Orissa HC Stays GST Demand Proceedings after Finding Audit Report Issued by Superintendent Instead of Proper Officer [Read Order]

In a recent order, the Orissa High Court has stayed GST (Goods and Services Tax) demand proceedings after finding that the audit report, which formed the basis for the demand, was issued by a Superintendent instead of the right officer.

Ayushi Galvano, the petitioner is registered under the Central Goods and Services TaxAct, 2017 and the Odisha Goods and Services Tax Act, 2017. An audit notice in Form GST ADT-01 was sent to them on 28 May 2025 under Section 65 of the GST Act.

Then, an audit report in Form GST ADT-02 came on 11 August 2025, followed by a demand and show cause notice on 25 August 2025 under Section 73. Unhappy with this, he approached the High Court.

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The senior advocate for the petitioner argued that there was a basic error in who had the power to act. Under Rule 101 of the GST Rules, audit findings must be shared by a "proper officer" as defined in Section 2(91) of the GST Act.

The counsel relied on Circular No. 3/3/2017-GST dated 5 July 2017, arguing that only an Assistant Commissioner or Deputy Commissioner is authorised to communicate audit findings, and not a Superintendent. Since the audit report was prepared and communicated by a Superintendent, the very foundation for initiating proceedings under Section 73 was vitiated.

The revenue counsel fairly argued before the court that the legal position placed by the petitioner was correct. He submitted that no prejudice was caused to the petitioner since the audit notice and the demand-cum-show cause notice were issued by competent authorities. He also argued that the petitioner could raise all objections before the adjudicating authority and sought time to file a counter affidavit.

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The Division Bench comprising Chief Justice Harish Tandon and Justice M.S. Raman observed that a careful reading of Sections 65 and 73 of the GST Act read with Rule 101 of the GST Rules makes it clear that, after completion of audit, the findings must be communicated only by a proper officer authorised under law. The court observed that the Circular dated 5 July 2017 does not declare a Superintendent as a proper officer for communicating audit findings under Rule 101(5).

The court explained that when the communication of audit findings itself is made by an authority lacking jurisdiction, the defect strikes at the root of the proceedings. The court pointed out that allowing adjudication under Section 73 to continue on the basis of such an invalid audit report would cause serious prejudice to the petitioner. The court also observed that the petitioner had made out a strong prima facie case and that the balance of convenience lay in favour of granting protection.

In view of these observations, the court directed that the revenue authorities shall not proceed further with the demand-cum-show cause notice dated 25 August 2025 issued under Section 73 of the GST Act until the next date of hearing. The matter was directed to be listed on 15 January 2026 for further consideration after filing of the counter affidavit.

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