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Introduction: In a landmark decision by the Hon’ble Calcutta High Court on January 4, 2024, PBL Transport Corporation (P) (Ltd.) emerged victorious as their writ petition led to the annulment of a Final Audit Report that had been issued without considering the assessee’s response to a discrepancy notice. This case, marked as Writ Petition No. 33477 of 2023, underscores a crucial aspect of legal proceedings: the adherence to principles of natural justice, specifically the necessity of considering an assessee’s reply before finalizing an audit report under the Central Goods and Services Tax Rules, 2017 (CGST Rules).

Hon’ble Calcutta High Court in the case of PBL Transport Corporation (P) (Ltd.) v. Assistant Commissioner (ST) [Writ Petition No. 33477 of 2023 dated January 04, 2024] allowed the writ petition and held that the Audit Report is not valid when reply to Discrepancy Notice is not taken into consideration, leading to violation of principles of natural justice.

Facts:

PBL Transport Corporation (P) (Ltd.) (“the Petitioner”) has filed a writ petition challenging the Final Audit Report on the ground that there is a violation of principles of natural justice as the reply to the discrepancy notice was not taken into consideration before the issuance of Final Audit Report dated December 22, 2023 (“the Impugned Final Audit Report”) by the Revenue Department (“the Respondent”).

Issue:

Whether Audit Report is valid when reply filed by Assessee is not taken into consideration?

Held:

The Hon’ble Calcutta High Court in Writ Petition No. 33477 of 2023 held as under:

  • Observed that, Rule 101(4) of the Central Goods and Services Tax Rules, 2017 (“the CGST Rules”) provides that the proper officer may inform the registered person of discrepancy notice, as observed in the notice for which the said person may file reply. Thereafter, the proper officer shall finalize the findings of the audit after taking into consideration the reply furnished by the Assessee.
  • Noted that, the reply filed has to be taken into consideration and based on the reply, findings of the Final Audit Report are to be furnished.
  • Opined that, as the reply has not been taken into consideration, the Impugned Final Audit Report issued is in violation of principles of natural justice.
  • Held that, the Impugned Final Audit Report is set aside, Hence, the writ petition is allowed.
  • Directed that, the Audit Report be finalized by the Respondent only after taking into consideration the reply filed by the Petitioner.

Audit Report not valid

Relevant Provision:

Rule 101(4) of the CGST Rules:

Rule 101: Audit

(4) The proper officer may inform the registered person of the discrepancies noticed, if any, as observed in the audit and the said person may file his reply and the proper officer shall finalise the findings of the audit after due consideration of the reply furnished.”

Conclusion: The ruling of the Hon’ble Calcutta High Court in the case of PBL Transport Corporation (P) (Ltd.) vs. Assistant Commissioner (ST) is a significant precedent that reinforces the fundamental principles of natural justice within the context of tax audits. By setting aside the Final Audit Report for failing to consider the assessee’s reply, the court has underscored the importance of due process and the rights of parties to be heard. This decision not only serves justice to the petitioner but also acts as a reminder to the Revenue Department and other auditing bodies to meticulously follow the procedures outlined in the CGST Rules, ensuring fairness and transparency in the audit process.

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(Author can be reached at info@a2ztaxcorp.com)

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