Facts of the Case

M/s. V.R. Muthu and Brothers, represented by its partner, holding GSTIN 33AABFV1201B1Z6, challenged the Audit Report in Form GST ADT-2 dated 21.09.2023 and the consequential Form GST DRC-01A notice dated 22.09.2023, both issued by the Assistant Commissioner (ST)-II, Virudhunagar, following an audit conducted under Section 65 of the GST Act on 11.05.2023. The audit observations dated 25.08.2023 were uploaded to the petitioner only on 14.09.2023, granting a mere five days (up to 19.09.2023) to reply — of which two days fell on holidays for Vinayagar Chathurthi. The petitioner's request for extension went unconsidered, and the audit report was uploaded on 21.09.2023 demanding tax of Rs. 3,67,48,517.

Issues Involved

  1. Whether a five-day period to respond to audit observations, effectively reduced further by intervening holidays, satisfies the requirement of a reasonable opportunity under Section 65 of the GST Act.

Petitioner's Arguments

  • The audit observations were uploaded nearly three weeks after they were dated, leaving only five days (with two holidays) to respond, and the request for extension was ignored.
  • Proceeding to finalise the audit report and raise a Rs. 3.67 crore demand without considering the extension request reduced the entire audit exercise to an empty formality and violated principles of natural justice.

Respondent's Arguments

  • The order does not record a substantive defence of the timeline by the respondent; the department maintained the audit report and consequential notice as validly issued under Section 65.

Court Order / Findings

  • The Court held that the respondent had not granted adequate time for the petitioner to submit objections to the audit report, resulting in a clear violation of the principles of natural justice, and accordingly quashed the impugned Audit Report dated 21.09.2023.
  • The petitioner was directed to submit objections to the audit observations within two weeks of receiving the order, following which the proceedings were to continue, with the respondent strictly directed to grant an opportunity of hearing before passing any further order.
  • Since the DRC-01A notice dated 22.09.2023 was consequential to the quashed audit report, that notice too was allowed to be quashed, and both connected writ petitions were allowed with no costs.

Important Clarification

A GST audit under Section 65 that grants an assessee an unreasonably short window to respond to audit observations — particularly one further curtailed by intervening holidays, with an extension request left unaddressed — is vitiated for denial of a real opportunity to be heard, even if the statute does not prescribe a specific minimum number of days.

Sections Involved

  • Section 65, CGST Act, 2017 — empowers the Commissioner to conduct audit of a registered person's records and business.
  • Form GST ADT-2 — the audit findings/report communicated to the taxpayer under the audit rules.
  • Form GST DRC-01A — the pre-show cause intimation of tax ascertained as payable.

Decision – In Favour of

In favour of the Assessee — both writ petitions were allowed, the audit report and the consequential DRC-01A notice were quashed, with liberty to the department to proceed afresh after granting adequate opportunity.

Case Details

  • Court: Madurai Bench of Madras High Court
  • Case Number: W.P.(MD).Nos.23688 & 23689 of 2023
  • CNR / Citation: W.P.(MD).Nos.23688 & 23689 of 2023
  • Coram: Hon'ble Mrs. Justice S. Srimathy
  • Date of Order: 27 September 2023

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