Dhruv Medicos Pvt Ltd Vs Deputy Commissiner (Delhi High Court)
The Delhi High Court has intervened in a case involving Dhruv Medicos Pvt. Ltd. and the Deputy Commissioner of GST, highlighting a crucial interpretation of Rule 101(4) of the Central Goods and Service Tax Rules, 2017 (CGST Rules). The court emphasized that a GST audit cannot be finalized without due consideration of the taxpayer’s reply, even if the initial communication of discrepancies and the filing of a reply are framed as optional.
Dhruv Medicos Pvt. Ltd., a pharmaceutical distributor, underwent an onsite audit from March 20 to March 25, 2025. An Audit Memo was issued on March 28, 2025, received by the company on April 5, 2025. The company sought clarification on the memo’s basis and computations on April 11, 2025. Crucially, the CGST Department finalized and submitted its Audit Report on April 29, 2025, before providing the complete Audit Report to Dhruv Medicos on May 14, 2025. The company then submitted a detailed reply on June 19, 2025, but this was after the audit report had already been finalized. This sequence of events led to a Show Cause Notice being issued on June 27, 2025, which Dhruv Medicos challenged.
The core of the dispute revolves around the interpretation of Rule 101(4) of the CGST Rules, which states: “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.”
The petitioner’s counsel argued that finalizing the audit report on April 29, 2025, before considering their detailed reply submitted on June 19, 2025, constituted a clear violation of this rule. The High Court, after examining the provision, noted the “may” used for informing discrepancies and filing replies, but underscored the “shall” when it comes to considering the reply before finalizing audit findings. This grammatical distinction indicates a mandatory requirement for the proper officer to consider any reply furnished by the taxpayer before concluding the audit findings.
While the court acknowledged that the matter was still at the show cause notice stage, it recognized the significant legal question regarding Rule 101(4). Consequently, the Delhi High Court stayed further proceedings under the impugned Show Cause Notice dated June 27, 2025. The court also directed the CGST Department to retain the sum of Rs. 40,10,153/-, which Dhruv Medicos had paid under protest on March 25, 2025, in a fixed deposit.
The case has been listed for further hearing on September 17, 2025. The ruling emphasizes the procedural due diligence required by tax authorities under GST law, ensuring that taxpayer responses are genuinely considered before final audit findings are established. The court did not refer to specific judicial precedents in this interim order, but the interpretation sets a precedent for how Rule 101(4) should be applied.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This hearing has been done through hybrid mode.
CM APPL. 42409/2025
2. Allowed, subject to all just exceptions. Accordingly, the application is disposed of.
W.P.(C) 10213/2025 & CM APPL. 42602/2025
3. The present petition has been filed by the Petitioner – Dhruv Medicos Pvt. Ltd. under Article 226 of the Constitution of India, inter alia, assailing the Show Cause Notice dated 27th June, 2025 issued by the Respondent No. 1.
4. In the present petition, there is an important question arising out of Rule 101 (4) of the Central Goods and Service Tax Rules, 2017 (hereinafter, ‘CGST Rules’).
5. The Petitioner firm – Dhruv Medcos Pvt. Ltd. has been engaged in the business and distribution of medicines. An onsite Audit was conducted on the Petitioner from 20thMarch 2025 to 25th March, 2025. Thereafter, an Audit Memo was issued to the Petitioner on 28thMarch, 2025 which is stated to be received by Petitioner only on 5thApril, 2025.
6. The Petitioner, thereafter sent a communication dated 11thApril, 2025 to This is a digitally signed order. the Respondent No. 3- Assistant Commissioner, Central GST, Circle-V, Audit-I, Delhi seeking the basis of the said Audit Memo as also the computations contained in the said memo. The complete Audit Report was furnished to the Petitioner on 14th May, 2025, however, in the meantime the CGST Department finalized the Audit Report on 29thApril, 2025 and submitted the same, which resulted in the impugned Show Cause Notice dated 27th June, 2025.
7. Ld. Counsel for the Petitioner submits that after the Audit was conducted, prior to the issuance of the Audit Memo, on 4thApril, 2025 the Petitioner’s Directors held a meeting with the Respondent No. 2 -Additional Commissioner, Central GST, Circle -V, Audit-1, Delhi and raised various grievances. It is thereafter that the Audit Memo was, in fact, dispatched and received by the Petitioner on 5thApril, 2025, though in a back-dated manner.
8. Further, the submission of ld. Counsel for the Petitioner is that under Rule 101 of the CGST Rules, after the receipt of the documents which were the basis of the Audit Memo, the Petitioner gave a detailed reply on 19thJune, 2025. However, the Audit report was submitted much before, on 29thApril, 2025 itself. This would itself be a violation of Rule 101 (4) of the CGST Rules.
9. Issue notice. Mr. Mudit Gupta, ld. SCC for the Respondent accepts notice and submits that he would cite judgments in this regard on the interpretation of Rule 101 (4) of the CGST Rules.
10. Rule 101 (4) of the CGST Rules reads as under:
“(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.”
11. 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’.
13. On the interpretation of this provision, ld. Counsel for the parties may cite the relevant case laws, if any.
14. This Court is conscious of the fact that the matter is still at the stage of issuance of the Show Cause Notice. However, considering that the interpretation of Rule 101 (4) of the CGST Rules is involved in this case, this Court deems it appropriate to stay the further proceedings under the impugned Show Cause Notice.
15. Counsel for the Petitioner also submits that the Petitioner has also paid a sum of Rs.40,10,153/- on 25thMarch, 2025 under protest. Let the same be retained in a fixed deposit by the CGST Department and the details be filed by way of an affidavit. Copy of this order be communicated by ld. Counsel Mr. Gupta to the department for compliance.
16. List on 17th September, 2025.
