HC quashes Final GST Audit report as reply of Taxpayer was not considered

PBL Transport Corporation (P.) Ltd. Vs Assistant Commissioner (ST) (Andhra Pradesh High Court)

Introduction: The Andhra Pradesh High Court recently issued a judgment in the case of PBL Transport Corporation (P.) Ltd. vs Assistant Commissioner (ST). The petitioner challenges the Final Audit Report dated 22.12.2023, alleging a violation of natural justice. This article provides an overview of the case, highlighting key arguments and legal principles.

Detailed Analysis: The core contention revolves around the petitioner’s claim that they submitted a reply on 19.12.2023 to a discrepancy notice but that the Final Audit Report, dated 22.12.2023, did not consider this response. Rule 101(4) of the Andhra Pradesh Goods and Services Tax/Central Goods and Services Tax Rules, 2017 outlines the procedure for handling discrepancies noticed during an audit. The rule mandates that the proper officer must consider the reply furnished by the registered person before finalizing the audit findings.

The court, in its order dated 02.01.2024, emphasized the importance of considering the petitioner’s reply and acknowledged a potential violation of the principles of natural justice. The subsequent submission by the Government Pleader for Commercial Tax confirmed that the petitioner’s reply had not been noticed, leading to an inadvertent omission in the final audit report.

Rule 101 of the APGST/CGST Rules, 2017 specifies the audit process, and the failure to consider the petitioner’s response constitutes a breach of both statutory provisions and natural justice. The court, in its final decision, quashes the impugned Final Audit Report, highlighting the necessity for the authorities to reconsider the petitioner’s reply and finalize the audit report accordingly.

Conclusion: The Andhra Pradesh High Court’s decision in the PBL Transport Corporation case underscores the significance of adhering to principles of natural justice in audit proceedings. The quashing of the Final Audit Report emphasizes the court’s commitment to fair procedures and upholding the rights of the petitioner. The respondents are directed to reevaluate the petitioner’s reply and proceed with the audit in accordance with the law.

This case serves as a reminder of the procedural intricacies involved in tax-related audits and the legal obligations placed on authorities to consider responses from the concerned parties. It sets a precedent for ensuring a fair and just audit process in accordance with the applicable rules and regulations.

FULL TEXT OF THE JUDGMENT/ORDER OF ANDHRA PRADESH HIGH COURT

Heard Sri Anil Kumar Bezawada, learned counsel for the petitioner and learned Government Pleader for Commercial Tax for the respondents and perused the material on record.

2. The petitioner by means of this writ petition under Article 226 of the Constitution of India is challenging the Final Audit Report dated 22.12.2023 (Ex.P1).

3. The challenge is mainly on the ground of violation of the principles of natural justice. The submission is that the petitioner had filed reply dated 19.12.2023 to the discrepancy notice under Rule 101 (4) of the Andhra Pradesh Goods and Services Tax/Central Goods and Services Tax Rules, 2017 (in short, APGST/CGST Rules, 2017) served on the petitioner on 12.12.2022, but without considering the same the Final Audit Report was submitted.

4. On 02.01.2024, this Court passed the following order:-

“While challenging the proceedings of respondent No.1, final audit report dated 22.12.2023 (P1), learned counsel for the petitioner submits that the discrepancy notice under Rule 101(4) of the APGST/CGST Rules, 2017 was served on 12.12.2023, to which, the petitioner filed reply on 19.12.2023 within time. But, in the final audit report, the petitioner’s reply was not considered. He further submits that the final audit report at page No.57 of paper book mentioned that “the tax payer did not file any reply to the proposed notice”. He submits that on consideration of the reply, the proper officer has to finalize the findings of the audit. Consequently, in his submission, there is violation of principle of natural justice and basing on the final audit report, no further proceedings can be initiated.

2. Learned Government Pleader for Commercial Tax seeks time to obtain instructions with respect to the filing of petitioner’s reply to the discrepancy notice.

3. Post on 04.01.2024 in motion list.”

5. Pursuant to the order dated 02.01.2024, learned Government Pleader obtained instructions and based on the written instructions he submits that the petitioner filed the reply on 19.12.2023. The same was not noticed by the authority and consequently, it escaped consideration while finalizing findings of the audit vide Final Audit Report.

6. Rule 101 of the APGST/CGST, Rules 2017 reads as under:-

“101. Audit:-

(1) The period of audit to be conducted under sub­section (1) of section 65 shall be a financial year [part thereof] or multiples thereof.

(2) Where it is decided to undertake the audit of a registered person in accordance with the provisions of section 65, the proper officer shall issue a notice in

FORM GST ADT-01 in accordance with the provisions of sub-section (3) of the said section.

(3) The proper officer authorised to conduct audit of the records and the books of account of the registered person shall, with the assistance of the team of officers and officials accompanying him, verify the documents on the basis of which the books of account are maintained and the returns and statements furnished under the provisions of the Act and the rules made thereunder, the correctness of the turnover, exemptions and deductions claimed, the rate of tax applied in respect of the supply of goods or services or both, the input tax credit availed and utilised, refund claimed, and other relevant issues and record the observations in his audit notes.

(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.

(5) On conclusion of the audit, the proper officer shall inform the findings of audit to the registered person in accordance with the provisions of sub-section (6) of section 65 in FORM GST ADT-02.”

7. Sub Rule (4) of Rule 101, provides that 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. The proper officer shall finalise the findings of the audit after due consideration of the reply furnished. In view of Rule 101(4), it is evident that after informing about the discrepancies noticed, if the person files the reply, the same is to be considered and on such consideration, the findings of the Final Audit Report are to be furnished. Here, it is now not disputed that the petitioner filed the reply and the same was not considered while finalizing the findings of the audit. The Final Audit Report is therefore in violation of the principles of natural justice as also the statutory provisions.

8. Consequently, the impugned Final Audit Report deserves to be quashed. The writ petition deserves to be allowed with further directions to the respondents. Any further proceeding if initiated, based on the impugned Final Audit Report, can also not stand.

9. The writ petition is partly allowed. The impugned Final Audit Report is quashed only on the aforesaid ground. The respondents shall now consider the petitioner’s reply dated 19.12.2023 to the discrepancy notice dated 12.12.2023 and shall finalize the audit report. Thereafter, they shall proceed further, in accordance with law.

10. No order as to costs.

As a sequel thereto, miscellaneous petitions, if any pending, shall also stand closed.