Irregularities in Audit Memo issuance do not Affect validity of GST SCN: Delhi HC [Read Order]

The Delhi High Court has ruled that irregularities in the issuance of audit memos do not impact the validity of a Goods and Service Tax ( GST ) Show Cause Notice ( SCN ). The petitioner Magicon Impex Private Limited has expressed dissatisfaction with the Show Cause Notice (SCN) dated August 1, 2024, issued by the adjudicating authority under Section 74 of the Central Goods and Services Tax Act, 2017 ( CGST Act ) and the Delhi Goods and Services Tax Act, 2017 ( DGST Act ), in conjunction with Section 20 of the Integrated Goods and Services Tax Act, 2017 ( IGST Act ). Navigate the World of Currency: Your FX Management Journey Starts Here!, Click here The SCN in question was reportedly issued following an audit conducted under Section 65 of the CGST Act/DGST Act. The petitioner claimed to have filed a refund application for the months of October 2017, January 2018, and February 2018. Subsequently, on December 19, 2019, the petitioner’s case was referred to the Anti-Evasion Wing for further examination and investigation. On April 27, 2021, the respondent No.3 issued a notice for an audit covering the financial years 2017-18 to 2019-20. This audit period was later extended to include the financial year 2020-21, as per an additional notice dated April 22, 2022. The petitioner contended that the audit conducted under Section 65 of the CGST Act/DGST Act extended beyond the period specified in Section 65(4) of these Acts. The petitioner received multiple audit memos indicating liabilities, which were addressed by the petitioner. However, the petitioner has objected to the audit memos dated April 11, 2024, and July 3, 2024, arguing that they were time-barred. Navigate the World of Currency: Your FX Management Journey Starts Here!, Click here The petitioner’s objections regarding the multiple audit memos appear to be well-founded. According to Section 65(6) of the CGST Act/DGST Act, the proper officer is required to notify the registered person of the audit findings, rights, and obligations. The issuance of multiple audit memos to determine taxpayer liability is not explicitly provided for under the CGST Act/DGST Act. In this case, the audit memos not only conveyed the auditors' findings but also demanded payment of the determined tax, along with applicable interest and penalties. Mr. Ojha, representing the respondents, could not cite any statutory provision allowing such demand letters during an audit. The court observed that while the audit memos included findings and payment demands, this did not invalidate the SCN. The Division Bench, comprising Justice Vibhu Bhakru and Justice Sachin Datta, concluded that the SCN could not be quashed solely based on the irregularities in issuing the audit memos. The SCN's issuance, though based on audit findings, was deemed to be within statutory parameters. The bench also noted that the SCN could not be set aside at the threshold stage. The petition was therefore disposed of, with the clarification that the petitioner remains entitled to contest the SCN as advised. The adjudicating authority is directed to consider the petitioner’s response to the SCN within three weeks and pass an appropriate order. All rights and contentions of the parties are reserved. Navigate the World of Currency: Your FX Management Journey Starts Here!, Click here The petition has been disposed of, with the court affirming that the procedural irregularities in the audit memos do not affect the validity of the SCN. The adjudicating authority is instructed to review the petitioner’s reply and make a decision accordingly. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

Irregularities in Audit Memo issuance do not Affect validity of GST SCN: Delhi HC [Read Order]

Your free access to Taxscan has Expired

To read the article, get a premium account.

Taxscan Premium

Topics