpi Jain]

We generally see the department issuing notices u/s 74 only. Its only at Tribunal level that you will see some relief in case yours is not a suppression / fraud case. 

Interest is automatic though, can the department take its own sweet time to demand interest on taxes that have been paid?

Further on tax amounts that are not liable interest cannot be demanded.

[Yash Shah]

After the reply to the Audit Report findings, if any findings are resulting for short payment or excess availment of ITC, SCN will be issued.

2. As per the provision stated SCN can be issued under section 73 if there is no fraud and willlful suppuration of facts, as there could be less tax paid or wrongfully cailm of input tax credit with no intention to fraud but because of the error.

3.With the Notification No. 9/2023 and notification no. 56/2023 the last date of issuing order as per as per section 73(10) under section 73(9) of the CGST Act, 2017 the last date of issuing SCN and Order thereon of financial year 2017-2018,2018-2019,2019-2020 is not relevant for financial year 2025-2026 and also not linked with notification mentioned above the time limit of issuing SCN and Order of financial year 2020-2021 is also not relevant for the financial year 2025-2026 in according to section 73(10) of CGST Act, 2017. So the SCN can be issued by the proper officer only for the FY 2021-2022 to 2023-2024 as per the section 73(10) of CGST Act, 2017.

FY	Extended due date or original due date of GSTR 9	SCN can be issued (at least 3 moths before order)	Order can be issued max by 3 years from due date of GSTR 9
2017-18	5-2-2020	31-9-2023	31-12-2023
2018-2019	31-12-2020	31-1-2024	31-4-2024
2019-2020	31-3-2021	31-5-2024	31-8-2024
2020-2021	28-2-2022	30-11-2024	28-2-2025
2021-2022	31-12-2022	30-9-2025	31-12-2025
2022-2023	31-12-2023	30-9-2026	31-12-2026
2023-2024	31-12-2024	30-9-2027	31-12-2027

However, there is no specific time limit for an Audit to be conducted by the department; hence audit can be conducted anytime, subject to the recovery mechanism set out in law, which can be done through section 73 or 74 only.

AI Summary

Time bar for GST tax demands can preclude ordinary notices, while fraud invocation may extend initiation and shift the burden of proof.
After issuance of Form GST ADT-02, audit observations move to adjudication via departmental notices, with an opportunity to reply before a final demand order and appeals. Ordinary tax demands are subject to limitation and will be time barred where the statutory period has expired; invocation of the fraud provision allows initiation beyond ordinary limitation but places the burden of proof on the department. Practical disputes include reverse charge liabilities and the recoverability of interest when the underlying tax demand is time barred.