Facts of the Case

The petitioner, M/s. Vardhaman Gold, a proprietorship registered under GSTIN 37ABYPM0979P1ZD and represented by its proprietor Basant Lal Jain, challenged an audit order in Form GST ADT-02 dated 29.09.2023 issued under Rule 101(5) of the Andhra Pradesh GST Rules, 2017, which levied tax of Rs.17,36,445/- along with interest of Rs.9,61,673/- for financial years 2017-18 to 2021-22. A consequential show-cause notice in Form GST DRC-01 proposing action under Section 73/74 of the Andhra Pradesh GST Act, 2017 was issued the same day. The petitioner contended that the audit notice under Section 65(3), though dated 04.09.2023, was uploaded only on 14.09.2023, leaving less than the statutorily mandated fifteen working days before the audit report was finalised on 29.09.2023, and that its reply of 28.09.2023 was never considered.

Issues Involved

  1. Whether the audit notice complied with the mandatory fifteen-working-day period under Section 65(3) of the APGST Act before conducting the audit.
  2. Whether the audit report and the consequent Section 73 show-cause notice, founded on a non-compliant audit process, could be sustained.
  3. Whether a GST audit could be undertaken against a person whose registration stood cancelled before the audit notice was served.

Petitioner's Arguments

  • The revised audit notice was uploaded only on 14.09.2023, giving less than fifteen clear working days before the audit was finalised on 29.09.2023, in breach of Section 65(3).
  • The petitioner's reply dated 28.09.2023 was sent within the statutory period but was not considered before the audit report was submitted the very next day.
  • Since the petitioner's registration was cancelled on 01.05.2022, an audit could not be initiated against it at all, relying on Tvl. Raja Stores v. Assistant Commissioner (ST) of the Madras High Court.
  • The audit was, in any event, not completed within three months of initiation as required, without any extension by the competent authority, rendering the resultant show-cause notice legally unsustainable.

Respondent's Arguments

  • The petitioner had the opportunity to submit objections to the show-cause notice, and the notice under Section 73 was validly issued.
  • Under Sections 25 and 29 of the Act, audit could legally cover the period during which the petitioner held registration, notwithstanding subsequent cancellation.
  • Section 73 empowers issuance of a show-cause notice independent of the audit process, so infirmities in the audit did not vitiate the notice.
  • The unrevised notice was uploaded on 04.09.2023 itself and only the revised version was uploaded on 14.09.2023; the petitioner's reply dated 28.09.2023 was received only on 03.10.2023 and could not be considered in time.

Court Order/Findings

  • The Division Bench held that Section 65(3) mandatorily requires not less than fifteen working days' notice before conducting an audit, and Rule 101(4) requires the proper officer to consider the registered person's reply before finalising findings.
  • Since the revised notice was uploaded only on 14.09.2023 and the audit was finalised on 29.09.2023, there were no clear fifteen working days, and the petitioner's timely reply was never considered — a violation of natural justice and mandatory procedure.
  • Although a Section 73 notice can independently be issued without an audit, the impugned notice here expressly relied on the flawed audit report and could not be treated as independent of it.
  • The Court set aside the Section 73 notice and the audit findings, directing fresh proceedings after considering the petitioner's reply, while clarifying the authorities remain free to independently proceed under Section 73 with due notice.

Important Clarification

The fifteen-working-day notice period under Section 65(3) before conducting a GST audit is a mandatory procedural safeguard, not a mere formality; an audit finalised without allowing this full period, or without considering a timely reply, is liable to be struck down as violative of natural justice. A show-cause notice that expressly draws on such a flawed audit report cannot shelter behind the principle that Section 73 notices may independently be issued without an audit.

Sections Involved

  • Section 65, Andhra Pradesh GST Act, 2017 — governs departmental audit of registered persons, including the mandatory notice period under sub-section (3).
  • Section 73, Andhra Pradesh GST Act, 2017 — determination of tax not paid/short paid for reasons other than fraud.
  • Rule 101, Andhra Pradesh GST Rules, 2017 — prescribes the audit procedure, discrepancy communication, and finalisation of findings after considering the registered person's reply.

Decision – In Favour of

The writ petition was allowed in part, in favour of the Assessee. The audit report and the consequent Section 73 show-cause notice were quashed for non-compliance with the mandatory notice period and for ignoring the petitioner's timely reply, but the matter was remanded for fresh proceedings rather than concluded on merits, and the authorities were left free to proceed afresh — under audit or independently under Section 73 — in accordance with law.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Andhra Pradesh
  • Case No.: Writ Petition No. 29494 of 2023
  • CNR: Not available
  • Coram: Hon'ble Mr. Justice Ravi Nath Tilhari and Hon'ble Mr. Justice A.V. Ravindra Babu
  • Decision Date: 2023-11-21
  • Disposal Nature: Allowed in part (audit report and Section 73 notice set aside; remanded)

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