GST Audit u/s 65 of CGST Act Cannot be Conducted after Closure of Business, can be Conducted only on Registered Firm: Madras HC [Read Order]

The Madras High Court in a significant ruling observed that the GST Audit under Section 65 of the Central Goods and Service Tax (CGST) Act, 2017 cannot be conducted after closure of business, can be conducted only on registered entities.

The petitioner, Tvl.Raja Stores, is a partnership firm doing business in the name and style of Raja Stores, which is the registered Tax payer under the Goods and Services Tax Act, 2017. The petitioner was paying monthly returns without fail. The petitioner intended to close his business and submitted a petition before the authorities. The authorities after considering the same has allowed the petitioner to close his business with effect from 31.03.2023.

The petitioner however failed to pay the collected tax. Subsequently, the respondent has issued impugned show cause notice for conducting audit. After receiving the notice, the petitioner sought adjournment but subsequently filed the Writ Petition by challenging the show cause notice, before the High Court.

The contention that was raised by the petitioner is that under Section 65 of the CGST Act, the respondents are empowered to conduct audit if the concern is a registered unit. As on the date, the petitioner's registration is cancelled, he is an unregistered concern. Therefore, the respondent is not having any jurisdiction to conduct an audit.

A Single Bench of Justice S Srimathy observed that “When the section specifically states 'any registered person', then it ought to be construed as existence concern and the unregistered person is exempted from the purview of the said Section 65 of CGST Act. But the contention of the respondent is that the audit is being conducted for a period from 2017-2018, 2021-2022. Therefore, the respondent claims that for the said period, the petitioner was a registered firm and for the said period, the respondent is empowered to conduct audit.”

“When a Section provides for periodical audit, the respondent having failed to conduct audit for all these years, suddenly cannot wake up and conduct an audit. However, this will not preclude the respondent from initiating assessment proceedings for the said concern under Sections 73 and 74. Therefore, the said impugned order is liable to be quashed. Hence, the impugned order is quashed with liberty to the respondent to initiate assessment proceedings under Sections 73 and 74 of the Act” the Bench concluded.

To Read the full text of the Order CLICK HERE

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