High Court Holds GST Audit Within Limitation And Declines to Quash Show-Cause Notice:

HuberGroup India Private Limited is engaged in the manufacture and supply of pigments, printing ink and other goods, received a notice in FORM GST ADT-01 dated June 27, 2022, for an audit covering Financial Years 2017-18 to 2019-20. The company submitted documents during a personal hearing on July 12, 2022, and resubmitted the records by email on August 9, 2022, when the authorities sought them again. A reminder in FORM GST ADT-01 was issued on November 2, 2022, followed by another notice dated February 9, 2024, covering additional financial years. The company maintained that it had already furnished the documents relating to the earlier years and continued providing records and explanations through emails.

The audit was eventually conducted at the company's business premises on June 19, 2024. The audit report in FORM GST ADT-02 was communicated on August 2, 2024, and eight show-cause notices accompanied by FORM GST DRC-01 were issued on August 23, 2024, proposing recovery of tax along with applicable interest and penalty under Section 74 of the CGST Act. The company argued that it had furnished the requisite records in 2022 and that the audit should have been completed within the statutory period. It argued that repeated notices seeking the same documents could not extend or restart the limitation period, and that the authorities had failed to identify the specific documents allegedly outstanding.

The Revenue argued that the company had failed to furnish all the documents required for the audit and had delayed the proceedings. According to the authorities, the audit commenced at the company's place of business on June 19, 2024, and the report was issued on August 2, 2024, well within the prescribed three-month period.

The High Court examined Section 65(4) of the CGST Act, which requires an audit to be completed within three months from its commencement. The proviso empowers the Commissioner to extend this period by up to a further six months, provided the reasons are recorded in writing. The Court emphasised that the Explanation to Section 65(4) defines the commencement of an audit as the date on which the records and other documents called for by the tax authorities are made available by the registered person or the date on which the audit is actually instituted at the place of business, whichever is later.

Applying this provision, the Court noted that the audit was actually conducted at the company's premises on June 19, 2024, and the audit report was issued on August 2, 2024. The company’s contention that the limitation period should necessarily be calculated from the earlier submission of documents could not be accepted, particularly when a factual dispute existed regarding whether all the required documents had been furnished.

In the present case, despite issuing three notices in FORM GST ADT-01, the authorities had failed to inform the company promptly about the documents allegedly remaining outstanding, thereby contributing to the delay. However, this failure did not, by itself, justify setting aside the audit report. Since the statutory definition recognises the actual institution of the audit at the business premises as an alternative basis for determining its commencement, the Court held that the report had been prepared within the prescribed three-month period. The Gujarat High Court declined to interfere with the audit report or quash the consequential show-cause notices at that stage. It held that the audit report dated August 2, 2024, was within the limitation period prescribed under Section 65 of the CGST Act.