Delhi HC Interprets GST Rule 101(4): Audit Cannot Be Finalised Without Reply from Taxpayer Being Duly Considered [Read Order]
The Court stayed further proceedings in response to the contested Show Cause Notice because of the importance of Rule 101(4) in terms of interpretation and its potential to impact due process.
![Delhi HC Interprets GST Rule 101(4): Audit Cannot Be Finalised Without Reply from Taxpayer Being Duly Considered [Read Order]](https://images.taxscan.in/h-upload/2025/07/31/2071340-delhi-hc-gst-audit-finalised-reply-taxpayer-being-duly-taxscan.webp "Delhi HC Interprets GST Rule 101(4): Audit Cannot Be Finalised Without Reply from Taxpayer Being Duly Considered [Read Order]")
The Delhi High Court has ruled that finalising an audit report without duly considering the taxpayer's reply violates the mandate of Rule 101(4) of the Central Goods and Services Tax (CGST) Rules, 2017. The court provided clarity on the rule. The petitioner, Dhruv Medicos Pvt Ltd. engaged in the business of medicine distribution, was subjected to an onsite audit from 20th to 25th...
The Delhi High Court has ruled that finalising an audit report without duly considering the taxpayer's reply violates the mandate of Rule 101(4) of the Central Goods and Services Tax (CGST) Rules, 2017. The court provided clarity on the rule.
The petitioner, Dhruv Medicos Pvt Ltd. engaged in the business of medicine distribution, was subjected to an onsite audit from 20th to 25th March 2025. Following this, an Audit Memo dated 28th March 2025 was issued, but was received by the petitioner only on 5th April 2025.
The company then sought the basis and calculations underlying the memo, which were eventually shared on 14th May 2025. Despite this, the GST authorities finalized the audit findings as early as 29th April 2025 well before the taxpayer could submit its reply on 19th June 2025.
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Representing Dhruv Medicos, counsel Mr. Preetam Singh argued that the premature finalisation of the audit report, prior to the taxpayer's response, was in direct contravention of Rule 101(4).
The rule states that the “proper officer shall finalise the findings of the audit after due consideration of the reply furnished,” stating the mandatory nature of such consideration if a reply is given.
The Court, comprising Justice Prathiba M. Singh and Justice Shail Jain, took cognizance of this procedural lapse.
The bench noted that “A perusal of the said provision would show that the same uses the language ‘may inform the registered person’ and ‘the said person may file his reply’. The question would be whether the information and the furnishing of the reply is mandatory or not.
12. The language of the provision makes it abundantly clear that insofar as the findings of the Audit is concerned, if there is a reply, the same would have to be considered before finalising the findings as the language used in the said provision is ‘shall’.
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The Court stayed further proceedings in response to the contested Show Cause Notice because of the importance of Rule 101(4) in terms of interpretation and its potential to impact due process.
Additionally, it noted that the petitioner had deposited ₹40,10,153 on March 25, 2025, under protest, and instructed the department to hold onto the money in a fixed deposit, the specifics of which must be provided in an affidavit.
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