Drc 01A issued without Adt-01 by audit authorities

[rajat solanki]

we have recd an notice for 21-22 where audit authorities have directly issued DRC-01A without doing audit will they be treated as proper officer as per 65(7) and 73 to issue SCN shouldnt the audit and adjudication be different than the audit authority what should our position if they have taken everything from portal like balance sheet and profit loss from 9c and asking about 180 days sundry creditors etc when no books were called for

[KALLESHAMURTHY MURTHY K.N.]

 Sir, 

There is no differentiation between the Auditing Authority and the Adjudicating Authority. The Authority issued intimation in Form DRC-1A is empowered to act u/s 65 and 73 & 74 as provided u/s 6 of the CGST Act. There is no need to conduct an audit before proceeding to initiate adjudication proceedings. Audit is conducted on entire transactions with reference to the books of Accounts and returns filed, whereas the direct issue of Notice u/s 73 is issue-based.  This can be done on any discrepancies noticed from the returns filed, inspection reports or any valid allegation or any other source of information, so that there is any suppression,  incorrectly availed ITC, and such other mistakes noticed, subject to Authorisation by the Competent Authority of higher rank.

[Sadanand Bulbule]

The golden principle of fair adjudication:

Audit officers cannot jump the gun straight to DRC-01A without issuing ADT-01. Section 65(7) clearly mandates audit conclusion before any further action. Mixing roles of Audit and Adjudication is like playing umpire and batsman in the same match – legally unsustainable. 

If no books were called, and only portal data is lifted, it’s nothing more than a “desk audit”, not recognized under GST law. Such proceedings are vitiated ab initio and can be strongly challenged. 

This is my personal opinion.

[Sadanand Bulbule]

It is fundamental to examine the books of account and communicating the audit findings in ADT-01 before proceeding starightway to adjudication under Section 73/74/74A based on third party guess/assumption/interpretation. Otherwise it blurs justice.

This is precisely like playing world cup without rehersal. Result is ....

[Sadanand Bulbule]

Adjudication should not be enigmatic. 

[KASTURI SETHI]

To issue SCN without completion of investigation is invalid SCN. Also read case law in the case of Piyush Sharma Vs. CCE, Patna-I - 2023 (10) TMI 736 CESTAT Kolkata.

Physical examination of Books of Account are an absolutely must. It is requirement of GST Laws. Books of Accounts are statutory records.

The views expressed (at serial nos.2,3 & 4 above) by Sh. Sadanand Bulbule, Sir are full of legal, logical force and reasoning.

[KALLESHAMURTHY MURTHY K.N.]

Respected Sirs, 

Regarding the views and opinions of Sri Bulbule Sir and Sri Kasturi Sethi Ji, my submissions are that the present prevailing system of adjudication process under GST is one that "non-compliance with" the Audit reports and the other is direct initiation of adjudication proceedings u/s 73 or 74 and currently 74A. In the latter case, sometimes, enforcement authorities have also issued  SCN and then forward to the audit authorities for adjudication. Sometimes, the Audit Authorities have been issued direct assignments  u/s 73 or 74 where there are issues of suppressions or fraudulent activities reported.  In such situations, the Proper Officers issue Summons to the taxpayers to gather the books of accounts u/s 70.

[Sadanand Bulbule]

Issue:

In Karnataka, Enforcement Officers are presently issuing SCNs under Section 73/74 and then transferring them to jurisdictional officers for adjudication. This results in a split adjudication process where, Enforcement officer acts as prosecutor and quasi-adjudicator, and jurisdictional officer is left to “formalise” the half-baked proceedings. This undermines the fairness of adjudication and creates systemic injustice. The age old saying: "Too many cooks spoil the brath" squarely applies here. Under the GST system, judicial discipline does not recognise/tolerate "fragmented adjudication"

 Why the system is flawed:

• Legality: Section 73/74 contemplates adjudication by the “Proper Officer.” Enforcement officers are only investigators, not adjudicators.
• Morality: Prosecutors cannot influence adjudication/judgement. Otherwise neutrality is lost.
• Constitutional Fairness: Natural justice demands independent, unbiased decision-making.

Judicial Support:

• Gullapalli Nageswara Rao v. APSRTC (1958 (11) TMI 28 - Supreme Court): Prosecutor cannot be judge.
• Madras Bar Association case 2010 (5) TMI 393 - SUPREME COURT: Quasi-judicial functions must be free from executive interference.

 Impact:

• Taxpayers are denied a fair and independent hearing.
• Adjudicating officers lose their quasi-judicial independence.
• Most such demands are unsustainable and collapse at appeal.

Corrective measure:

Request to Commissioner of Commercial Taxes in Karnataka:

1. Strip Enforcement Officers of adjudicatory powers under Section 73/74forthwith.

2. Allow only jurisdictional adjudicating officers to issue and decide SCNs.

3. Let Enforcement transfer material/evidence to jurisdictional officers for original scrutiny.

4. Summons have to be issued in extreme cases. It cannot be demoted to a call notice.

5. The shoes of adjudicating officer are too big for the Enforcement Officer.

6. Adjudicating officers cannot be reduced to "postman" to read what the blind man has written.

Moral:

A prosecutor cannot be a judge. Diluting this principle turns adjudication into anarchy culminating in creation of artificial and unsustainable demands besides torturing honest taxpayers.

[KALLESHAMURTHY MURTHY K.N.]

 Sri Sadanand Bulbule Sir, 

I fully agree with you, Sir. SCN issued by the Enforcement Authorities are not provided sufficient grounds, and the Adjudicating Officers are bound by the SCN pass half-baked orders. The sanctity of the Adjudication fails in this system.

[Sadanand Bulbule]

Adjudicating authorities are not under obligation to concur with the SCN issued by the Enforcement officers as they are not superior to command the adjudicating authorities. In most of the cases, such SCN are discarded by the Adjudicating authorities on lack of merits and material ground or by the Appellate Authorities, 
Findings of the adjudicating authorities are final subject to remedial provisions. 

AI Summary

Adjudication procedure: issuing DRC-01A without formal audit raises fairness and role-separation concerns in GST adjudication. Issuance of DRC-01A without prior ADT-01 is contested: one view treats the issuing officer as the Proper Officer empowered to initiate adjudication based on returns and other information without a prior statutory audit; the opposing view insists that formal audit completion and ADT-01 communication, including physical examination of books, are prerequisites to valid adjudication, warning that desk audits and role-mixing between investigators and adjudicators undermine neutrality and may vitiate proceedings.